January 15, 2008
INCENTIVES FOR SOLAR HEATING IN OTHER STATES
By: Kevin E. McCarthy, Principal Analyst
You asked for information on programs in other states that encourage the use of solar energy for space and water heating, particularly for businesses.
This memo describes incentives in Arizona, California, Illinois, Maryland, Massachusetts, New Mexico, and Oregon for businesses to install solar heating technologies. Among the more common type of incentives are sales and property tax exemptions, tax credits, and grants. In many cases, these incentives are also available to residential customers and for other technologies. In addition, many states (including Connecticut) have incentives specifically targeted at photovoltaic and other solar electric technologies.
Much of the information in this report comes from a U.S. Department of Energy database, available online at www.dsireusa.org/, which has links to websites describing the incentives in greater detail, contact information for program administrators, and statutory citations. The database also describes incentives provided by municipalities and utilities.
Arizona has one of the most comprehensive solar energy programs in the country. In addition to providing tax exemptions and credits for solar technologies, the state provides technical assistance and information on technologies ranging from off-grid photovoltaic systems to commercial-scaled renewable energy technologies.
In addition to the state initiatives, several of the electric utilities in the state have programs to encourage the use of solar technologies by businesses. For example, Arizona Public Service provides a one-time credit for businesses that install solar water heating systems. The credit is 7 cents for each kilowatt-hour the system saves, up to half of the system cost. The Salt River Project (a quasi-public utility) has a similar incentive.
Arizona exempts the retail sale of solar and wind devices and their installation by contractors from the state sales tax. There is also a local option city sales tax exemption.
The state also exempts solar energy devices and any other device or system designed for the production of solar energy for on-site consumption from the property tax. These devices include solar heating and cooling systems (including passive systems such as trombe walls), solar electric systems, and mechanisms to provide electrical power or daylighting.
Arizona provides tax credits for businesses and other non-residential customers who install solar energy technologies, including solar space and water heating systems. The tax credit, which may be applied against corporate or personal taxes, is equal to 10% of the installed cost of qualified solar energy devices and applies to taxable years beginning January 1, 2006 through December 31, 2012. The maximum credit per taxpayer is $25,000 for any one building in the same year and $50,000 in total credits in any year. If the credit exceeds the taxpayer's income tax liability, the remainder may be carried forward for not more than five consecutive taxable years as a credit against subsequent years' income tax liability. The total amount of credits is capped at $1 million per year.
As part of the California Solar Initiative, the California Public Utilities Commission has authorized $2.6 million for a pilot solar water heating program, of which $1.5 million is for incentives. This program, launched in July 2007, is administered by the California Center for Sustainable Energy and is available to only retrofit systems for residential, commercial, agricultural, and industrial electric customers of San Diego Gas & Electric.
For residential and small commercial systems, the maximum incentive is $1,500 and is based on estimated system performance, how well the system is oriented towards the sun, and other factors. For larger commercial systems, the incentive is a function of collector area and will be adjusted based on factors of system type, collector rating, and solar orientation. The system will be metered and one month of successful meter data will be required to demonstrate the system is working properly before payment of incentive is made. The incentives are $15 per square foot for open-loop systems and $20 per square foot for closed-loop systems. The maximum incentive is $75,000.
California exempts certain types of solar energy systems installed by December 31, 2009 from the property tax. Qualifying systems include solar space heating and air conditioning systems, solar water heating systems, active solar energy systems, solar process heating systems, photovoltaic systems, solar thermal electric systems, and solar mechanical energy. Solar pool and hot tub heating systems are not eligible. Components included under the exemption include storage devices, power conditioning equipment, transfer equipment, and parts. Pipes and ducts that carry both solar energy and energy from other sources qualify for a 75% exemption.
The Solar Thermal Incentive Program targets nonresidential projects that cost over $50,000 that collect and transfer heat for space heating and cooling, water heating, and electric generation. Under the program, the Department of Commerce and Economic Opportunity may provide an award of up to 30% of eligible costs per project, with a maximum incentive amount of $400,000.
In addition, Illinois offers a special assessment of solar energy systems for property-tax purposes. For property owners who register with the chief county assessment officer, solar energy equipment is valued at no more than a conventional energy system. Eligible equipment includes both active and passive solar-energy systems. The exemption is not valid for equipment that is equally usable in a conventional energy system.
The state's Solar Energy Grant Program provides financial incentives to businesses, local governments, non-profit organizations, and homeowners that install solar water-heating systems or solar-electric systems. Commercial solar water heating systems must have at 40 square feet of collector space (the equivalent of two kilowatts of electric use). The grant for these systems is the lesser of $2,000 or 20% of the cost for solar water-heating equipment.
