The potential loss of a federal tax credit for installing solar may be the competitive driver that the solar industry needs to achieve parity with current retail energy rates, according to Dickon Pinner, head of renewables at McKinsey & Company.
That’s a fairly contrarian view considering that the solar industry insists that the tax credit is critical for keeping costs low enough that customers continue buying their products. Companies also argue that it lets them grow large enough to continue driving down their costs.
So it went at Fortune’s Brainstorm E clean energy conference in Austin on Tuesday. Among other things, the two sides talked about what the solar energy market would be like with and without the solar subsidy.
Subsidy supporters said the tax credit helps the industry better compete with fossil fuels. Without that credit, Pinner said that the price gap between solar energy and fossil fuels would be between 20% and 30%—a number that the solar companies in the room took issue with.
The subsidy, called the federal investment tax credit, gives solar farm owners a 30% tax credit. It could drop to 10% starting in 2017.
The tax credit was created in 2006 in the early days of the solar industry to help it compete with natural gas and coal. But it was designed to be eliminated or lowered when solar became cheaper.
Pinner believes that the loss of that credit will force a consolidation in the highly fragmented U.S. solar industry. That will help lower costs significantly.
Another benefit of a possible subsidy cut would be certainty in the business. A participant in the room who sells solar pointed out that customers don’t have an incentive to hold off on buying solar to see if the government changes the subsidy.
It’s no surprise that the CEOs from the solar companies, such as Lynn Jurich, the CEO of Sunrun, says she’s confident that the credit will be renewed. She’s not alone. Others during at the conference also expressed confidence in the credit’s renewal. But many also said they also were planning for the worst.
Click here for more coverage of Fortune’s Brainstorm E conference.
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