US tax deal 'massive' game changer for solar – and battery storage

US tax deal ‘massive’ game changer for solar – and battery storage

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Likely passage of US solar tax credit extension sends solar stocks soaring, as analysts predict game-changing growth that’s likely to take battery storage with it.

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“What just happened to solar is a really big deal.” That’s just one of the headlines Bloomberg ran with on Thursday following the news that US lawmakers agreed to extend tax credits for solar for another five years.

It bears repeating: the extension to the US Solar and Investment Credit – agreed upon by Congressional leaders on Tuesday, and headed to a vote in the House of Representatives and the Senate – would be a very, very big deal indeed.

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Coming as it has, hot on the heels of the momentous Paris climate deal, it could even be a gamer changer for the US and broader global market – and not just for solar, but for battery storage, too.

For the record, the US Solar and Investment Tax Credit (ITC) is America’s primary federal incentive for solar, considered instrumental in boosting rooftop PV installations among households and businesses.

Originally, the scheme was designed to be cut from 30 per cent to 10 per cent for non-residential and third-party-owned residential systems, and to zero for host-owned residential systems by the end of 2016.

This new deal – part of a broader budget deal that also lifts the 40-year-old ban on US oil exports, hence Bloomberg’s other headline: What Just Happened in Solar Is a Bigger Deal Than Oil Exports) – would extend both the production tax credit available for wind power and the investment tax credit for solar and “other technologies” until 2021.

As Jonathan Arnold from Deutsche Bank explains it, under the new deal, the 30 per cent up-front reduction on solar installation costs continues for utility-scale projects which begin construction by Dec 31, 2019 and for residential solar placed in service by Dec 31, 2019. The ITC would then step down to 26 per cent for 2020 projects and 22 per cent for 2021 projects.

“This will give an unprecedented boost to the industry and change the course of deployment in the US,” Bloomberg Business said. A boost that GMT Research says would increase solar installations 54 per cent through 2020.

According to Bloomberg New Energy Finance, the extension will add an extra 20GW of solar power — more than every panel ever installed in the US prior to 2015.

“The US was already one of the world’s biggest clean-energy investors. This deal is like adding another America of solar power into the mix,” Bloomberg said.

Adding to the hype, according to Forbes, is the fact that few people in the industry expected an extension.

“Stocks soared,” said Forbes, with shares in SolarCity, America’s biggest rooftop installer, surging 34 per cent on Wednesday and taking the value of Elon Musk’s 22 per cent stake in the company up by more than $380 million.

SunEdison, the largest renewable-energy developer, climbed 25 per cent, and panel maker SunPower increased 14 per cent.

Sunrun, another residential solar company, rose by 33 per cent. And as the Financial Times reported, even shares in SunEdison, which have fallen 80 per cent in the past six months because of concerns about its financial position, rose 26 per cent. China’s Yingli and ReneSola also delivered massive gains on Wednesday.

As it was, things were already looking up for solar stocks thanks to the Paris climate deal. In an interview with Fortune just after the talks, SunPower CEO Tom Werner said the COP21 outcome would send a strong signal to policy makers and investors alike about the importance of renewable energy.

“This Paris agreement will effect policy,” Werner said. “It also means capital will be more inclined to move to that market. That’s been a real challenge partially because of the heterogeneous policy environment.

“If you’re an investor, you want to be there early. If you’re late, the profit or easier money is already gone. Of course it’s risk vs. reward. This sends a signal to the market that is more risk averse. So will it make a difference? No question. It’s just a matter of how much.”

Credit: Sarah Swenty/USFWS

According to Deutsche, the ITC extension plus the Paris agreement mean the longer term fundamental outlook for the US solar sector has “improved significantly.”

“While we now no longer expect a rush in the US market in 2016 and as such are lowering global demand forecast from 64GW to 62.5GW, we are raising our 2017 forecast from 65GW to 70GW. We expect 2016 to be a generally positive year for solar stocks although we do acknowledge that the sector could still face some headwinds.”

On top of its projections on small-scale installations, GTM predicts that the utility solar sector will see the biggest boost from the ITC extension, with a potential 73 per cent increase in deployments through 2020, with PPAs being signed at levels of under 4 cents per kilowatt-hour on a regular basis. US commercial solar installations could also see an incremental 51 per cent increase over the no-extension scenario, GTM said.

And as the costs of solar and battery storage continue to fall, you would have to think that the effect of this deal on the rollout of battery storage in the US might be huge, too.

As SunPower’s Werner put it in his Fortune interview:

“The attach rate [of batteries to solar projects] is still in the low single digit percentages. But I think that it will go up with a meaningful growth rate at 20% to 40% a year. I think it becomes a meaningful part of our business within five years.

“The question is do people buy a solar system and add storage and energy management to it? Or do they say, ‘Hey I want this complete solution and it’s great that SunPower can sell it to me?’ We’ll see.”

According to Deutsche Bank, stationary storage will play a huge role in America’s newly turbocharged renewable transition. Deutsche projects that 4.5GWh of stationary storage will be required by 2020 to integrate renewables into the grid. This market represents a $900 million per year opportunity for the battery storage industry.

In a new report, Deutsche Bank analyst Rod Lache discusses the positive impact that the new spending bill could have on stationary storage demand.

“Given that the residential installations have been roughly doubling every year over the last 5-7 years, if just 1 in every 10 households installs a 10 kWh backup battery, the annual market for residential backup stationary storage in the US alone can likely reach or surpass ~1GWh by 2020,” he explained.

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