Ending The Solar Tax Credit May Have Hidden Benefits – CleanTechnica

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Oxymoron: a figure of speech that juxtaposes concepts with opposite meanings within a word or in a phrase that is a self-contradiction. Here’s an example of an oxymoron: On December 31, 2025, the 30 percent federal tax credit for residential solar will expire, thanks to the members of Congress who voted for the One Big Beautiful Bill earlier this year. You might think deleting that tax credit would be a devastating blow to the residential solar industry, but some believe quite the opposite — that it will benefit the industry instead. How is that possible? Read on.

According to the Detroit News, people in the industry describe rooftop solar as a mature technology that should no longer need to depend on subsidies. That’s one way to look at it, but if that is the case, why are fossil fuel companies still collecting hundreds of billions of dollar in direct and indirect subsidies after 100 years in business? The answer, of course, is those fossil fuel companies provided much bigger bribes campaign contributions to Republican members of Congress than the solar industry did.

Those who say eliminating the solar tax credit is a good thing claim those subsidies are one reason why the cost of residential solar is two to three times higher in the US than it is in other countries. Australia is a good example. A rooftop solar installation there can cost a third of what it costs in the US.

For all intents and purposes, the solar panels and racking systems cost pretty much the same in both countries, so why the cost difference? The primary culprit, according to the Detroit News, is “soft costs.” Installation, permitting, sales, marketing, and financing charges today account for 65 percent of the cost of a new home solar system, well above the share in other countries, according to the Solar Energy Industries Association.

Subsidies perpetuate these costs because they prop up bad actors and obscure inefficiencies in the system, including slow permitting, expensive labor, regulatory barriers, and opaque pricing. Two of the most egregious practices are inflated dealer fees and sales commissions, said Ravi Mikkelsen of Atmos Financial, which specializes in financing residential solar installations. “They’re hiding these excess costs through the use of the tax credit.”

Dealers charge fees to arrange financing. In the auto industry, this may add 1 to 3 percent to the price of a new car. In residential solar, sellers may tack on 25 to 40 percent of the loan amount (also called “finance” or “program” fees), reports energy research firm Wood Mackenzie. Unscrupulous firms also hire thousands of independent “sales consultants” with little product knowledge who are paid entirely on commission. No sale, no commission.

Even though the costs of solar panels, racking systems, and inverters have plunged by as much as 75 percent in the past decade, few of those savings have been passed on to consumers in the US. Ending subsidies could pave the way for a more efficient industry and lead to lower costs, the experts say. That’s the theory, anyway.

Subsidies In Theory And Practice

In 2021, a study by the  Rochester Institute of Technology concluded that, ideally, solar subsidies should have been higher initially, then reduced gradually until they were phased out in 2032. That’s three years earlier than was planned under the Inflation Reduction Act, but still six years away.

According to Eric Williams, a professor who studies energy policy at the Golisano Institute for Sustainability at the Rochester Institute of Technology, subsidies do not need to and should not last forever. “There can come a time when its objective has been achieved or experience suggests the subsidy is not working as intended,” he said.

The abrupt cancellation of all subsidies is likely to lead to slower adoption, unnecessary bankruptcies, and more pollution, said Eric Hittinger, one of the RIT study authors. But that should be temporary. Ultimately, industry insiders expect residential solar to rebound — possible by 2028 — and achieve broad market reach, potentially at a lower cost.

By mid-century, homeowners are expected to install more solar capacity annually than in a subsidy-driven future. “The market will adapt,” said Michelle Davis, head of global solar at Wood Mackenzie. “Over the long term, this will be a good thing for the industry,” she said.

One promising development in the residential solar space is SolarAPP+, a streamlined permitting platform backed by local governments, solar installers, and the Energy Department that can slash permit approval times from weeks to minutes. (We’ve written about SolarAPP+ numerous times and interviewed the creators of the platform when it launched years ago.)

Solar panel hardware prices are low — and getting lower. What’s needed, the Detroit News says, are operational efficiencies that dramatically drive down costs to consumers and make residential solar realistic for more households. An efficient market for solar would feel like shopping at Walmart. Shelves and shelves of comparable goods would be displayed with clearly marked prices. Brands would vie for your business and unexpected fees would not suddenly appear in your credit card statement months later.

The Subsidy Paradox

People hate the idea of subsidies, but they are an integral part of life in America. For years, Republicans in Congress prohibited the administration from negotiating prescription drug prices, which allowed drug manufacturers to keep their prices higher than they would have been otherwise.

People say government shouldn’t be picking winners and losers in the marketplace, but it does so all the time. Trucking companies could not exist without roads, bridges, and tunnels paid for by tax dollars. Airlines could not exist without air traffic controllers paid for by tax dollars. Wealthy people get favorable tax treatments that are unavailable to other citizens.

There may be a parallel between solar tax incentives and EV tax incentives, which are scheduled to disappear at the end of this month. Who can say whether the prices of new electric cars have been kept artificially high by manufacturers because of them? Is it possible that most of the benefit of those incentives have flowed to corporations more that they have to consumers?

The market for electric cars will undoubtedly suffer a major setback starting October 1. That’s what happened when Germany ended many of its electric car incentives at the end of 2023, and sales of EVs in Germany took more than a year to recover. While many in the solar industry are putting a brave face on things, the reality is that residential solar installations in the US will decline for a period of years after December 31, 2025.

If the industry recovers in 2 or 3 years, that will be marvelous, but in the meantime, there will be less renewable energy available to Americans and more combustion of fossil fuels. That’s exactly what the traditional energy companies wanted when they funneled hundreds of millions of dollars into the last presidential campaign. If that is not a form of subsidy, we don’t know what is.