Solar for Schools? Not So Easy with Tax-based Solar Incentives

December 9th, 2011 by John Farrell

You’re a city manager hoping to cut electricity costs at sewage treatment plant, a school administrator looking to power schools with solar, or a state park official needing an off-grid solar array for a remote ranger station.

But unlike any private home or business, you can’t get 50% off using the federal tax incentives for solar (a 30% tax credit and ~20% from accelerated depreciation). That’s because the federal government’s energy policies all use the tax code, and your organization is tax exempt.

What about a public-private partnership? The private entity puts up some money and gets the tax benefits, and the public entity only has to pay half. It can work, if you’re lucky, although a good portion of those tax benefits (half, in recent years) pass through to that private entity for their return on investment, not changing the price of your solar array.

But the legal niceties also matter. One common option is a lease, where the public entity leases the solar panels from the private one. One big problem: the IRS doesn’t allow the private entity to collect the 30% tax credit if they lease to a public entity.

The cash grant program in lieu of the tax credit allowed leasing, but it expires in December. Furthermore, it disallowed depreciation of the solar array, equivalent to 20% off.

Another clever arrangement is a power purchase agreement (PPA), where the third-party owns the solar array and simply sells the power to the school or city. The third-party can claim both the tax credit and depreciation, but if you live in a state with a regulated utility market (and no retail competition), your utility might slap you with a lawsuit for violating their right to exclusive retail service.

The following chart illustrates the financial challenge for public entities created by using the tax code to support solar.

Even with a lot of legal creativity, the public sector is often stymied in accessing both federal solar incentives. The result is that private sector solar projects always get a lower cost of solar, because the public sector can only access federal incentives through (costly) partnerships with third parties.

Using the tax code for solar (instead of cash grants, production-based incentives, or CLEAN Contracts) is bad for the solar business, bad for taxpayers and bad for ratepayers. It’s time to change course, and let the public sector go solar, too.

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Tags: accelerated depreciation, clean contracts, Electricity, Energy, federal, MACRS, public schools, public sector, schools, solar schools, tax credits, tax incentives, US

About the Author

John Farrell directs the Democratic Energy program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His seminal paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development. Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (energyselfreliantstates.org), and articles are regularly syndicated on Grist and Renewable Energy World. John Farrell can also be found on Twitter @johnffarrell, or at jfarrell@ilsr.org.

Leedman

I was going to reply in thread to Zachary but Disqus wants to make it tiny.

I’m well educated. I won’t go into my background but I graduated with honors when Apartheid and AIDS were the global warming issue of the day and Ronald Reagan was president. Econ 101: yes. and 201 and 301.

I have watched spotted owls decimate our forests of jobs and am now watching another liberal assault on fossil fuels and other forms of energy that are affordable in the name of saving our planet. Same group, different cause. Disagree with the group and you’re an idiot. Zach, your liberal forefathers have taught you well and I have debated enough of them and I have no desire to debate you. Been there, done that, got the t-shirt.

On global warming, the highly respected US National Science Foundation is already backing off. Yes, they still have their disclaimer so as not to look like a total bunch of tools. I am of the opinion even their disclaimer – “Higher CO2 levels still present a danger” is flawed and until they can prove a causal link between CO2 and climate change, I won’t buy in.

As for subsidies, I did not say “clean energy should not be subsidized”. I specifically targeted solar power and billions our govt is throwing at it when it is not ready for prime time. Do you think the utility companies would be buying back power from solar users if the feds weren’t telling them to? I don’t think so. Even Google is smart enough to stay away.

Do I want to see continued subsidies of fossil fuels? You betchya. My job requires that I drive a lot and I want fuel as cheap as possible. FWIW, I drive a Prius and am very tuned in to the new vehicle technology that is evolving. I WANT a vehicle that gets 50 mpg. I WANT a vehicle that gets 100 mpg.

I also like wind and wave technology. I live near the coast of Oregon and am about 150 miles from the Columbia River Gorge area where wind tech has establish a firm foothold. I support hydro power as it supports much of Oregon and Washington power needs.

I’ll say it again – I am against wasteful spending. Solar tech is a long way from being even remotely close to widespread parity. Until solar is reliable, feasibly storeable, and doesn’t take up square miles of open space for installation, I won’t buy in. Let the VC’s invest. They won’t of course until the govt gets out and a realistic market valuation is determined.
- Anonymous
  
  Leedman, the NSF is not backing off. Thanks for that piece of B.S.
  
  Why is it you disagree with just about every major energy agency on solar? I’m sorry, but you are way off when it comes to projectons of solar’s viability in the next view years, or even TODAY (i presume you didn’t look at that link), sans subsidies.
  
