The Times Australia
The Times World News

.

Who pays and who benefits from a massive expansion of solar power?

  • Written by Felix Mormann, Professor of Law, Texas A&M University
Who pays and who benefits from a massive expansion of solar power?

Electricity generation produces a quarter of U.S. greenhouse gas emissions[1] that drive climate change[2]. The electric grid also is highly vulnerable to climate change effects, such as more frequent and severe droughts[3], hurricanes[4] and other extreme weather events[5].

For both of these reasons, the power sector is central to the Biden administration’s climate policy.

President Joe Biden’s proposal to produce 45% of the nation’s electricity from solar energy[6] by 2050 seeks to transform the power sector from problem child into child prodigy. As the details evolve, two cornerstones have emerged.

First, Biden has repeatedly called for extending tax credits for solar power[7] and other renewables, at a projected cost of US$200 billion over the next decade[8]. Second, his administration has proposed a Clean Electricity Performance Program[9] to subsidize electric utilities that increase the share of solar in their sales. This initiative is budgeted at $150 billion.

Reduced emissions and cleaner air help everyone, but who ultimately pays for public spending on this scale, and who will reap the economic benefits?

I have studied renewable energy[10] for years, including the allocation of clean energy policies’ costs and benefits[11]. My research focuses on direct economic benefits, such as government subsidies and tax breaks.

By proposing $350 billion in policy incentives, Biden is pushing solar further into the mainstream than ever before. Most of the costs and benefits of this massive solar play are distributed fairly, but I see room for improvement.

A break for lower-income households

Many clean energy policies, including renewable portfolio standards[12] and net metering programs[13] – strategies that dozens of states have adopted[14] – pass their costs onto electricity customers. Renewable portfolio standards require utilities to source a certain share of their power sales from renewable sources. Net metering requires them to credit customers for generating electricity at home, typically from solar power, and feeding it back into the grid. In both cases, power companies bill their customers for associated costs.

It may seem sensible to ask electricity customers to pay for new resources, but rising electricity rates impose heavier burdens on lower-income households. Already, one-third of U.S. households struggle with energy poverty[15], spending disproportionately large shares of their income on basic energy needs. The Biden administration avoids such inequities by using tax dollars to fund its solar push.

Many low-income households contribute to federal tax revenue via payroll taxes, but most do not pay federal income tax[16]. This largely leaves higher-income households to fill the federal tax coffers that finance solar incentives, which reduces the risk of widening the income and wealth gap[17].

A tenfold increase in solar power’s contribution to the U.S. electricity supply would require significant upgrades to the grid[18]. But not all of these upgrades would be covered by incentives funded with tax dollars, so some would fall to ratepayers. To minimize burdens on lower-income households, the Clean Electricity Performance Program earmarks some of its incentives for electric utilities to help struggling electricity customers pay their power bills[19].

Community solar projects enable people who may not own their home or can’t put solar power on their roofs to buy shares in larger projects and receive credit on their electric bills for the power those projects generate.

Direct economic benefits are less widely shared

While Biden’s proposed solar policies spread costs broadly across U.S. taxpayers, they allocate direct economic benefits more narrowly. The Clean Electricity Performance Program specifically targets electric utilities[20] that sell power to homes, businesses and other end users.

Under the economic plan that Congress is now considering, utilities that grow the share of clean energy in their retail sales by a specified amount[21] compared to the previous year would receive payments based on the amount of clean electricity they add. Utilities that fail to meet the growth target would pay penalties based on how far they fall short.

Electric utilities own many of the country’s existing, mostly fossil-fueled power plants[22]. Most have been reluctant to promote solar[23], which would reduce demand for electricity from their own power plants.

But the Clean Electricity Performance Program does not cover another category of power company, called non-utility generators. Instead of selling power to end-use customers, these companies sell electricity to utilities, marketers or brokers[24]. Non-utility generators provide over 40% of U.S. power and have driven much of the recent deployment in solar[25] and other renewables.

Graphic showing sources of U.S. electric power.
About 60% of the U.S. electricity supply comes from fossil fuels. EIA[26]

Non-utility generators may benefit indirectly if utilities buy solar power from them to comply with the Clean Electricity Performance Program. But by focusing on utilities, the program threatens to alienate non-utility generators and stifle competition.

In contrast, tax credits for solar appear to offer economic benefits for a wide swath of taxpayers. In theory, anyone installing a new solar array on their rooftop or elsewhere earns tax credits for a portion of their investment. But I have found that, in practice, only those with higher tax bills can readily profit[27] from these tax breaks.

Tax credits don’t normally have cash value – they merely reduce the amount you owe to Uncle Sam on April 15. A typical homeowner’s tax bill in the hundreds to low thousands of dollars is easily reduced to zero using part of the solar tax credit. But the remaining credit value will go unused, at least until subsequent tax years.

Since the tax code prohibits “selling” one’s tax credits, third-party financiers[28] offer ways to structure solar projects so that the financier’s higher tax bill is used to monetize tax credits, passing part of the value onto homeowners. But such help comes at a price, diverting a significant portion[29] of these tax incentives away from their intended use and beneficiaries.

How to retarget solar policies

A large-scale expansion of solar power would be an important step toward a low-carbon economy, with huge environmental benefits. A few tweaks could help make the Biden administration’s proposal more efficient and spread its benefits more widely.

As former President Barack Obama suggested in his 2016 budget proposal[30], solar tax credits should have a refundable cash value, like the child tax credit, that converts to cash[31] if the recipients don’t owe enough taxes to use the credit. Lower-income households who install solar or buy into community solar projects could use this cash value to take immediate advantage of the credits, regardless of their tax bills.

