Solar industry could get a double blow if tax credits are phased out early and new tax is passed

Solar industry leaders were already worried about a quicker phase-out of solar tax credits in the mega-budget bill the Senate is voting on, and a proposed excise tax and more convoluted regulations to acquire solar tax credits could undermine industry growth.

New Mexico’s geology makes it a powerhouse in the oil and gas industry, but the state’s natural resources are also well equipped for solar and wind generation.

While Albuquerque-based Affordable Solar would be able to handle the potential decrease in customers if the bill passes, the company “could have significant cuts,” according to Dylan Connelly, director of commercial and community solar. The company employs 35 people.

“The fact is everyone’s electricity prices are going to go up and a lot of people are going to lose their jobs,” he said.

Under the Senate version of the bill, solar tax credits passed in the 2022 Inflation Reduction Act would be phased out early, after 2027. The solar and wind industries are projected to have a $200 billion impact on the U.S. economy over the next 10 years. But if the tax credits phase out early, there could be a 30% drop in solar installations by 2027, according to Reilly White, associate professor of finance at the University of New Mexico

“When we cut these credits like this, we’re surrendering a potential global leadership position, just as the race around these technologies has accelerated, and that will put us in a hole that will take a very long time to get out of, if at all, in the next few decades,” White said.

Last week, a new excise tax of up to 30% on solar and wind projects was added to the bill, along with more restrictions on acquiring the clean energy tax credits, based on how much of a solar project was produced in prohibited foreign countries, like China.

While it’s possible to get some solar parts domestically, items like screws and bolts are primarily made in China and would be hard to source from American manufacturers, Connelly said.

As written, the bill would have a devastating impact on the solar industry in New Mexico, according to Jim DesJardins, executive director of the Renewable Energy Industries Association of New Mexico.

“It will for sure have a profound impact on the health of the solar industry in New Mexico, and the solar industry in New Mexico currently employs somewhere between 2,000 to 3,000 people,” said DesJardins. “... There’s many other businesses that benefit from the solar industry, because every solar project has components that are purchased from an electrical supply house, they run equipment, use engineering firms, so forth and so on.”

The Senate spent Monday voting on changes to the bill, and it was unclear as of the Journal’s print deadline whether or how quickly a vote for passage would happen. If the budget bill is approved in the Senate, it will have to go back to the House. The House was scheduled to take up the bill as early as Wednesday.

The excise tax and the tax credit phaseout could be pulled out of the bill before Senate passage. Several Republican senators planned to propose an amendment to soften the solar tax credit phaseout and kill the excise tax.

The proposed solar tax credit changes are likely to affect residential solar first, because the tax credits for residential solar companies would be phased out earlier, DesJardins said. That could put pressure on companies and customers to pay for solar projects in their entirety to take advantage of solar tax credits before they’re phased out, even if work on the project has yet to begin.

“That concerns me, because whether you’re buying a solar system, you’re getting a kitchen remodel or whatever work that you’ve contracted to do, typically, there’s some kind of payment arrangement that helps to ensure that both parties are not too much at risk in the transaction,” DesJardins said.

Elmer Reyna, owner of Legend Energy, said phasing out the tax credits early would shrink the market of residential solar customers, because fewer people would see savings from solar. But while many solar companies may not see any benefits in the bill, he does.

“There’s a lot of solar companies that shouldn’t be solar companies because they misinterpret the tax credits to homeowners,” he said. “We’re taking a couple of steps backwards, but I think the solar industry is resilient, and we’ll be okay.”

The proposed excise tax feels punitive to DesJardins.

“It feels like they’re trying to destroy an industry,” he said.