OREANDA-NEWS. Democrats in US House of Representatives yesterday introduced legislation to extend the federal investment tax credit for solar energy projects for five years.

The bill, introduced by representative Mike Thompson (D-California), would prevent the credit for commercial and utility-scale projects from declining to 10pc from 30pc at the end of 2016 and extend it through 2021. It would also extend the credit for residential projects, which is due to expire at the end 2021. The bill, dubbed the New Energy for America Act, has 21 Democrats as co-sponsors in the Republican-controlled House.

Extending the credit through 2021 coincides with when analysts expect solar generation to achieve grid parity with conventional fossil fuel-fired generation without the support of the tax credit, Thompson said.

"The credit is one of the most important tools we have that supports the deployment of solar energy in the US," he said.

While renewable energy tax credits generally have bipartisan support, the five-year extension likely faces a tough path forward in the House, where the Republican majority has generally been less inclined to support such incentives than their Senate counterparts.

Since the tax credit first took effect in 2006, the US has added 97pc of its entire solar capacity, or about 19.5GW, according to the Solar Energy Industries Association (SEIA).

If the credit declines or expires after 2016, state policies will likely play a greater role in supporting solar. State tax credits have provided an added boost where the absence of the federal credit would otherwise make a project impractical, particularly in Arizona, Hawaii, Maryland, New Mexico and New York, according to UBS analysts.

"We see a growing reliance on state-level tax credits to sustain the solar industry," UBS power and utilities analyst Julien Dumoulin-Smith said in a recent report. "We flag the recent low \$42/MWh price in New Mexico for large-scale solar by [NextEra Energy] as illustrative of economics benefiting from state-specific credits."

But such a price is not always obtainable, especially at the residential level, where distributed solar systems have become a strategic growth area for the power industry as it moves to decarbonize in the coming years. SolarCity, for example, has a competitive blended average contract price across its 17 state markets at about \$130/MWh, the company said today.

The company said positive regulatory developments in California, New York, Massachusetts and Hawaii will help expand its residential penetration based on solar policy drivers alone.