  Again, you completely skirt the externalities issue.
  
  Google has gone in deep on a solar lease program — yes, it does see an obvioius win-win-win there.
  
  Did you read our most recent piece on solar grid parity? (Oh, nevermind, you’re sold on beliefs that don’t match up with what even conservative energy experts say) http://cleantechnica.com/2011/12/12/here-comes-the-sun-the-chart-paul-krugman-left-out/
  You’re not going to sell someone who has read thousands of pieces on solar and written hundreds that it is not ready to go and that it shouldn’t be fairly subsidized. So, please, stick to your desire (“I have no desire to debate you.”) and go try to confuse someone else.
  - Leedman
    
    No B.S. The NSF backed way off of their gloom and doom from hardly a year ago. Since their study did not take any climate information from beyond 1850, and especially paleo era information, they have determined global warming may not be as bad as originally thought. “But C02 levels may still pose a danger”. Cracks me up every time. Ya think?
    
    That aside, regarding your strong and cult like attachment to clean energy “academia” I would compare it to actually seeing the ocean vs someone telling you about it or reading about it in a book.
    
    Take a step inside the pressures of the market place. See for yourself what the blind and expensive pursuit of renewable energy is doing. To your pocket book and the pocket books of many others. It is destroying American jobs. Even the jobs renewable energy (especially solar) is creating are fizzling. So in the end renewable energy pursuit kills mainstream jobs AND sets up a bubble that ultimately bursts which people lose those jobs.
    
    Do yourself a favor and take a peek into the real world.
    - Anonymous
      
      Dude, you are so off target. Your statements don’t match up with any studies on the matter. Yes, everything is not 100% roses and perhaps you’ve had some bad experiences, but that doesn’t mean the big picture matches your experience. There’s plenty of evidence that clean energy and clean energy jobs are helping the country and the world. Do yourself a favor and look into it.
Anonymous

Well, what can we say?

Be careful when your out walking.

Don’t fall over the edge. I don’t think we’ve yet discovered where the edges of the flat Earth are….
- Leedman
  
  Moderator took out my source so I guess the earth here will remain biased and flat.
Leedman

I want to preface this comment with the fact that I’m a project manager for a commercial building contractor and have my LEED accreditation. I have managed numerous LEED rated projects from Certified to Platinum. Some of the projects had solar arrays.

Solar in this day and age is a complete drain on our pocket books (speaking as a taxpayer). I watch public project after public project dole out huge sums of money for a energy source that is expensive, unreliable in most areas of our country, and is not really all that beneficial to the environment when you take production into consideration. When I am involved in a charrette and the discussion of “should we include solar arrays” comes up, I am up front about the lack of benefits and extreme costs that come with this credit. Simply put, the costs outweigh the benefits and the current technology just isn’t there yet.

How many Solyndras are we going to have to endure before our federal govt realizes “we ain’t there yet”.

I work in the Portland Oregon metro area. Just today another solar company has significantly reduced its workforce because profit isn’t quite working out. You can read the article here:

http://www.oregonlive.com/business/index.ssf/2011/12/post_66.html

I am a regular reader of this site and believe in developing renewable sources of energy. I cringe when I keep reading articles on your site about how the feds are not “stepping up to the plate” to subsidize an energy potential that isn’t quite ready for prime time. The feds have spent countless billions of dollars on ramming this down our throats because a bunch of hippies and anti fossil fuel commies like to raise their voices. Scream all you want. It won’t make some of these energy sources any more affordable.

As a taxpayer, I’m tired of footing the bill for idealist energy policy which is not really a policy as much as it’s a bone to get them to shut the hell up.

In the next few years, you will see most if not all of the govt subsidized solar businesses bite the dust. In a word these companies are not independently sustainable.

On the bright side, LEED certification of existing buildings are now outpacing new buildings. Improved energy performance of older buildings is always a good thing and is a win/win for the owners of these buildings. The govt would be better off to completely get rid of the solar subsidies and direct them toward thermal envelopes and high efficiency HVAC systems.
- Anonymous
  
  Fact is, solar has now achieved grid parity.
  
  Fact is, solar got from really, really expensive to grid parity because we subsidized it along the way.
  
