The American Recovery and Reinvestment Act: Stimulus Package Improves Tax Credits for Residential Solar Hot Water Systems
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On Tuesday February 17th, 2009, President Obama signed the American Recovery and Reinvestment Act. This 787 billion dollar bill, devoted to tax cuts and infrastructure projects, will allocate 40.75 billion dollars toward clean energy applications.
According to the New York Times ‘the Obama administration is poised to start a huge program to develop renewable energy sources – and at the same time, it hopes, create jobs, limit pollution and narrow our trade imbalance’.
The stimulus package includes efforts to support loans for renewable energy and electric transmission technologies, provide funds to convert federal buildings into high performance green buildings, and provide greater tax credits for clean energy projects at both the residential and commercial levels. According to the magazine Renewable Energy World ‘for residential renewable energy systems, the act removes all caps on the tax credits, which equal 26% of the cost of qualified solar energy systems, geothermal heat pumps, small wind turbines and fuel cell systems. The act also eliminates a reduction in credits for installations with subsidized financing.’ The Solar Energy Industries Association includes that not only does the new provision lift the $2,000 cap, providing a full 30 percent credit for qualified solar water heating properties, the credit may also be claimed against the alternative minimum tax.
Eliminating the cap for solar hot water systems will help make an investment more affordable and decreases the amount of time it takes for these systems pay for themselves through energy and fuel savings. Solar hot water systems are often considered the lower hanging fruit when compared to other renewable energy technologies. Solar thermal systems are generally less expensive than other renewable energy options and are an efficient and effective way to reduce the amount of energy you use. Referring to reducing energy usage, a recent New York Times editorial says that ‘after conservation, one of the most effective and efficient steps the government can take is to encourage the use of solar hot-water systems — a well-developed and relatively low-tech method for using the sun’s energy.
‘Solar hot water systems are not as well known as the electricity-generating solar panels that use photovoltaic cells to gather energy. But hot water systems are more efficient than photovoltaic systems and can create the same amount of useful energy with fewer panels. Water heating accounts for a large share of a home’s energy use — typically the largest share after heating and cooling.’
The changes to the tax credit for solar hot water in the stimulus bill match the federal tax credit already in place for solar electric (PV) systems. At the start of 2009 the $2,000 cap was lifted for residential solar electric installations, making the available tax credit 26% of the installed cost of system, after any applicable state incentives.