Companies and investors across Arizona are deciding whether it’s time to “go solar.” As with any other financial undertaking, moving forward with solar must make economic sense. Despite dramatic strides in technology, solar energy projects are not yet viable without government incentives. Those hoping to maximize incentives for solar should note that a particularly useful one — Treasury grants in lieu of energy credits — will expire soon.
The American Recovery & Reinvestment Act of 2009 (aka the stimulus bill) contained two key provisions for solar:
Solar now qualifies for a federal energy tax credit of 30 percent of cost. The credit applies when equipment is placed in service, allowing faster recovery than the renewable electricity production tax credit. Unfortunately, credit in excess of tax liability is carried forward to the next tax year, for up to 20 years.
But taxpayers may elect a Treasury grant in lieu of the energy credit. Grants are paid in as little as 60 days after equipment is placed in service or under construction. Treasury grants thus allow recovery of 30 percent of the cost of solar equipment, regardless of current income tax liability. More than $3 billion has been set aside for the grant in lieu of energy credit program.
However, the grant has an expiring provision; to qualify, construction must begin by Dec. 31, 2010. Physical work of a significant nature is required. Site selection, planning, design, site clearing, and even excavation to change the contours of the land do not count as beginning construction.
Although Dec. 31 is fast approaching, with proper guidance and execution, there is still time to act. Planning is crucial. Overlooking certain regulatory and permitting requirements early on, for example, could push your project groundbreaking into 2011.
Steps for developing a successful solar plan:
- Whether choosing more common photovoltaic (PV) rooftop panels or a larger thermal system, visit other companies with solar power systems already in place. Most states have associations dedicated to renewable energy that can direct you to these companies.
- If a solar system appears feasible, assemble a team of experts to handle environmental, regulatory, tax, real estate, energy procurement and financial matters.
- Determine your regulatory requirements and financial incentives. A good resource is www.dsireusa.org.
- Hire a contractor to conduct an energy audit to establish a baseline for the energy needs that must be met.
- Companies usually partner with a “solar energy provider” that installs, owns and operates the system. The provider sells lower-cost electricity to the company under a long-term contract, while generating valuable renewable energy credits that can be sold to your electric utility, further reducing electricity costs. State associations can provide listings of providers.
- From a list of pre-selected providers, request information regarding their abilities, such as technology, installation time frames, references and financial information. Choose the best finalists. Then issue an RFP specifying the amount of energy needed, the desired length and key terms of a power purchase agreement (PPA), project size, and the warranty you expect.
- Once a provider is selected, the land or roof lease and PPA need to be negotiated. A 20-year fixed-rate PPA is common. Companies also should meet with their electric utility to determine the grid interconnection and meter requirements, and the amount of renewable energy credits to be received.
How To Solar Stimulus Steps:
- Do your homework.
- Assemble a team of experts.
- Determine regulatory requirements and financial incentives.
- Hire a contractor to conduct an energy audit.
- Partner with a solar energy provider.
- Issue an RFP.
- Negotiate a power purchase
- agreement (PPA).
Mark Vilaboy also contributed to this article. He practices tax law in the Phoenix office of Quarles & Brady. For more information, visit www.quarles.com.
