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U.S. Solar Tax Credit Extension Would Help Communities Facing Coal Phaseout

There’s an unexpected good reason for the U.S. government to extend its solar energy tax credit through 2024, according to a new briefing note by the Institute for Energy Economics and Financial Analysis: It’s an essential support for coal communities making the transition to cleaner, less expensive, low-carbon energy.

“Scheduled curtailment of the tax credit comes at the worst possible moment for vulnerable communities that are facing impending closure of a power plant or a coal mine that provides revenues critical for government services,” said IEEFA lead author Tony Skrelunas, former economic director for the Navajo Nation. IEEFA identifies Arizona’s Navajo Generating Station (NGS) and Kayenta Coal Mine as “prime examples” of the need for transition funding.

A four-year extension “would support economic development in these areas, and it would be especially helpful if it were to give priority to communities that don’t have enough time to effectively respond to impending plant and/or mine closures,” Skrelunas said. “For tribal lands, we also recommend a special federal policy provision that that would allow tribes to partner with experienced developers in a way that maximizes monetization of the value of the tax credit.”

As it now stands, the solar tax credit is moving into a gradual phasedown, from 30% today to 10% in 2022. “The credit is seen as a crucial catalyst to the still-nascent solar industry, which has yet to arrive full force in most communities that are being hit hard by the rapid descent of the coal-fired electricity generation sector,” IEEFA states.

The briefing note “highlights that Hopi and Navajo communities will be sorely hurt by the closure this year of NGS,” IEEFA writes in a release. “The Hopi tribal government will lose 80% of its revenue from the closure, and the Navajo government will lose about one-third.”

And the problem extends beyond tribal lands, the institute notes. “Many coalfield communities nationally—in Appalachia, the Powder River Basin of Montana and Wyoming, in New Mexico, and elsewhere in Arizona—are also struggling as coal plants and mines are retired or shut down.”

The briefing note points to the regional benefits of supporting solar development on former coal sites, noting that “utility-scale solar projects do not exist yet in most of these areas, despite the surge in such project development across the U.S. in general. A tax credit extension carve-out could help to bring solar industry expansion to the very communities that can benefit most from it.”