On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act—also known as the CARES Act—was signed into law. This $2 trillion stimulus package is the largest emergency aid passed in U.S. history, and though there are indirect benefits for the solar industry, it’s not enough.
COVID-19’s Impact on the Solar Industry
Due to the coronavirus, the solar industry faces the possibility of losing half its employees, impacting 125,000 families, said the Solar Energy Industries Association (SEIA).
That’s tough on the U.S. economy, given that the solar energy industry has been a major economic driver for the U.S., said Mona Dajani, a lawyer on the board of the American Council of Renewable Energy (ACORE) and the energy and infrastructure projects team lead for PillsburyWinthrop Shaw Pittman in an interview with Aurora Solar.
“With over $50 billion in annual investment over each of the past five years, the solar energy sector is one of the nation’s most important economic drivers—but that growth is placed at risk by a range of COVID-19 related impacts,” she said.
The CARES Act’s Benefits (Or Lack Of)
Solar companies will be able to benefit from the CARES Act’s long-term unemployment insurance, business loans and provisions that support employee retention and other employee protections, said SEIA.
Ashley Eusey, PE, a sustainability specialist at Hoefer Wysocki, an architecture, planning and design firm, told Aurora Solar, “Any relief specifically to solar companies will likely be due to the ripple effect of being a small business that is eligible for funding or to individuals in the solar industry that are laid off and can collect on the relief package’s unemployment offerings.”
One provision of the CARES Act includes $350 billion allocated for federally guaranteed loans to help keep payroll going for small businesses. Those that are able to continue paying their employees during the entire COVID-19 crisis would be granted loan forgiveness. This is good news for the solar industry.. According to the 2019 Solar Jobs Census Survey, 96% of solar companies are considered small business, and are eligible for these loans.
Unfortunately, the Act did not provide direct relief for the solar industry. Dajani shared that the industry’s most important concerns are supply chain disruptions that have the potential to delay construction timetables and undermine the ability of solar developers to qualify for time-sensitive tax credits. She also mentioned that another challenge is a sudden reduction in the availability of tax equity, which is crucial to monetizing tax credits and financing clean energy projects of all types.
The impacts have already been felt among businesses of all sizes. In an ongoing industry survey conducted by SEIA, as of March 16, 16% responded that they have had to let workers go due to the impacts of COVID-19.
What the Solar Industry Needs
The industry had hoped—and still hopes—that the federal government will ensure that the impacts on the supply chain and associated delays don’t impact the availability of the federal Investment Tax Credit (ITC), said Sam Kamyans, partner at the law firm Akin Gump Strauss Hauer & Feld in an interview with Aurora Solar. Second, the industry wants a system that provides a refundable tax credit for the ITC. That means that if taxpayers are eligible for an ITC in excess of their tax liability, they get a cash payment from the Internal Revenue Service (IRS) equal to the excess of the ITC over their tax liability.
On March 23, more than 550 solar companies asked Congress to support solar workers as part of any stimulus package, said SEIA in a statement. The companies asked for paid sick leave, small business support, and changes to the administration of the ITC for faster cash relief.
The Importance of the ITC to the Solar Industry
The ITC, the largest source of savings for solar installation, is now ramping down, meaning timing is critical for existing and future projects.
This year the solar ITC dropped from 30% to 26%, and is scheduled to drop to 22% in 2021, and 0% for residential and 10% for commercial in 2022, according to SEIA.
“As a result, even short delays of weeks or months in 2020 has the likelihood of pushing renewable energy projects into a lower, 2021 ITC tier, with significant economic impact. This likelihood is compounded by the expected disruptions in the financial and tax equity markets renewable energy projects rely on to meet project and ITC deadlines, and forecasted manufacturing and supply chain disruptions,” said Geoffery Underwood, founding partner at renewable energy developer Glidepath Ventures in an interview with Aurora Solar.
Meeting ITC Deadlines Will Be Tough
In order for a project to be considered for inclusion in a particular year’s ITC deadline, the project must either have (1) started physical work of a significant nature or (2) met the so-called Five Percent Safe Harbor Test, which is paying or incurring five percent or more of the total cost of the facility in the year that construction begins.
“Given the multiple uncertainties in the market…it will be extremely difficult for renewable energy project owners to allocate the significant resources or contractual commitments required to safe harbor current ITC values. As a result, a significant number of projects will be cancelled,” said Underwood.
A Fourth Phase of the Stimulus Package May Include Renewable Energy Support
This bill is the third aid package from Congress to help individuals and businesses stay afloat and to stimulate the economy. According to Underwood, phase four efforts are expected to be addressed in three to six weeks and may include ITC or other renewable industry support, but competition for government money will be fierce, with industries ranging from restaurants to movie theaters to airlines all requesting help.
“To ensure that we do not lose years of progress on clean energy and the source of employment for tens of thousands of renewable energy workers, Congress should look to previous relief packages as an example for how to support this sector and the broader American economy,” said Dajani, quoting a letter from ACORE to Congress. “There is precedent for this kind of action to support major U.S. infrastructure. The 2009 American Recovery and Reinvestment Act included “over $90 billion in funding for clean energy and grid modernization,” she said.