For more than a decade, the 30% federal investment tax credit (ITC) has been one of the largest drivers of overall solar development in the United States. Since it was enacted in 2006, the industry has routinely grown at an average rate of 50% per year.
After failing to achieve a much-coveted extension late last year, the federal ITC has begun its previously planned step down, going from 30% to 10% for commercial distributed generation (DG) solar projects across the country by the end of 2022.
Fortunately, the U.S. Energy Information Administration (EIA) forecasts that the reduction in the ITC will not have widespread negative effects on the overall solar industry. Indeed, as the step-down approaches, it’s expected the DG solar project development pipeline will ramp up so developers can avail themselves of the full credit.
With no foreseeable federal policy set to replace the ITC in 2022, we anticipate an increased focus on state policies such as renewable portfolio standards (RPS), solar renewable energy credit (SREC) markets, tax credits and other incentives.
Not all states support DG solar equally, but nearly every state in the country is doing something to support solar development. To help you navigate your state’s DG solar policies, we’ve compiled an update on what the most active solar states are doing to promote DG solar within their borders, according to the National Renewable Energy Laboratory (NREL) (as of 3.19.2020). During the COVID-19 crisis, some of the legislative efforts (like those in Illinois) have understandably been delayed, but at press time these are still on the docket for future consideration:
Alabama: The state of Alabama offers zero-interest loans to local governments, K-12 schools, public colleges and public universities that install solar systems. The loans are capped at $350,000 per project.
Alaska: Solar projects that are operated for the public benefit are eligible for the Renewable Energy Grant program overseen by the Alaska Energy Authority. The AEA makes recommendations to the legislature, which is ultimately responsible for funding decisions.
Arizona: Arizona offers renewable energy production tax credits for systems 5 MW or larger for the first 10 years a system is in operation. It also has a property-assessed clean energy (PACE) financing program for systems that are 20 megawatts (MW) or larger that are used for on-site consumption at manufacturing or international operations facilities, up to $5 million per year for up to five years. Finally, the Arizona Corporation Commission is exploring what it would take to achieve 100% clean energy by 2050.
Arkansas: Arkansas permits net-metering aggregation, allowing aggregated meters to be located on separate premises to take advantage of renewable generation’s location. This allows third-party developers to offer community DG solar programs. DG solar projects are also eligible for the Arkansas Energy Technology Loans for Green Technology, which offer low-interest loans for investments in non-residential solar. Interest rates vary between 1 and 2%, depending on loan term and the financial strength of the borrower.
California: California’s Green Tariff Shared Renewables program requires California’s three investor-owned utilities (IOUs) to ensure sufficient community-solar capacity to meet up to 600 MW of customer demand. The program consists of two components: the green tariff, and the enhanced community renewables (ECR) component. Under the green tariff, customers may choose to pay a premium on their electricity bill to participate in a community solar project. Under the ECR, customers may purchase an ownership stake in a third-party led community solar project. ECR project developers must work with the IOU to determine the appropriate ECR tariff rate for subscriber compensation. The tariff rate must include the avoided cost of generation. Utilities and third-party developers offer community solar programs in the state. California also supports PACE financing, which allows property owners to repay loans for solar PV projects through a special assessment on the property over a specified loan term.
Colorado: Colorado allows third-party ownership of DG solar systems as long as they don’t generate more than 120% of the customer’s average annual consumption. It also has a healthy community solar market, thanks in part to its Community Solar Gardens Act, which allows the development of “community solar gardens” in the service territories of IOUs and electric cooperatives. Community solar gardens may be up to 2 MW and must have at least 10 subscribers. At least 5% of an IOU’s purchases from community solar must serve low-income subscribers. Colorado school districts are eligible for up to $1 million in low-interest loans under the Renewable Energy and Energy Efficiency for Schools Loan program for renewable energy and energy efficiency measures, including solar. Finally, commercial DG solar customers can avail themselves of the Colorado Commercial PACE program.
