It’s the backbone of solar energy development in the United States – the investment tax credit, implemented under George W. Bush as part of the 2005 Energy Policy Act, then later modified and extended through 2016. But as much as we all like to see more solar power going in, such a hefty tax break – 30 percent of the cost of a system, with no maximum credit – must really end up costing the Treasury and adding to the country’s budget deficit, right?

Uh, no.

solar investment tax credit

image via Shutterstock

At least, not according to an analysis [PDF] from the the U.S. Partnership for Renewable Energy Finance, which describes itself as “a coalition of senior level financiers who invest in all sectors of the energy industry, including renewable energy.”

In its new paper, the group calculates that in the increasingly common lease and power-purchase agreement scenarios, a $10,500 residential solar credit — the ostensible, approximate cost to the Treasury of a typical 5-kilowatt home system – “can deliver a $22,882 nominal benefit to the government.” Similary, a $300,000 commercial solar credit can mean $677,627 to the federal coffers.

What kind of magic is turning a tax break — for all intents and purposes, spending — into added revenue?

It’s the magic of taxes paid by the direct participants in these solar installations – the developer, the installer and the energy user.

This is actually a pretty narrow way of viewing the impact of the ITC for solar; it doesn’t take into account other benefits to the Treasury, such as taxable revenues and wages from players along the solar supply chain — providers of modules, inverters and other system components – nor does it bring in the added business that might accrue to subcontractors, brokers, accountants and attorneys from these arrangements.

US PREF notes as well that even if depreciation were factored into the equation – and depreciation isn’t specific to the solar industry, of course – the government would still break even with the ITC. “Monthly payments for electricity, made by residential and commercial customers, constitute taxable income for the lease or PPA provider; as such, the value of taxes paid on this income more than offsets the value of the ITC,” the study states.

While installing and owning a system can still be attractive for some homeowners and businesses, particularly in states and localities that offer generous feed-in tariffs, leases and PPAs have become the most common way to get in on solar. With little or no upfront costs, homeowners and businesses are immediately able to lower their electricity bill.

Sungevity Solar Home

image via Sungevity

Of the people in California who go solar, 70 percent now do so by leasing the panels or by buying their rooftop power, according to a recent PV Solar Report. This method is helping open up solar to demographics beyond the old core constituency of upper-middle-class and upper-class citizens, too: Analysts with the U.S. Department of Energy’s National Renewable Energy Laboratory say the model is being adopted in less affluent neighborhoods that had avoided customer-owned systems.

The burgeoning market for solar leasing has led to a number of  companies emerging in recent years, including SunRun, Sungevity and SolarCity. SunRun pioneered the practice in 2007 and still leads the market, claiming to have installed $1 million worth of these systems each day since January of last year.