Tax Threat To Solar Homeowners With Feed-in Tariffs or Value Of Solar Tariffs

  • Published on August 26th, 2013 by

Quite a big deal for US solar policy, solar companies, and even many current solar PV system owners, a solar advocacy organization that is defending net metering in Arizona has discovered that feed-in tariffs and value of solar tariffs come with some unwanted tax consequences for solar PV system owners (the beneficiaries of said tariffs).

taxes

A representative of Sunrun wrote to me, “A memo from the top national law firm (Skadden, Arps, Slate, Meagher & Flom LLP) reveals that solar Feed-in-Tariffs (FITs) and Value of Solar Tariffs (VOSTs) have major hidden tax implications for consumers.”

As I wrote in our previous article, Sunrun is firmly opposed to FiTs and VOSTs as opposed to net metering for other reasons. This clearly amplifies its opposition to those alternative policies.

Here are more details on the tax news from the Sunrun rep:

  • The memo explains:
    • FITs and VOSTs make residential solar customers ineligible for a 30% federal tax credit toward their rooftop installations
    • The payments a consumer receives for solar power generated under these arrangements will likely be considered taxable gross income.
    • This is true even when the compensation to the homeowner is a credit rather than a payment
  • This affects thousands of customers in FIT programs across the country, including ratepayers of the Los Angeles Department of Water and Power (LADWP), Sacramento Municipal Utilities District (SMUD), and the City of Palo Alto.
  • The memo was filed in Arizona by TASC (The Alliance for Solar Choice) in response to a proposal Arizona Public Service submitted with a suggested FIT arrangement for replacing net metering.


“We didn’t want to have to file, but felt it was imperative given the implications of these hidden taxes for consumers nationwide,” Bryan Miller, President of TASC and Vice President of Public Policy & Power Markets at Sunrun, states.

“Utility opposition to net metering and their efforts to shift away from NEM toward a FIT is not new. Utilities should be ashamed of pushing a policy that imposes more taxation on customers.”

Photo Credit: 401(K) 2013 / Foter / CC BY-SA

Don't forget to follow Solar Love on Facebook, Twitter, Google+, and/or RSS!! Do it for the sun.

About the Author

is the director of CleanTechnica, the most popular cleantech-focused website in the world, and Planetsave, a world-leading green and science news site. He has been covering green news of various sorts since 2008, and he has been especially focused on solar energy, electric vehicles, and wind energy since 2009. Aside from his work on CleanTechnica and Planetsave, he's the founder and director of Solar Love, EV Obsession, and Bikocity. To connect with Zach on some of your favorite social networks, go to ZacharyShahan.com and click on the relevant buttons.
  • elaterite

    Nameless Sunrun rep writes: “FITs and VOSTs make residential solar customers ineligible for a 30% federal tax credit toward their rooftop installations.”

    Response: We should dump the 30 percent ITC, it’s very unfair to those of us, like myself, who can afford solar but don’t have sufficient tax liability to receive the tax credit. It’s a major reason I don’t have solar on my home. And no, I don’t want to cut a deal with a middleman rent-to-own leasing outfit like Sunrun, Solarcity and the rest.

    Nameless Sunrun rep writes: “The payments a consumer receives for solar power generated under these arrangements will likely be considered taxable gross income.”

    Response: This is awesome–pleeeease allow me to earn a profit selling *my* energy to the utility on the wholesale market. I’d be happy to pay an income tax on the energy I sell, it means I’m earning more money each year. 🙂 (And it means *I’m* earning the money on *my* solar system, not the middlemen like Sunrun, Solarcity et al.)

    Bob Tregilus
    Co-host –
    This Week in Energy (TWiE)

    http://ThisWeekinEnergy.tv

    • Thanks for the responses, Bob!

    • Evangelia Paraskevadaki

      I agree. Solar power is not only a green technology but allows people to produce their own energy and (hopefully some day) be independent from the grid and free to manage their energy needs. Since globally we are in a transition stage towards renewables and utilities want to use solar energy, they should also pay for it, directly, per kWh.

