Thursday, November 22, 2012

Thoughts on how to Phase Out the ITC

If you assume the average installed cost for a photoelectric system in the US is currently $3/Watt this implies the 30% tax credit costs the government 0.9 $/Watt. Approximately 4.3 GW are expected to be installed in 2012 so assuming a $3/Watt average installed cost the total ITC will cost the Treasury about 4 billion. One way to gradually phase out the ITC would be to set this 4 billion as a step budget that triggered an ITC degression. i.e. You'd get a 5% ITC degression for every 4 billion spent on the program.

First drop would be automatic to 25%. If prices stayed the same at $3/Watt the budget allocations would progress like so.
  • 25% step: 5.3 GW
  • 20% step: 6.7 GW
  • 15% step:  8.9 GW
  • 10% step: 13.3 GW
  • 5% step: 26.7 GW
Experience shows that prices wouldn't stay the same. There's good evidence to suggest that average prices could well come down to $2/Watt. If this happened you'd significantly extend the GW per step.

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