US senate strikes a blow at solar energy

The U.S. Senate slashed tax breaks for wind and solar projects in the recently passed energy bill.  The tax credits, which were introduced in the Energy Policy Act of 2005, increased a no-cap tax credit for commercial solar installations from 10 percent to 30 percent and created a new residential tax credit of 30 percent with a cap of $2000.  These credits are set to expire on January 1, 2008.  

The tax credits were sacrificed in order to facilitate an increase in the CAFÉ standards to 35 mpg by 2020, a 40 percent increase.  David Roberts at Gristmill theorizes about the deal.

The loss of tax credits comes at an ironic point.  Recent advances in thin solar film manufacture by Nanosolar promise to reduce the cost of solar power from $4 per Watt to $1 per Watt, a price that might draw more businesses and individuals to opt for the renewable energy source.  Tax credits would make the move even more attractive.  Solar stock prices have yet to react, but the loss of the tax credits may put some companies in an unstable position, hampering their growth potential and reducing their competitiveness in international markets.

The original draft of the bill also included requirements for electric utilities to use more solar, wind, and geothermal energy.  The bill was approved by the House on Tuesday.