Solar industry braces for potential twin setbacks with premature withdrawal of tax incentives and implementation of new tax legislation
The solar industry in the United States, including New Mexico, is bracing for a significant impact following the proposed early phase-out of the federal solar tax credit, as well as the introduction of an excise tax and stricter regulations.
The proposed amendment by Republican senators aims to soften the solar tax credit phaseout and eliminate the excise tax. However, the outcome remains uncertain, as the Senate is currently voting on changes.
Initially set to remain at 30% through 2032 under the Inflation Reduction Act (IRA), recent legislation passed by the U.S. House proposes ending the residential solar tax credit after December 31, 2025, and phasing down the commercial credit earlier than planned. If enacted, residential solar systems installed after 2025 would no longer qualify for the 30% credit, causing a sharp reduction in incentives for homeowners.
The early phase-out of the solar tax credit is expected to have a significant negative impact on the solar industry. In New Mexico, the phase-out will remove a substantial financial incentive, likely slowing market growth. Homeowners and small businesses who delay installations past 2025 will lose the 30% tax credit, making solar investments less attractive financially.
Solar developers and installers may face backlogs and increased difficulty scheduling installations before the phased-out deadlines, putting additional strain on the local industry capacity. The excise tax and new supply chain restrictions could increase equipment costs and reduce availability, further hindering new projects.
Elmer Reyna, owner of Legend Energy, believes that the early phase-out of tax credits will shrink the market of residential solar customers due to reduced savings. Affordable Solar, based in Albuquerque, could face significant cuts if the bill passes, employing 35 people currently.
The solar and wind industries are projected to have a $200 billion impact on the U.S. economy over the next 10 years. However, no new facts were provided regarding the impact on the U.S. economy, job losses, or the $200 billion projected impact over the next 10 years.
Reyna also believes that the solar industry will be resilient and recover from the proposed changes. However, some solar companies may not benefit from the bill, but Reyna sees potential benefits for Legend Energy.
The bill includes a new excise tax of up to 30% on solar and wind projects, along with restrictions on acquiring clean energy tax credits based on foreign production, such as China. This has raised concerns among solar industry leaders, who fear supply chain disruptions due to the stricter Foreign Entities of Concern (FEOC) rules that could limit access to essential equipment.
The proposed changes are more likely to impact residential solar companies first, due to earlier phase-out timelines. The solar and wind industries face significant headwinds due to the proposed early solar tax credit phase-out and excise tax implications, making the next 18 months critical for solar project planning and investments.
DesJardins expresses concern about customers having to pay for solar projects in full before tax credits are phased out, potentially disrupting payment arrangements. DesJardins perceives the proposed excise tax as punitive, feeling that it is an attempt to destroy the solar industry.
If the bill passes, electricity prices may increase, potentially causing job losses. The bill's impact on the solar industry in New Mexico could be devastating, potentially affecting thousands of jobs and related businesses. The Senate is currently voting on changes to the bill, and its passage and timeline are uncertain.
- Despite the proposed changes, solar industry leaders like Elmer Reyna remain hopeful about the industry's resilience for recovery.
- The proposed excise tax on solar and wind projects, along with stricter supply chain regulations, could increase equipment costs and reduce availability, hindering new projects.
- The solar and wind industries, including entities in New Mexico, could face significant job losses if the proposed early solar tax credit phase-out and excise tax are enacted, especially affecting residential solar companies first.
- The introduction of the excise tax and stricter regulations, such as the FEOC rules, has raised concerns among solar industry leaders, who fear potential supply chain disruptions and reduced access to essential equipment.