These grants may be subtracted from adjusted gross income for state income tax purposes, so that program recipients do not have to pay state taxes on the amount of the grant.
The state allows counties (including the city of Baltimore) to establish a property tax credit for buildings equipped with solar, geothermal or qualifying energy conservation devices. These devices must be used to heat or cool the structure, to generate electricity to be used in the structure, or to provide hot water for use in the structure. The county determines the amount of the credit and how solar, geothermal, and energy conservation devices are defined. Counties also determine the length of time that the credit may be available, up to a maximum of three years.
The state also allows counties and municipalities to provide a credit against the property tax for buildings which achieve at least a silver rating under the U.S. Green Building Council's LEED standards or which meet comparable green building guidelines or standards approved by the state. (Buildings can meet these standards by using various technologies, including solar space and water heating.) The counties or municipalities that provide this credit may determine its amount and duration and the criteria and qualifications for receiving it.
Businesses may take a credit against the state excise tax for the purchase and installation of a solar water-heating system. The system must be installed at a commercial building, and the credit may not
exceed $300 or 15% of the system cost, whichever is less. The credit expired December 31, 2007, but a business may carry over unused portions of the credit for use in taxable year 2007.
Corporations may deduct from their income for corporation tax purposes, the expenditures paid or incurred during a taxable year for a solar powered climatic control unit or water heating unit, including installation costs.
Solar energy systems and devices installed for supplying the energy needs of a residence or business are exempt from local property tax. This exemption runs for 20 years from the date of system installation.
The state has a 30% personal income tax credit (up to $9,000) for unincorporated businesses and individuals who purchase and install certified solar thermal and photovoltaic systems. Eligible systems include active solar hot water or hot air systems. To be eligible, systems must first be certified by the New Mexico Energy, Minerals, and Natural Resources Department. Solar pool or hot tub heaters are not eligible for this tax credit.
The state also has a personal and corporate tax credits for sustainable buildings. The tax credits apply to both commercial and residential buildings. Commercial buildings which have been registered and certified by the US Green Building Council at LEED Silver or higher for new construction, existing buildings, core and shell, or commercial interiors are eligible for a tax credit. (As noted above, buildings can meet these standards by using solar space and water heating.) The amount of the credit varies according to the square footage of the building and the level of certification achieved. New construction that achieves the LEED silver standard is entitled to a credit of $3.50 per square foot for the first 10,000 square feet, $1.75 for the next 40,000 square feet, and $.70 for each square foot between 40,000 and 500,000 square feet.
The Solar Water Heating Buy-Down Program operated by the Energy Trust of Oregon (a non-profit organization) offers incentives to customers of the state's major electric and gas utilities who install solar water or pool heating systems in their office buildings, homes, and certain other buildings. The incentive is calculated by multiplying the incentive rate
by the estimated annual energy savings. The incentive rate varies by utility, but is capped at 35% of system costs in all cases. The incentive is paid to the solar contractor and deducted from the customer's final cost.
Oregon provides a Business Energy Tax Credit for investments in renewable energy resources, among other things. Projects that use solar or other renewable energy resources to produce or displace energy may qualify for the credit. Renewable resource projects must replace at least 10% of the electricity, gas or oil used. Sustainable building projects that at least meet the LEED Silver standard are also eligible. The credit can cover expenditures directly related to the project, including equipment cost, engineering and design fees, materials, supplies and installation costs. Loan fees and permit costs also may be claimed.
The tax credit is for 50% of the total eligible expenditures, with a maximum credit of $10 million. The credit is taken over five years at 10% each year. Any unused credit can be carried forward up to eight years. Those with eligible project costs of $20,000 or less may take the tax credit in one year. The credits are available until January 1, 2016. A project owner may transfer the credit to a pass-through partner in return for a lump-sum cash payment
(the net present value of the tax credit) upon completion of the project. This option allows businesses and other entities without tax liability to benefit from the credit by transferring it to a partner with a tax liability.
The state also provides a tax credit for manufacturers of renewable energy systems. Eligible systems include solar space, water, and pool heating. The tax credit equals 50% of the construction costs of a facility which will manufacture renewable energy systems, and includes the costs of the building, excavation, machinery and equipment which is used primarily to manufacturer renewable energy systems. The credit can also be applied to the costs of improving an existing facility which will be used to manufacture renewable energy systems. The 50% credit is taken over the course of 5 years, at 10% each year, and can not exceed $10 million.
Property Tax Exemption
The state excludes the added value to any property from the installation of a qualifying renewable energy system from the assessment of the property's value for property tax purposes. Qualifying renewables include active and passive solar space heating, solar water heating, and solar thermal process heating systems, among others. The exemption is intended for end users and does not apply to property owned by anyone directly or indirectly involved in the energy industry.