A Tax Credit Fueled the Solar Energy Boom. Now It’s in Limbo

A Tax Credit Fueled the Solar Energy Boom. Now It’s in Limbo

Many of the most successful companies in Silicon Valley can trace their origin to a garage, but for Ed Fenster, cofounder and chairman of Sunrun, it all started in the attic of his San Francisco home. The year was 2007 and Fenster, just a few months shy of graduating with a master’s in business from Stanford, had a revolutionary business idea. He wanted to make solar panels cheap enough to allow anyone to install them on their home, by leasing them to customers rather than selling them outright.

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“Solar as a service” is a business model that today dominates the industry. Now the largest residential solar company in the United States, Sunrun is a quintessential Silicon Valley success story. But when Fenster founded it with two of his classmates, nobody thought it would work. Solar panels were expensive and inefficient. In fact, in 2007 there were only 8,775 megawatts of solar energy on the US grid—less than one-tenth of 1 percent of America’s electricity supply. But Congress had just passed a bill that gave Sunrun a chance: It allowed businesses and individuals to deduct 30 percent of the cost of installing new solar panels from their taxes. The tax credit became essential to helping the company attract investors, says Fenster.

“If you want to encourage people to make the big investments like they did in Sunrun beginning in 2007, you need these long-term stable policies to encourage that,” Fenster says.

Hailed as a huge success, Congress extended the credit for another eight years. Now, however, the solar industry’s tax break may be coming to an end. Starting late this year, the value of the subsidy will fall for three years until it ends for residential solar and permanently drops to 10 percent for commercial solar. In late July, a bipartisan trio of representatives and one Democratic senator brought the Renewable Energy Extension Act to Congress, which would keep the tax credit at 30 percent for another five years. Its fate is not assured.

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