Expanding the Clean Electricity Performance Program to bring non-utility generators into the fold would foster competition among power producers to help further reduce the cost of solar. Finally, since environmental justice is a central theme of Biden’s climate policy[32], it would make sense to add place-based incentives[33] to the solar tax credit provisions that direct clean energy investment toward historically disadvantaged communities to make up for previous environmental injustices.

[Like what you’ve read? Want more? Sign up for The Conversation’s daily newsletter[34].]

References

  1. ^ a quarter of U.S. greenhouse gas emissions (www.epa.gov)
  2. ^ drive climate change (www.epa.gov)
  3. ^ droughts (www.cnbc.com)
  4. ^ hurricanes (www.eia.gov)
  5. ^ other extreme weather events (www.utilitydive.com)
  6. ^ produce 45% of the nation’s electricity from solar energy (www.energy.gov)
  7. ^ extending tax credits for solar power (www.reutersevents.com)
  8. ^ US$200 billion over the next decade (www.jct.gov)
  9. ^ Clean Electricity Performance Program (www.utilitydive.com)
  10. ^ studied renewable energy (scholar.google.com)
  11. ^ clean energy policies’ costs and benefits (papers.ssrn.com)
  12. ^ renewable portfolio standards (www.nrel.gov)
  13. ^ net metering programs (www.nrel.gov)
  14. ^ dozens of states have adopted (www.dsireusa.org)
  15. ^ struggle with energy poverty (doi.org)
  16. ^ do not pay federal income tax (www.taxpolicycenter.org)
  17. ^ widening the income and wealth gap (www.forbes.com)
  18. ^ significant upgrades to the grid (www.princeton.edu)
  19. ^ help struggling electricity customers pay their power bills (www.utilitydive.com)
  20. ^ specifically targets electric utilities (www.reuters.com)
  21. ^ by a specified amount (energycommerce.house.gov)
  22. ^ mostly fossil-fueled power plants (www.eia.gov)
  23. ^ reluctant to promote solar (www.washingtonpost.com)
  24. ^ utilities, marketers or brokers (www.raponline.org)
  25. ^ recent deployment in solar (www.wsj.com)
  26. ^ EIA (www.eia.gov)
  27. ^ only those with higher tax bills can readily profit (papers.ssrn.com)
  28. ^ third-party financiers (www.epa.gov)
  29. ^ diverting a significant portion (www.climatepolicyinitiative.org)
  30. ^ 2016 budget proposal (www.energybusinesslaw.com)
  31. ^ converts to cash (www.taxpolicycenter.org)
  32. ^ central theme of Biden’s climate policy (www.govinfo.gov)
  33. ^ place-based incentives (scholarlycommons.law.wlu.edu)
  34. ^ Sign up for The Conversation’s daily newsletter (theconversation.com)

Read more https://theconversation.com/who-pays-and-who-benefits-from-a-massive-expansion-of-solar-power-167874

Times Magazine

Headless CMS in Digital Twins and 3D Product Experiences

Image by freepik As the metaverse becomes more advanced and accessible, it's clear that multiple sectors will use digital twins and 3D product experiences to visualize, connect, and streamline efforts better. A digital twin is a virtual replica of ...

The Decline of Hyper-Casual: How Mid-Core Mobile Games Took Over in 2025

In recent years, the mobile gaming landscape has undergone a significant transformation, with mid-core mobile games emerging as the dominant force in app stores by 2025. This shift is underpinned by changing user habits and evolving monetization tr...

Understanding ITIL 4 and PRINCE2 Project Management Synergy

Key Highlights ITIL 4 focuses on IT service management, emphasising continual improvement and value creation through modern digital transformation approaches. PRINCE2 project management supports systematic planning and execution of projects wit...

What AI Adoption Means for the Future of Workplace Risk Management

Image by freepik As industrial operations become more complex and fast-paced, the risks faced by workers and employers alike continue to grow. Traditional safety models—reliant on manual oversight, reactive investigations, and standardised checklist...

From Beach Bops to Alpine Anthems: Your Sonos Survival Guide for a Long Weekend Escape

Alright, fellow adventurers and relaxation enthusiasts! So, you've packed your bags, charged your devices, and mentally prepared for that glorious King's Birthday long weekend. But hold on, are you really ready? Because a true long weekend warrior kn...

Effective Commercial Pest Control Solutions for a Safer Workplace

Keeping a workplace clean, safe, and free from pests is essential for maintaining productivity, protecting employee health, and upholding a company's reputation. Pests pose health risks, can cause structural damage, and can lead to serious legal an...

The Times Features

Tricia Paoluccio designer to the stars

The Case for Nuturing Creativity in the Classroom, and in our Lives I am an actress and an artist who has had the privilege of sharing my work across many countries, touring my ...

Duke of Dural to Get Rooftop Bar as New Owners Invest in Venue Upgrade

The Duke of Dural, in Sydney’s north-west, is set for a major uplift under new ownership, following its acquisition by hospitality group Good Beer Company this week. Led by resp...

Prefab’s Second Life: Why Australia’s Backyard Boom Needs a Circular Makeover

The humble granny flat is being reimagined not just as a fix for housing shortages, but as a cornerstone of circular, factory-built architecture. But are our systems ready to s...

Melbourne’s Burglary Boom: Break-Ins Surge Nearly 25%

Victorian homeowners are being warned to act now, as rising break-ins and falling arrest rates paint a worrying picture for suburban safety. Melbourne residents are facing an ...

Exploring the Curriculum at a Modern Junior School in Melbourne

Key Highlights The curriculum at junior schools emphasises whole-person development, catering to children’s physical, emotional, and intellectual needs. It ensures early year...

Distressed by all the bad news? Here’s how to stay informed but still look after yourself

If you’re feeling like the news is particularly bad at the moment, you’re not alone. But many of us can’t look away – and don’t want to. Engaging with news can help us make ...