Connecticut: Connecticut is one of the fastest growing of the smaller states in the solar industry. This success comes after the state launched the Connecticut Property Assessed Clean Energy (C-PACE) program to offer property assessed clean energy financing and program services to municipalities and commercial property owners throughout Connecticut.
Delaware: Despite its small size, Delaware continues to increase its solar capacity at a rapid pace. The state’s net metering law allows third-party solar financing and shared solar, supporting the distributed solar market.
Florida: Under Amendment 4, commercial properties that install solar are exempt from property-tax increases as a result.
Hawaii: Hawaii provides commercial DG solar system owners with a 35% tax credit. It also has a community solar program with utility tariff filed with the Public Utilities Commission (PUC). The state also has instituted a Farm and Aquaculture Alternative Energy Loan program, which allows agricultural and aquacultural DG solar projects to get loans for up to 85% of the project cost at 3% and 5% interest rates (respectively). The loans are capped at $1.5 million.
Illinois: New on the docket for 2020 is the Path to 100 Act, which would increase the state’s RPS to 100% in stages between now and 2050. It would also mandate that the state fund such efforts through the Illinois Power Agency (IPA). As a result, it also continues the work started in 2018, when the IPA established the Adjustable Block Program (which in part encourages the development of commercial and community DG solar), the Illinois Solar for All program (which focuses on low-income community solar) and the SREC market. The Path to 100 Act is currently before the legislature, and Governor Jay Robert Pritzker says passage of the law and signing it is a priority for 2020, although no hard and fast deadline has been set to make it happen.
The IPA recently hit its capacity limit for large solar projects, which means projects like schools, public buildings and businesses in Illinois will now be placed on a waitlist with no guarantee that they will be approved in the future. Solar advocates in the state say the Path to 100 Act would help alleviate the overload.
Indiana: Indiana exempts solar modules, racking, and inverter from state sales and use taxes. The entire solar generating system is exempt from property taxation.
Kansas: Solar PV systems are exempt from property taxation for 10 years.
Kentucky: Solar projects greater than 50 kW may be exempt from state sales and use taxes. Solar power sales from facilities larger than 50 kW to an unrelated third party may be exempt from state income and limited liability entity taxes. The total value of tax refunds may not exceed 50% of the capital expenditure.
Louisiana: Louisiana allows local governments to form Sustainable Energy Financing Districts (SEFDs), a form of PACE financing, for renewable energy projects, including DG solar. SEFDs are authorized to issue bonds and pay the bonds on assessments against property improvements.
Maine: Thanks largely to the passage and signing into law of Legislative Document (LD) 1711, the Maine DG solar market stands on the precipice of explosive growth. After all, the law is specifically designed with several provisions that will encourage DG solar in the state, including a push to develop 250 MW of large-scale community solar by 2025. In addition, commercial and municipal customers now have the opportunity to build systems up to 125 MW per project, a significant increase over where the limit was just one year ago. The increase in size will make it easier for DG solar commercial projects to pencil out because of the economy of size and will be more broaden the subscriber market for community solar projects.
Maryland: In addition to Maryland’s ambitious community-solar pilot program, the state has many grant programs available. The Commercial Clean Energy Grant Program offers grants of $60/kW for projects smaller than 100 kW and $30/kW for projects between 100 and 200 kW. The Game Changer Competitive Grant Program provides grants ranging from $50,000 to $250,000 for innovative applications of commercially available solar PV technology. The Mathias Agricultural Energy Efficiency Grant Program offers farms and agricultural businesses grants of up to 50% of the system cost, capped at $60,000 (solar PV is explicitly eligible). The Parking Lot Solar PV with EV Charger Grant Program offers grants of $500/kW (capped at $250,000) for parking lot canopy projects greater than 75 kW that include at least four Level II or Level III electric vehicle charging stations. In other words, Maryland is a state that is actively encouraging solar development.