  Fact is, solar is on its way to be one of our cheapest ways to generate electricity.
- Anonymous
  
  are you really a regular reader?
  
  if so, you should know that Solyndra is a rare exception in the industry. the industry has grown TREMENDOUSLY in recent years due to policies that take their true value (http://cleantechnica.com/2011/06/26/true-value-of-solar-power/) into consideration, due to continual technical progress, and due to rapid deployment.
  
  http://cleantechnica.com/2011/09/21/solar-industry-on-solyndra-tremendous-job-growth-100000-us-jobs-now-doubling-of-installed-pv/
  
  http://cleantechnica.com/2011/10/20/texas-solar-energy-hitting-state-in-1-month-all-energy-texas-oil-gas-industry-has-ever-produced/
  
  http://cleantechnica.com/2011/11/10/about-solar-energy-why-solar-energy/
  
  you would also know that Solyndra fell, and others will too, because of the industry maturing and the costs of certain technologies (not Solyndra’s) dropping tremendously.
  
  http://cleantechnica.com/2011/11/19/solar-profit-margins-compared-to-other-industries/
  
  more on solyndra:
  
  http://cleantechnica.com/2011/10/22/the-real-reason-the-obama-administration-backed-solyndra/
  
  http://cleantechnica.com/2011/09/20/solyndra-facts-lies/
  
  http://cleantechnica.com/2011/09/17/qa-on-solyndra-clean-energy-green-jobs/
  
  http://cleantechnica.com/2011/09/01/learning-the-wrong-lessons-from-the-solyndra-bankruptcy/
  
  it’s not just ‘hippies and anti-fossil fuel people’ pushing for these solar policies — it’s even the fossil-fuel-friendly World Bank and International Energy Agency! (and nearly everyone in between):
  
  http://cleantechnica.com/2011/11/23/new-iea-report-on-renewable-energy-costs-policy/
  
  http://cleantechnica.com/2011/11/11/international-energy-agency-5-years-to-change-or-be-changed/
  
  i’m sorry, you may have good intentions, but your comments are way off target.
  
  the cost of solar has been dropping at rates analysts couldn’t predict for a while now, and it is now at grid parity in some places (NOT EVEN taking externalities into account, which should be taken into account):
  
  http://cleantechnica.com/2011/12/08/solar-power-less-expensive-than-analysts-purport/
  
  maybe you have had some bad experiences with it, but i had bad experiences with my first computer and that certainly didn’t lead me to believe that computers are a waste of money and overhyped.
  
  (and let’s not forget historical subsidies, of course — should solar not get the boost fossil fuels and nuclear got? why not? http://cleantechnica.com/2011/09/27/early-fossil-fuel-nuclear-energy-subsidies-crush-early-renewable-energy-subsidies/)
  - Leedman
    
    “Grid parity in some locations.” That is exactly the point I’m trying to make. It’s more like grid parity in very few locations.
    
    You go on to compare fossil fuel and nuclear subsidies to solar. An apples and oranges comparison as both fossil fuels and nuclear are not location hindered (excepting areas which hippies and commies have a strong foothold lol)
    
    My comment isn’t so much directed against the solar energy industry as much as how much our federal govt is going out its way to subsidize an industry that clearly is not ready for prime time. Am I saying it won’t be? Heck no! I fully believe solar will have its place some day.
    
    As stated in my first comment, I live in Oregon and we are the KINGS of trying to force the renewable issue. While our state goes broke, our governor is bragging about the money being spent on solar panels along the i-5 corridor or a public agency in Portland spending $400k on a solar array that will “save” the taxpayers $3500 per year. The financial wisdom of all of this is bizarre to me.
    - Anonymous
      
      So the areas not under control of hippies and commies are under the control of assholes?
      
      Just wondering….
      
      Again. Once more for the slow of intellect.
      
      Subsidies, appropriately used, help an emerging technology reach market levels at which economies of scale take over. That’s what we have done with wind. That is what is happening with solar.
      
      Not many years ago solar had reached grid parity exactly nowhere. Now solar has reached grid parity across much of the ‘sun belt’, in Hawaii, in Southern Europe. Some more help from subsidies and solar will reach grid parity in much of the world.
      
      We continue to subsidize fossil fuels and nuclear power. Why aren’t you pissed about subsidizing mature, profitable industries?
      - Leedman
        
        Bob, thanks for responding so quickly.
        
        My first thought was to tell you to go fuck yourself but I thought I would refrain from trodding on your incredible self perception of an intellectual.
        
        In other words, your comment was predictable and typical of the hippy commy radicals I was referencing.
        
        Why am I not pissed about subsidizing fossil fuels and nuclear energy? I guess mostly because they are proven technologies that when subsidized, keep me paying less at the pump. And since both will be around long after I have died from natural causes and you from an enlarged brain, govt subsidies will keep them both affordable.
        
        I will not support the “at any expense” method of throwing billions of dollars at a technology that has grid parity at some remote location in the middle of the Mojave desert.
        
