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IEEFA U.S.: Extend solar tax credit to benefit Navajo Nation and communities hit by U.S. coal sector decline

September 06, 2019
Karl Cates and Tony Skrelunas

September 5, 2019 (The Hill) ‒ No place is being hit harder by the decline of the U.S. coal-fired electricity generation industry than northern Arizona, where Navajo Generating Station will close in December. Its fuel-source, the Kayenta Mine, shut down at the end of August.

Combined, the power plant and the mine employ, or employed, more than 700 people in a region that can ill afford such job losses. The shutdowns, driven by market forces that in recent years have favored natural gas-powered generation and, increasingly, wind and solar, will be an especially harsh economic blow to the region’s Hopi and Navajo populations.

Navajo Generating Station, the largest coal-fired plant west of the Mississippi, and the Kayenta Mine have provided good-paying jobs that have supported households and extended families for 50 years while creating important knock-on benefits for community-owned businesses of all kinds.

These losses will be magnified by the devastating impact on tribal budgets. The Hopi government relies on revenue from the plant-mine complex for 85 percent of its spending for crucial childcare programs, healthcare, education funding and a host of other public services — services that have no alternative source of funding. The Navajo government has announced plans to cut its spending next year by 23 percent, a drastic reduction that is cruel by any standard.

Poor communities are bearing disproportionate burden

Tribal communities in the area are among the most impoverished in the country, a characteristic they share with parts of Appalachia, another swath of America that is bearing a disproportionate burden of the coal industry’s demise.

Indeed, coalfield communities nationwide are in crisis — and these communities can be found across many demographics and locations, including in Colorado, Kentucky, Montana, New Mexico, West Virginia and Wyoming. While tackling the crisis will require broad economic diversification driven by innovation and new investment, one step in the right direction would entail a simple policy fix: extending the federal tax credit on solar energy development in these areas.

The current tax credit is scheduled to be phased out over the next few years in the winding down of a program meant to help the once-nascent solar industry find its legs. The credit has existed in one form or another since 2005, and the thinking now behind dialing it back after 2019 — and eliminating it almost entirely after four years — is that by 2023, the solar sector will be strong enough to grow and flourish on its own, without the sort of tax policy benefit that has supported many industries over the years, most notably oil and gas.

At present, solar installations are eligible for a 30 percent tax credit, a credit that is to be scaled down to 10 percent in four years. The mechanism is simple. If you spend $10,000 on a solar power system for your home this year, you can deduct $3,000 from next year’s income taxes. This applies also to larger, utility-scale projects. If, say, on Hopi or Navajo land — where 400-megawatt installations could be set up on former plant or mine sites — at least 90 percent of the $300 million cost of each project would be eligible for a credit of somewhere in the ballpark of $81 million. This is no small sum, and, one that over time, could very well give rise to a new regional industry.

It seems far too soon to curtail the program in coal country, where solar has not really been given a chance to take root. In fact, a phase-out comes at the worst possible moment for vulnerable communities that rely on coal industry operations to provide revenues critical for basic services.

Coal assets can be repurposed for clean electricity generation

The owners of power plants and mines in many instances are leaving behind assets, such as substations and power lines, that can be repurposed for electricity generation and distribution.

In partisan times like these, there is still room for agreement around wise policy, and Congress and the Trump administration can work together to minimize the fallout from coal mine and power plant closures by keeping the full 30 percent solar tax credit in place for these targeted communities.

A four-year extension, through 2024 as we have proposed in a previous report, would help drive new utility-scale solar projects on sites slated for abandonment like to the soon-to-be retired Navajo Generating Station and the recently-closed Kayenta Mine. Such projects, which would be primarily private-sector investments, can help replace lost jobs and quickly generate local tax revenue.

While solar installations are surging nationally, most utility-scale arrays are located in proximity to cities, meaning they do not have a significant presence in rural coalfield communities. A tax-credit extension would help bring some fundamental and much-needed economic opportunity to the very places that can benefit the most from it.

With sensible policy incentives, local economies have a better chance of overcoming a difficult transition and weathering a change they may not otherwise be able to survive.

Tony Skrelunas leads Navajo and Hopi community transition strategy around large-scale renewable energy projects and is a former director of economic development for the Navajo Nation.

Karl Cates is a research editor at the Institute for Energy Economics and Financial Analysis.

*This commentary first appeared as an op-ed in The Hill:  A lifeline for American coalfield communities: Extend solar tax credit

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IEEFA U.S.: Solar tax credit extension through 2024 critical for coalfield communities

IEEFA U.S.: Seeds of a just coal transition policy in Colorado

IEEFA report: As Coal Economy Collapses, Imminent Public Budget Crisis Confronts Hopi-Navajo Tribes


Karl Cates

Former IEEFA Transition Policy Analyst Karl Cates has been an editor for Bloomberg LP, an editor for the New York Times, and a consultant to the Treasury Department-sanctioned community development financial institution (CDFI) industry.

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Tony Skrelunas

Tony Skrelunas leads Navajo and Hopi community transition strategy around large-scale renewable energy projects and is a former director of economic development for the Navajo Nation.

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