Massachusetts: Solar Massachusetts Renewable Target (SMART) aims to deploy 1,600 MW of DG solar. Small projects will receive a 10-year fixed price term, and large projects will receive a 20-year fixed price term. The maximum eligible project size is 5 MW. In addition, the Massachusetts Green Communities Act enables the use of “neighborhood net-metering credits” to compensate owners of community DG PV net metering facilities. Massachusetts allows virtual net metering for solar systems up to 2 MW that serve at least 10 residential customers. Commercial customers may also subscribe to community solar projects, as long as the system meets requirements for residential customers. Subscribers are compensated through neighborhood net-metering credits at the full retail rate. Massachusetts also has a grant program for state agencies, including higher education institutions, for solar PV canopy projects (e.g., parking lots, garage roofs, pedestrian walkways). Projects must be more than 200 kW or associated with an “innovative strategy” and include electric vehicle charging stations.
Michigan: Third-party solar power-purchase agreements (PPAs) are allowed in Michigan and are exempt from Public Service Commission regulation. Utilities and third-party developers offer community solar programs in the state. DG solar projects can also receive loans under the Energy Revolving Loan Fund, which provides loans of up to $350,000 at 6% interest.
Minnesota: In addition to a robust community DG solar market under the watchful eye of utility Xcel, Minnesota also supports PACE financing by allowing local governments to establish PACE programs. The state’s Sustainable Agriculture Loan Program allows farmers to borrow up to $40,000 at 3% interest for solar projects that support on-farm energy production. In addition, non-profits may be eligible for 0% interest loans of up to $25,000, and solar DG PV systems are exempt from state sales taxes.
Missouri: The Missouri Public Service Commission approved community solar projects for business customers up to 1 MW. Commercial customers can sign up for up to 100 kWh blocks of solar capacity and can subscribe to up to half of their average usage over the past 12 months. In addition, the Energy Loan Program provides loans to local governments, schools, state governments, and institutions of up to $1,000,000 for a term of 10 years and interest rate of 2.75% to build renewable energy systems, including DG PV.
Montana: In Montana, commercial and net metering renewable energy investments of more than $5,000 are eligible for tax rebates of 35% against personal or corporate tax on the income generated by the investment. This credit is required to be taken the year the system is in service and can be carried over for seven years. If the project is 5 MW or larger, on a reservation, and meets other specific criteria, the tax credit can be extended for 15 years. In addition, new renewable energy generation facilities with a maximum capacity of 1 MW have 100% property tax exemption for five years after the start of operation. Finally, renewable energy generation facilities with a minimum capacity of 1 MW have 50% reduction in the new or expanded industry property tax for five years after their construction permit is issued. For the next five years, the percentage of taxable amount is increased in increments of 10% each year, until the tenth year where the full amount is taxed.
Nebraska: Nebraska has a sales tax incentive that reimburses customers their sales and use taxes (not municipality taxes) on renewable systems (including DG solar) with a minimum investment of $20,000,000. It also encourages community DG PV with a 100% tax exemption on the sales and use tax imposed on the sale, lease, or rental of personal property for use in a community-based energy development (C-BED) project.
Nevada: The state of Nevada has a low-interest loan program that provides 15-year loans at 3% interest for renewable energy projects. The minimum loan amount is $100,000 and a maximum loan amount is $1,000,000 for an energy development project.
New Hampshire: New Hampshire’s Public Utilities Commission permits group net metering, which allows practicing community DG solar. The kWh credits generated by a host system can be shared within the group under a contract arrangement. Upgrade costs to accommodate billing for group net metering are to be borne by the group host. The state also has an Enterprise Energy Fund, which offers first-come, first-serve low-interest loans to businesses and nonprofit organizations to help finance renewable energy projects. Interest rates range between 2% to 4% depending on the type of organization and length of loan period. Recently, bills were introduced into the state Senate that would ensure low-income communities benefit from community solar projects and allow virtual net-metering for municipalities. Lastly, a bill was introduced that would allow third-party suppliers to sell electricity to customers.
