Governor Branstad signs important new tax incentive for renewable energy

A small solar installation near Kolona, Iowa.

A small solar installation near Kolona, Iowa. (Photo: Nathaniel Baer/Iowa Environmental Council)

Governor Branstad has signed bipartisan legislation that supports key solar energy technologies in Iowa. The legislation provides tax incentives for solar photovoltaics, or solar PV, as well as solar thermal technologies like solar hot water. Solar PV and solar thermal are clean and reliable forms of energy that match well with Iowa’s energy needs and with the main form renewable power that we are already relying on – wind energy. And growing Iowa’s use of solar will create jobs and support a wide range of existing and new businesses across the state.

The bill, Senate File 2342, provides a state tax credit that is a 50% match of a federal tax credit for solar—up to $3,000 for a residential project or $15,000 for a commercial one. That means a homeowner who purchases a 5 kilowatt solar PV system would receive the full $3,000 credit which—when paired with the federal tax credit—would reduce the upfront cost of the system by almost half. [1]

The total size of the new program cannot exceed a $1.5 million annual limit in tax credits awarded. Iowa’s tax credit also depends on the availability of the federal tax credit program, currently set to expire at the end of 2016.

The new tax credit has the potential to rapidly expand Iowans’ use of solar power. The total amount of solar that the program would support in a given year depends on a number of factors. One reasonable estimate[2] that focuses only on solar PV would be 2.5 megawatts (MW) annually. To put this in perspective, installing this amount of solar PV would effectively double the amount currently installed in Iowa in one year and lead to 12.5 MW of new installations in 4 years. Iowa also has significant opportunities for solar thermal, however, so we expect part of the program to support those technologies as well.

A small solar installation near Kolona, Iowa.

A small solar installation near Kolona, Iowa. (Photo: Nathaniel Baer/Iowa Environmental Council)

This growth would mean tremendous progress, but at the same time, Iowa has much more potential for solar and this tax credit isn’t going to come close to meeting that potential—Iowa’s skies are sunny enough to eventually support hundreds or thousands of megawatts of solar PV and many installations of solar thermal.

Developing more of Iowa’s solar resource would create additional jobs and economic opportunities for Iowans.  For example, the Council and several partners released a job creation analysis of solar PV last year. Our analysis predicts that in a five year effort to build 300 MW of solar PV, nearly 5,000 jobs would be created in the fifth year alone (when 115 MW are installed).

Iowa needs more public policy to advance the quantity of solar installations that would realize Iowa’s solar potential and achieve these levels of job creation and other economic benefits. But this particular tax credit is a good and important start, and we thank the legislature and the governor for their work on it.

Information about using the tax credits is now available on the Iowa Department of Revenue’s website.

[1] Assuming an installed cost of $4,000/kW, a 5 kW system would cost $20,000. The federal credit is 30% or $6,000. The state credit is 50% of the federal credit or $3,000. The two credits are $9,000 so the cost after the credits is $11,000, or 45% less.

[2] For example, here we assume that half of the tax credits support residential 250 5 kW systems and half support commercial 50 25 kW systems.

This post was updated on June 21, 2012 to reflect the fact that solar thermal technologies are eligible for the state tax credit.


One response to “Governor Branstad signs important new tax incentive for renewable energy

  1. I don’t see anything mentioned about solar thermal for heating domestic hot water, but it is also included in SF2342.