Oct. 28, 2020 (IEEFA) — An advisory published today by the Institute for Energy Economic and Financial Analysis (IEEFA) warns that too few standards exist for renewable energy tax abatement deals, even as utility-scale solar and wind power continue to quickly gain market share across the electricity generation sector.
The advisory, Negotiating Responsible Tax Breaks on Renewable Energy Deals, includes guidance on practices and cautions that towns and counties that neglect to conduct due diligence on renewable energy deals run the risk of being exploited by developers.
“With state-mandated renewable energy portfolios expanding, and with growing demand from corporations for renewable power, the pressure on local governments and school districts to approve utility-scale solar and wind projects has never been more pronounced—and is likely to accelerate,” said Brent Israelsen, an IEEFA consultant and lead author of the advisory. “Any local government contemplating a renewable energy tax abatement should ensure the project is structured fairly.”
The advisory cites three recent projects as examples illustrating the range of deals being executed across the country. All include variations on what are known as PILOT agreements, PILOT standing for “payment in lieu of taxes,” contracts that allow developers to pay less in taxes than they otherwise would but more than if the relevant lands had been left underdeveloped or undeveloped.
Examples cited in the analysis:
Among the best practices recommended for tax-abatement deals:
“Though economics are not the only consideration for supporting renewable energy projects, any local government contemplating one in its backyard should avoid treating it as a mere political deliverable. Local authorities should be vigilant as to whether the project is structured fairly,” the brief states.
“A well-crafted, fully vetted and equitable agreement will not only help ensure that the project is beneficial but will encourage and help guide other communities that are exploring renewable projects while maintaining and even increasing public support for such projects,” the brief concludes.
Brent Israelsen ([email protected]) is an analyst
Karl Cates ([email protected]), is an energy transition analyst (917) 439-8225
Vivienne Heston, [email protected], (914) 439-8921
The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.