        When the technology is such that it is affordable, accessible and usable in areas that aren’t considered a sunbelt, I might just join the magic [solar] bus movement.
      - Anonymous
        
        That coal you value?
        
        It’s cheap because we used public money to create the railroads that haul it to the plants that burn it. And we’re burning it in paid off plants.
        That coal is not going to stay cheap. We’ve used up the easy to extract stuff and the best quality stuff. We’re having to work harder to get coal and we’re having to burn more of it because we just don’t get as much energy per shovelful.
        
        That coal is killing lots of us every year by poisoning the air we breathe.
        That coal is producing CO2 that is going to cause our planet to cook.
        
        That coal is costing us enormous amounts of tax and insurance premium dollars to deal with the environmental and health problems burning it causes.
        
        That coal produced electricity that you think is cheap because you ignore the hidden costs – the plants are aging and building new coal plants will make the price of electricity very expensive. Plus the hidden costs.
        
        —
        
        That oil you love? We’ve used up the easy to extract and easy to refine
        stuff. The price is going to go nowhere but up.
        
        That oil is producing pollutants that make us sick, costing us money, and
        killing us.
        
        That oil also produces CO2 that is causing our climate to change and our
        weather to get wild. The number of extreme weather events is going up at
        an alarming rate.
        
        That oil requires that we kill people to keep “our oil supply” flowing.
        And it requires enormous amounts of taxpayer money to support an enormous
        military.
        
        —
        
        That nuclear you love? It’s creating enormous tons of hazardous waste that
        we are going to shove off on the people who follow us.
        
        It’s a ticking time bomb as we wait for the next Three Mile
        Island/Chernobyl/Fukushima and turn a blind eye to Davis-Bessie, Brown’s
        Ferry, Chrystal River, and all the other “near misses”.
        
        Those old plants are running out of lifetime. We’re piecing them together
        and praying that the wire and sealing wax holds.
        
        Replacing those nuclear plants with new nuclear plants would bring us
        extremely expensive electricity. We fool ourselves that nuclear energy is
        cheap because we get our numbers from plants built and paid off decades ago.
        
        Now, if understanding the cost of energy and having some ability to
        comprehend how we create a more affordable, safer energy future makes me a
        hippie commie in your eyes, I guess that’s what I am.
        
        You’re free to be what you choose to be….
      - Anonymous
        
        Leedman, you seem to be out of touch with a few key disciplines, and perhaps that is why you have such a warped view of all this.
        
        Please, read up on climate science, from academic sources, not thoroughly, thoroughly debunked blogs like WAWT or FOX News. There’s a reason why nearly every active climate scientist in the world and nearly every overarching scientific organization now say that the world is warming, humans are the cause, and if we don’t change our energy sources fast we are going to face consequences that cost a TON more than the dinky little subsidies clean energy gets.
        
        On economics and public policy: one of the key roles of government (you can learn this in Economics 101) is that it should help to address externalities the market does not adequately account for. Very specifically, about $500 billion a year in external costs created from the burning of coal, the external costs of protecting our oil supply in the Middle East, and so on. Subsidies for clean energy don’t even adequately cover those externalities — so, the government isn’t even doing one of its core jobs in this field. Again, if you think such costs should not be accounted for in the price of the product, please go back and study the basics of this matter! It is certainly NOT the role of government to back energy sources costing us in healthcare and death (and not being accounted for in the price) to make those energy sources cheaper! But, yes, it is exactly this sort of short-term and narrow-minded thinking that makes
        rational people look like radical, tree-hugging hippies in the U.S. —
        whereas such people are the norm in countries with a little more skill in
        this regard.
        
        If, after looking at these basic issues with a logical thinking process,
        you still think fossil fuels should be subsidized and clean energy
        shouldn’t, perhaps you need to take another look at the basics of
        arithmetic. Sorry, to put it so bluntly, but there’s really no other
        explanation for why you would come to such an opinion.
        
        Btw, my grandfather was chief excavation geologist for Exxon for most of
        the United States when he retired — several years ago, he (a very
        conservative Texan Republican) said to me, “Basically, we’ve just gotten
        spoiled,” in reference to the idea that we could get a lot more oil out of
        the U.S. and bring the price of gas down (as if that would be a desirable
        goal). In other words, no, there’s no way the U.S. could get enough oil out
        of our country to make any noticeable difference in this regard. Oil
        production peaked in the 70s in this country, if i remember right, and
        there’s no way it’s going to peak again (even if the whole Republican party
        took over our country and put Sarah Palin at the top).