Brent Israelsen is a guest contributor at IEEFA.
Clearly, tax incentives are associated with the expansion of renewables, just as they were associated with the buildout of “new manufacturing plants, corporate headquarters, or research and development centers” after the recession of 2008- 2009. That said, tax breaks meant to attract private-sector investment attract perpetual scrutiny as public-policy watchdogs and some policymakers continue to question whether they are a good deal for communities.
To negotiate a fair deal for the community—and to avoid spooking developers—local government officials should look at the transaction from the industry’s point of view and try to understand the dynamics that make their communities attractive: Availability of robust wind and solar resources, proximity to transmission lines and substations, and trends in electricity demand.
As with any issue of public importance, allowing public access to meetings and documents is vital to building and maintaining confidence in renewable energy development, especially where taxation is involved.
Wind and utility-scale solar power generation is the fastest-growing sector of the U.S. electricity market, and development deals with communities occur now almost daily across the country. Such agreements typically include property-tax abatements that encourage developers to build in a particular jurisdiction and that create jobs and other beneficial effects that might not otherwise happen.
Some research suggests tax incentives aren’t worth the return, but when private property is left undeveloped or underdeveloped, it may not generate the same public revenues it would if renewable energy development is incentivized.
Benefits flow most commonly to school districts and other public-service jurisdictions like sewer districts and road-maintenance funds.
Few standards exist across the industry, however. The deals are described by various terms from state to state, for instance, although they can be referred to generically as PILOT agreements; PILOT standing for payments in lieu of taxes.
This brief includes general guidance on best community practices for negotiating renewable-energy agreements and salient detail from three recent agreements between private-sector companies and local governments:
While this is a tiny sample of recent agreements, it is illustrative of the lack of consistency across the board, highlighting a dearth of standards that could put communities at a disadvantage during negotiations.
Some best practices to follow in negotiating responsible tax breaks on renewable energy deals:
PILOT programs can bring community benefit from renewable energy development and are best executed when built around guidelines like the ones described here.
Please view full report PDF for references and sources.