New Jersey: Municipalities, schools, and other public entities can aggregate meters and provide solar DG solar electricity to their buildings. All solar equipment is 100% exempt from the state sales tax, as is 100% of the value added to the property by a renewable system is exempt from property tax. As New Jersey transitions from its solar renewable energy credit (SREC) program into the next phase of solar incentives (which has yet to be determined), solar development will be driven by transition renewable energy certificates (TRECs). TRECs are similar to SRECs but will have set pricing for the duration of the program, making it easier to predict exactly how much incentive money consumers will receive from the program. The exact value of a TREC is expected to be determined in 2020.
New Mexico: Governor Michelle Lujan Grisham recently signed into law a provision that reinstated a $6,000 tax credit for businesses that install solar panels. It also commissioned a grid-modernization plan that is expected to encourage companies to move toward carbon-free electricity production. Third party ownership of solar systems is limited to systems generating 120% of the average annual electricity consumption of the host at the site. The state also has a property tax exemption for rooftop DG solar systems, which prevents property tax from being charged on the PV system until the property is sold.
New York: Thanks to New York Governor Andrew Cuomo, New York is also a state to watch when it comes to solar policy that influences the states around it. Between the NY-Sun program and the constantly ambitious legislature, you never know when new policy will come out of the Empire State that could accelerate the development of solar there—and the ripple effect it could have on the rest of New England.
Cuomo introduced a budget amendment in March 2020 that would create an Office of Renewable Energy Permitting to speed up solar permitting and construction. The act would also create an incentive program to advance “build-ready” solar projects installed on existing, underutilized sites.
In an attempt to shape the community DG solar market, New York instituted a rule that will allow for the consolidation of utility bills for community-solar customers. The measure is expected to lower community-solar costs for customers and reduce the sponsor costs. The rule will also lower market barriers that have inhibited widespread community DG solar development in the state up until now.
In addition, the NY Sun program provides cash incentives for small commercial systems in the upstate New York and Public Service Enterprise Group (PSEG) Long Island region that are 750 kW or less and non-residential sites in the Consolidated Edison region up to 7.5 MW or fewer. NY-Sun solar incentives are designed to phase out in a controlled and predictable manner over time depending on installed solar capacity in the given region.
North Carolina: North Carolina exempts 80% of the appraised value of a commercial DG solar system from property tax. It also offers a tax credit equal to 35% of the cost of eligible renewable energy property constructed, purchased or leased by a taxpayer and placed into service in North Carolina during the taxable year. The maximum tax credit is $2.5 million per installation. Finally, the Production Based Incentive (PBI) is available for commercial, industrial, local and state government, nonprofit, schools, agricultural and institutional users.
North Dakota: In North Dakota, any locally assessed solar energy device serving a new or existing building or structure or solar system that is part of a conventional energy system is eligible for a local property tax exemption. (Only the renewable energy portion of the total system is eligible.) This exemption can be applied during the 5-year period following installation.
Oregon: Oregon has established that at least 8% of the state’s electricity generation capacity should come from small-scale, community renewable energy projects with a capacity of 20 MW or less. It also has a property tax exemption for DG solar systems, as well as a state energy loan program that ranges in value from $20,000 to $20 million. Lastly, Oregon has renewable energy development grants of up to $250,000, or 35% of total project costs
Pennsylvania: Pennsylvania continues its march into a strong solar future under the leadership of state Governor Tom Wolf, who has made more than $30 million available for solar development in the state. Third-party solar power purchase agreements are allowed in Pennsylvania. Virtual net metering is also allowed, enabling community solar projects to take place.
Rhode Island: DG solar equipment is eligible for 100% exemption from Rhode Island sales and use tax, and systems connected to the grid or with battery storage can claim up to $15,000 in corporate income tax deductibles. There are also grants available for renewable energy systems of more than10 kW installed on businesses, institutions, non-profits, municipal property, as well as affordable housing projects. Each project can receive up to $350,000 in grants.
South Carolina: In South Carolina, corporations are eligible to receive a DG solar tax credit of 50% of their tax liability for the year, up to $3,500.
