As electric vehicles and residential solar enjoy favorable tailwinds, where do we stand today in terms of available federal incentives, and where may these be headed? The solar panels currently sitting atop the White House may provide some clues.
On again, off again relationship with clean energy in Washington
Clean energy and the role of alternatives have been on the minds of US politicians for nearly five decades. The 1973 OPEC oil embargo caused gas prices to soar, and the nation experienced a shock. To set an example for energy independence, in 1977 President Jimmy Carter installed solar thermal collectors on the White House roof which sustainably provided hot water to the laundry room, cafeteria and other areas of the building. That same year, he created the Department of Energy to address the energy crisis more expeditiously.
Making progress on energy reform was a process he described as “long and divisive and arduous.” Investment in domestic clean energy progressed in fits and starts, and the presence or absence of the White House solar panels over the years provides a telling overview of the saga. They came down in 1986 as the roof was being renovated, and then-President Ronald Reagan never asked for them to be reinstated.
President George W. Bush returned solar energy to the grounds in 2003 by installing a nine-kilowatt (kW) system atop the maintenance building that kept the White House pool warm and supplied hot water to the main edifice.
Solar panels would only return to the White House roof in 2014, in the form of a 6.4 kW system that would supply an estimated 19,700 kWh of electricity a year. At the unveiling, President Obama underscored the importance of energy efficiency nearly 40 years after President Carter had shared a similar sentiment. The fact that the solar panels have remained installed on the White House roof under the two subsequent administrations suggests at the very least that rooftop solar is a viable component of a resilient energy mix, and that the US is serious about setting an example for the adoption of renewable energy on the world stage.
With that in mind, here are the current incentives in the US that look to set a solid path forward for solar and electric vehicle (EV) adoption as well as clean home energy.
Solar incentives in the US
Residential solar adoption is on an upward trend, and in 2020 the national median photovoltaic system size was 6.5 kW. However, the median size jumps to 7.5 kW in many states. The cost of these systems is coming down, and homeowners can now expect to pay around $3.80 per watt of installed capacity. But this amount is more than double what people in countries like Germany and Australia pay.
To ease the financial burden on homeowners, the federal government has offered a tax incentive since 2005. Those who invested in solar panels at the time were eligible for a 30% credit. The policy was renewed several times, but in 2020 it entered phase-out mode and offered a 26% credit. The Trump administration prevented it from decreasing further in December 2020 by passing the Consolidated Appropriations Act. This means that until the end of 2022, you will continue to receive a 26% tax credit on a new solar PV system.
In 2023, the benefit is slated to drop to 23% before expiring at the conclusion of that year. It’s possible that this plays out differently, as President Joe Biden has communicated an interest in extending investment tax credits by 10 years as part of a multi-billion-dollar climate plan.
One potential issue with solar tax credits is they have no cash value, meaning that only those who owe more in taxes can fully profit from the incentive come tax time in April. Energy law expert Felix Mormann suggests that lower-income households would benefit more if unused credits had refundable cash value.
Federal EV incentives
A tax credit first instituted in 2009 is still in place today: buyers of new EVs, including plug-in hybrid cars, can enjoy up to $7,500 in tax credits. This is not a rebate on the sticker price of the vehicle at the time of purchase, but rather a nonrefundable credit on income taxes payable that year.
Once an automaker sells more than 200,000 EVs, the amount of credit consumers have access to when purchasing from that company begins to decrease until expiring entirely after six calendar quarters. As a result of this rule, Tesla and General Motors EVs are not eligible for credits, with both having surpassed the regulatory threshold in 2018. Meanwhile, roughly 50,000 Nissan shoppers can still take advantage of all credits before they expire there too.
The actual amount of credit you will receive depends on the size of the battery in the vehicle you choose. All vehicles with batteries larger than four kilowatt-hours (kWh) are eligible for a $2,500 credit. Every additional kWh is good for another $417 until the maximum of $5,000 is attained. The takeaway here is that plug-in hybrid vehicles are generally the only kinds of cars that will not be eligible for the full $7,500 tax credit. A full list of new vehicles with their corresponding eligible credits is maintained at fueleconomy.gov.
Updates to this federal tax credit are currently being debated in Washington. It may become refundable one day, or increase in value under certain conditions. The automaker-specific 200,000 vehicle sales cap may even be replaced by a nationwide sales target based on a proportion of all vehicles sold.
Finally, you are also entitled to a federal tax credit for purchasing Electric Vehicle Supply Equipment (EVSE) in the form of a home charging station. Homeowners can claim up to 30% of the installation cost without exceeding $1,000. If you move and install another station at your new address, you can file for the credit a second time. Look to IRS Form 8911 for more info.
Stay plugged in – the story has just begun
As politicians continue to shape the narrative on federal clean energy policy, one thing is certain: new ideas will emerge, policies will change and laws will be rewritten, making this space an interesting one to follow as our energy situation evolves and many incentives are set to expire. If they do, they may be revived at a later date, much like the White House solar panels that rose again throughout the decades.
Don’t forget that depending on where you live you can also take advantage of dozens of state-sponsored incentives. Consult the Database of State Incentives for Renewables & Efficiency (DSIRE) to learn more.