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Without the ITC, is Solar Still a Good Investment?

Will THIS Kill the Solar Industry?

Written by Jeff Siegel
Posted September 18, 2015

I’m quite certain the rapidly depleting legions of solar naysayers are licking their chops...

Despite continued and rapid growth in the sector, solar investors are starting to get a bit nervous.

Why?

Because one of the greatest facilitators of growth for the solar industry is at risk of disappearing.

My Prediction

In 2006, the solar industry was gifted the solar investment tax credit (ITC). The ITC is a 30% tax credit for solar power systems on both residential and commercial properties.

The ITC is set to expire at the end of 2016.

Although the solar industry is a fully functional, multibillion-dollar industry today, the ITC is still a vital component of the industry’s growth. In the presence of the ITC, the road to grid parity is a pretty smooth one — at least in comparison to how it would be in the absence of the ITC.

That doesn’t mean the solar industry will crash and burn if the ITC expires. But it does mean there will be more risk for investors. Scaling will slow considerably, jobs will be lost, and, rest assured, the bears will come out swinging.

So here’s my prediction...

The solar industry is going to fight as hard as it can to ensure at least a five-year extension of the ITC. And if Obama wants little resistance to the implementation of this Clean Power Plan, he is likely to really get behind this thing.

That being said, if an extension is offered, I’m not convinced it’ll be for five years. If Congress treats the solar industry the same way it’s treated the wind industry, it’ll get a one- to two-year extension with promises of “more to come.”

“More to come” all depends upon who’s in Congress and who’s in the White House. Another reason I absolutely hate the fact that the government is involved in the energy space.

Regardless, the extension of the ITC really hinges on whether or not it can be included in a larger bill. As a standalone, I can’t image it’ll get much love. But if it’s bundled, a one- to two-year extension is entirely possible.

Of course, the real question here is when will the solar industry finally be able to compete without the ITC?

The answer: It could do it right now if it wasn’t competing against heavily subsidized fossil fuel and nuclear industries. But I don’t have a dog in that fight. It’s a losing proposition... always has been.

So instead of harping on the unfairness of an energy economy dictated by a bunch of bureaucrats, I’ll focus on the reality of it all: In a real free market, solar is already competitive. But since there is no real free market in the energy game, we must invest accordingly.

The Pre-ITC Rush

The rush to install as much solar as possible before the expiration of the ITC is going to give the industry a huge boost in 2016. So regardless of what may or may not happen with the ITC, in the near term, you should continue to have some exposure to the solar space.

Some of the key players set to benefit the most from a pre-ITC expiration rush include:

  • SunEdison (NYSE: SUNE)
  • SolarEdge (NASDAQ: SEDG)
  • SunPower (NASDAQ: SPWR)
  • SolarCity (NASDAQ: SCTY)
  • First Solar (NASDAQ: FSLR)

As more develops with the ITC, we’ll keep you posted.

To a new way of life and a new generation of wealth...

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Jeff Siegel

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Jeff is the founder and managing editor of Green Chip Stocks, a private investment community that capitalizes on opportunities in alternative energy, organic food markets, legal cannabis, and socially responsible investing. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.

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