South Dakota: Commercial, industrial and agricultural customers and contractors are eligible to receive reinvestment payment up to 100% of sales and use tax paid for a DG solar project in South Dakota. The cost must be more than $2 million.
Tennessee: Tennessee’s Pathway Energy Efficiency Loan Program offers low-interest loans for businesses and nonprofits for energy efficiency and renewable energy improvements, including the installation of solar photovoltaic, and commercial and industrial sector taxpayers are eligible for 100% of sales and use tax exemption. The system must be certified as a Green Energy Production Facility. Finally, commercial and industrial sector taxpayers qualify for special appraisal of property tax. The property value of the certified green energy production facility may not exceed 12.5% of the installed cost for solar.
Texas: The Renewable Energy Systems Property Tax Exemption offers DG solar owners an exemption of 100% of the appraised property value increase due to installation or construction of solar-generation equipment for on-site use. The state also allows the total cost of DG PV equipment to be deducted from a company’s taxable capital, or 10% of the system’s cost may be deducted from the company’s income. In addition, the Texas legislature passed the PACE Act in 2013, allowing for the creation of local PACE programs. Since then, over 35 counties and cities in the Lone Star State have implemented PACE programs, resulting in 26 finished projects valued at over $100 million in loans.
Utah: Utah offers a tax credit of up to $50,000 (or 10% of system cost) for commercial taxpayers. Commercial, industrial, and utility taxpayers are also exempt from 100% of state sales and use tax for the purchase or lease of renewable energy generation equipment that increases the generation capacity of the property by more than 1 MW.
Vermont: The state’s group billing mechanism under its net metering policy allows customers to share renewable energy output from a DG solar system. Utilities and third-party owners may offer shared solar projects to electric customers. The output of the system is limited at 500 kW based on the net-metering system-size cap. Under the Commercial/Agricultural Energy Loan Program, a maximum loan of $2 million may be available for commercial entities, farms individuals, and municipalities to build or improve renewable energy or energy efficiency projects. Another loan program with a maximum load of $500,000 is available for small businesses.
Virginia: Most recently, the Virginia legislature passed the Virginia Clean Economy Act (VCEA), which sets the goal of having the Commonwealth reach 100% renewable energy generation in line with the executive order Governor Ralph Northam issued in September 2019. At the moment, the bill has been sent to Northam for his signature.
Once it becomes law, it’s expected to scale up access to DG solar in the form of rooftop and shared (community) solar. According to the group Virginia Solar For All, distributed solar has created 60% of all solar jobs in the state, a figure that’s expected to grow in the wake of VCEA’s passage. Recent estimates suggest that 29,500 jobs could come to the state with the new legislation, which could transform Virginia into one of the country’s leading solar states once again.
Washington: Washington’s renewable energy system cost recovery incentive extends to community solar projects more than 75 kW. Customer-owned renewable energy generation systems can receive incentive payments up to $5,000 per year. Incentive payment rates vary based on the technology, number of components that are made in Washington, and whether the project is community owned. System owners receiving the incentive must be an individual, business, local government entity, or community solar owner or member and a customer of the local utility. Third-party owned systems cannot qualify for the incentive.
Washington D.C.: The nation’s capital allows community solar sales through Community Renewable Energy Facilities (CREFs). CREFs may be up to 5 MW and must have at least two subscribers. CREF subscribers can meet up to 120% of their electricity demand with CREF credits. CREF subscribers are compensated according to a “CREF credit rate,” which currently reflects generation and distribution costs and excludes transmission costs. The CREF rate is lower than the retail rate. It also has a 100% property tax exemption for solar energy systems and cogeneration systems.
Wisconsin: Any value added by DG PV energy systems is exempt from general property taxes, and 100% sales and use tax exemption for commercial and industrial users of renewable technologies including DG PV.
As the federal ITC slowly winds down, it’s up to the states to step into the breach to encourage DG solar development within each of their jurisdictions—and it’s up to those of us on the front lines of the industry to ensure they move in the right direction.
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