In lieu of smarter policy, schools, libraries, and city buildings hoping to install solar power have to resort to complex public-private partnerships to access federal tax incentives. One common strategy is the power purchase agreement (PPA). In essence, a PPA … Read More
In the next two years, the U.S. may get a lot less solar and wind power than it could. It’s not a shortage of solar panels or the cost of turbines. Rather, it’s a problem of the perverse nature of … Read More
Siloam Springs, sporting 15,000 people in the northwestern corner of Arkansas, could be the next community to build its own community fiber network. But first they have to pass a referendum in May in the face of stiff opposition from … Read More
Update 3/9/12:Turns out I would be a lousy tax attorney and that the form of tax credit does not affect the passive loss rules. What if a small change in federal renewable energy policy could make community wind development easier? … Read More
One of our kindred spirits across the pond reached out to me after I wrote about Vermont’s self-funded community network. The B4RN initiative, Broadband for the Rural North, has launched using…… Read More
A short slide deck providing a “101” on Property Assessed Clean Energy (PACE) financing, a status update on the legal challenges, and some of the policy design issues we explored in our report on Municipal Financing Lessons Learned.
With a ruling that the Federal Housing Finance Agency (FHFA) must do a formal rulemaking on its 2010 decision to torpedo the innovative local finance tool for energy efficiency and clean energy retrofits, a federal judge gave Property Assessed Clean Energy (PACE) financing new life.
Earlier this year, it looked as if prospects were bleak for PACE in 2011, with some progress on Commercial PACE and a new director at advocacy organization PACENOW, but agonizingly slow steps on federal legislation and litigation.
Today’s ruling means FHFA has to start over, but it does not overturn the agency’s 2010 advisory against PACE, leaving the program in limbo until the formal rulemaking is complete. Here’s hoping PACE finally wins through, a great tool for saving energy and creating jobs at the local level.
Solar leasing has offered thousands of homeowners a “no money down” route to go solar, broadening participation in the distributed generation revolution. Unfortunately, this revolution has been co-opted by high finance. Big banks have been able to write off millions in taxes by over-reporting the cost of financed solar PV projects in what may be the country’s next banking scandal.
In a phone conversation last month, Jigar Shah of Carbon War Room (formerly chief of solar-as-a-service company SunEdison) disclosed that while solar leasing companies can install residential solar for between $4.00 and $5.00 per Watt, they routinely claim federal tax credits on the “fair market value,” a price nearly twice as high. A solar tax lawyer confirmed this practice and that it also applies to the program providing cash grants in lieu of the federal Investment Tax Credit. “The equipment may be financed in a way that allows the solar company to calculate Treasury cash grants on the fair market value of the systems rather than their cost,” he wrote to me this week.
The practice boost banks’ bottom line at the expense of federal taxpayers and unnecessarily increases the cost of public subsidies for renewable energy.
In California, for example, 15 percent of small-scale PV projects completed in 2010 were “third party owned” – code words for a solar leasing arrangement. If banks used “fair market value” rather than the actual system cost for the tax credits on those systems, the inflated tax credits could have totaled as much as $30 million instead of the $18 million justified by the actual project costs.
That’s just the tip of the iceberg. This $12 million difference only reflects about one-third of the U.S. residential solar PV market. In other words, the over-payment to banks financing solar leasing could be as much as $36 million in 2010 alone. It’s no wonder U.S. Bank just announced a new commitment to finance $200 million of residential solar PV.
The problem isn’t unknown to the federal government. The solar tax lawyer I spoke to noted that “Treasury has been pushing back on some fair market value claims as too high.”
Treasury should push a little harder. Why should big banks get a bigger tax credit for the same size solar PV array than a homeowner?
The lone bright spot is that the growth in solar leasing has slowed somewhat in the past two years. Previously, solar leasing may have been the only way for some individuals to capture the federal solar tax credits, if they didn’t have enough tax liability. As an alternative, big banks would provide up-front financing in exchange for the tax credits (and the opportunity to inflate their value). We’ve previously discussed why tax credits make for lousy renewable energy policy. In 2009 and 2010, however, changes to the federal tax credits allowed people to take a cash grant instead, reducing the need for third party ownership. That ends in December.
Long before that, Treasury should shut down the practice of over-estimating project costs with “fair market value.” Solar energy incentives have built the American solar market and helped drive down the cost of solar. Banks shouldn’t be allowed to subvert these public incentives.
The upfront cost has always been the biggest barrier to solar PV adoption, and one Oregon town has found an innovative way to help its citizens buy down that cost.
The city borrowed from the sewer account to offer no-interest loans of $9,000 each. The repayment schedule, over four years, is tied to residents’ tax returns each spring, when they receive refunds of state and federal renewable energy tax credits.
All told, Lehman estimates the program will cost the city only $10,000 in lost interest over four years.
While the loan terms are short (4 years), the repayment plan is tied to the state and federal tax credit schedule, essentially allowing interested home and business owners the chance to finance solar directly with those credits, rather than having to put their own money up front.
The loan program spurred over 50 solar PV installations in 2010, in a town of just 16,500 residents. The residents not only received discount financing, but the city helped aggregate the purchase of the solar panels to get participants a “group buy” discount. Assuming a system size of 3 kilowatts and installed cost of $6.00 per Watt, the city’s $10,000 investment got their residents approximately $1 million worth of new solar power.
The increase in solar installation activity had an effect even for those who didn’t use the town’s financing option:
Ken Abbott, a retired postal employee, didn’t use the loan program but took advantage of the lower installation prices that resulted from the large number of buyers.
Pendelton’s lesson to cities is that you don’t need a lot of money to make it a lot easier to go solar.
Photo credit: Flickr user chdwckvnstrsslhm