      But the FiTs have to be calculated and adopted to the market conditions, or else they could create a surge and then fail (as happened in Spain, Greece etc). In my opinion the FiT should be regarded as an initial stage gradually adapting to the increase of solar penetration.In Europe, FiTs gave a boost to solar power, but now the significant cuts (since the states could not support the high incenitves) have created a great obstacle to further development of solar. We are in a stage now that we have to change our view (because due to the high FiTs all regarded solar only as a business opportunity) and work to exploite the long term benefits of solar.

      So, in my opinion, an initial FiT scheme with a calculated and predicted transition to net metering is more feasible. Exploitation of peak demand correlation with PV output has to be utilized eventually, because it is the second best benefit of solar.

      • Certainly depends on the country. Germany’s has gone near perfectly. Of course, the standard plan is to reduce them as the costs of the technologies come down. I think the biggest issues with the boom-bust countries simply comes from political matters — anti-PV policymakers whacking the policy off at the knees when they come into power, and pro-PV policymakers doing what they can to get as much installed as possible while they are in power. (To simplify quite a bit, of course.)

        • Evangelia Paraskevadaki

          In EU all the countries followed a similar policy. The incentives were not country-specific and that was a problem. Germany could support high FiTs, Spain and Greece could not. In order to fund the FiTs, a levy on energy retail price was introduced, that made electricity very expensive for all consumers (in Germany, in order to support the FiT, 20% increase in the price of electricity was introduced!). So, many people blame it on solar power and have developed a distrust towards renewables.

          The truth is that FiTs seemed to be set to the value that was favorable to the manufacturers of solar equipment in order to maximize their profit. Just consider that the prices of solar panels droped at 75% in 2 years…I do not know if the true costs for their production reduced that much since the technology is relatively old…

          The system cost has to try to adapt to the funding capability of the state, and not the other way around.. The state has to somehow push the manufacturers and the retailers of solar equipment to sell their products at lower prices. Licensing procedures have to be simplified. This way the total system costs will drop, and maybe it would be much easier for consumers to invest in solar with lower FiTs.

          Don’t get me wrong, but to me, solar energy is much more than an investment. It’s just the right thing to do… It is a hope for a better future. And I think that countries, the industry and citizens should focus on that fact and try to find the conditions that will support the transition towards 100% renewables. That’s not going to happen tomorrow, but in order to happen, we all have to sacrifice something.

          • Similar policies, but implemented differently.

            The cost drops have come for various reasons. Economies of scale are certainly part of the story. However, oversupply due to drop-off in supportive policies and a consequent drop in demand is also a well known reason for it. The manufacturers have mostly not been making a profit the past couple years because of this.

            If you take into account matters such as the cost of pollution and the cost of fuel imports, the “cost” of installing solar comes out to a savings in a lot of places, but this is not generally calculated when discussing these matters.

            Also, just getting back to the policy in Germany, a very notable issue there is that many industries have been exempted from the surcharge. Thanks to solar power bringing down the wholesale cost of electricity, this has actually resulted in them paying *less* for electricity. However, because they have been exempted, they are pushing the costs onto individuals and small businesses more. It’s quite an unfair situation. But, overall, I do think Germany is a country to look up to. Germans paid higher prices up front in order to get the industry rolling, and I think they are very proud of that. Now, the surcharges are so negligible that it’s really not an issue except for people who want to politicize the issue or have been fooled by those doing so.

            Thanks for the fun discussion. 😀

          • Evangelia Paraskevadaki

            The most important difference, between Germany and the other countries in EU that implemented FiT policies, is that Germany had a significant domestic production of solar panels and inverters. Also, they were a step
            ahead in standards integration and certification of equipment. They developed a strong solar industry and then made every effort to grow this industry in Germany and EU. In this way, Germany is a country to look up to. Their growth is not only based on FiTs. And I think that US has the potential for a similar solar growth.

            I have studied solar systems for 7 years now because I believe in the technology. But, sadly, in many countries there are people that won’t support solar for several reasons. In order to minimize their arguments against solar, rational and feasible policies have to be applied. And this is a factor that is not considered on time, in many cases.

            I am very happy to see that in the US there is an open discussion about solar system integration. Thank you very much for the opportunity to share my opinion and experiences. Good day from Greece!

          • Good day from Poland! 😀 Was able to visit your beautiful island of Crete recently. Nice place. 😀

  • NightCrawler1970

    Hmmm, let the home-owners decide what they do with the tax-return remember 20 years is a loooonnnggg way to pay it back…