Changing Federal Incentives

Between 1981 and 1989, The Reagan Administration cut funding for renewable energy research and development by nearly 90 percent which left the solar industry unable to continue development of technologies that could compete with lower cost, fossil fuel based sources of energy. For the next decade, while the United States experienced rapid economic development and enjoyed relatively low oil and natural gas costs, utility-scale solar developers were on hiatus. The shift in the willingness to invest in renewable energy generation came about in the late 1990s as scientists continued to issue dire warnings about climate change and energy analysts forecasted rapidly rising oil costs tied to peak oil predictions. The September 11, 2001 terrorist attacks further encouraged politicians to renew their efforts to improve energy security and protect against geopolitical risks and rapidly rising oil prices by introducing bills to address climate change and promote renewable energy development.

Several acts passed by Congress in the following years significantly increased funding and incentives available to state governments and developers for renewable energy programs and projects (Table 1). The Energy Policy Act of 2005 gave a short term boost to the developers and investors waiting for better economic incentives to build utility-scale solar facilities by increasing tax incentives available to commercial developers from 10 to 30 percent for a period of two years and by extending the production tax credit through 2007. Although this helped stimulate the market, the timeframe for the incentives was not long enough to provide certainty to developers since projects could take many years to complete and come on line. Without certainty about tax incentives and their impacts on the project development costs, utility-scale solar development remained sluggish.

Table 1 Federal Policies Impacting Solar Development. 1,2,3,4
  Investment Tax Credits Production Tax Credits Renewable Energy Grants Loan Guarantees Clean Renewable Energy Bonds Direct Spending Measures
2005 Energy Policy Act Increased the commercial solar investment tax credit from 10 percent to 30 percent for 2 years Extended renewable energy production tax credit of $.019/kWh for first ten years of operation through 2007     Allocated a total of $1.2 billion over 2 years for non-taxable entities that could not use ITC or other tax benefits ($84 million for solar in 2007)  
2008 Energy Improve- ment and Extension Act Extended commercial 30 percent investment tax credit for solar energy through 2016. Allowed using ITCs to offset alternative minimum tax Extended the placed-in service date for production tax credit for solar facilities through December 31, 2010     Authorized an additional $2.4 billion for a period of 3 years ($839 for solar)  
2009 American Recovery and Reinvest- ment Act Established 30 percent advanced energy manufacturing credits for manufacturing facility retrofits; Repealed subsidized energy financing limitation on investment tax credit   Established 30 percent grant program in lieu of investment tax credit for facility construction beginning in 2009 or 2010. Established renewable energy loan guarantee program for generation and transmission projects underway by September 30, 2011   Appropriates direct spending for renewable energy projects, grid development, research and development


The path to widespread adoption of solar energy technologies is currently dependent on incentives that create price parity between solar electricity and electricity generated from non-renewable sources. As the market expands, technical improvement and innovation will lower the cost of solar electricity generation. Increased deployment will allow the solar industry to reach economies of scale, reducing the need for subsidies. But whether the goal should be to phase out solar subsidies is questionable. At a recent solar industry conference, one panelist noted: “Other [subsidized energy] industries don’t say ‘how do we get rid of our subsidy.’ Are we picking the wrong battle? We should be working on a level playing field.”5 The solar industry has fought a long battle to bring both utility-scale and distributed solar energy technology into the mainstream. Renewable energy policies and subsidies are necessary for maintaining the industry and bringing solar energy on line.  

1 Pew Center on Global Climate Change, “Summary of Energy Policy Act of 2005,” Pew Center Analyses, December 20, 2005,

2 United States Senate Committee on Finance, Staff Summary of the Energy Improvement and Extension Act, 17 September, 2008, %20and%20Extension%20Act.pdf.

3 American Council on Renewable Energy, “Overview: Renewable Energy Provisions American Recovery and Reinvestment act of 2009,”

4 United States Department of Energy, 2008 Solar Technologies Market Report, 2010,, 78-90.

5 Greentech Media Solar Summit, “Rising in the West,” Conference panel presentation, March 31, 2010.