Non-Profits Missing Out On Green Power Tax Credits

ENVIRONMENT 

By Kristian Foden-Vencil

Portland, OR  March 10, 2008 12:46 p.m.

Over the last year, a half  a dozen new solar power companies have moved to Oregon.

They come for the skilled workforce; silicon wafer expertise; and importantly, Oregon’s environmental ethic.
But they also come for cold, hard cash.

In 2007, the legislature increased the ‘business energy tax credit’ from 35 percent to 50 percent – one of the highest rates in the nation. And in an attempt to further expand the program, a secondary market has been created – so the credits can be bought and sold.

As Kristian Foden-Vencil reports, some worry that that secondary market is undercutting the original intent of the energy tax credit program.

REC Solar -- the largest provider of solar electric systems in the U.S. – has just opened a brand new Portland office.
It’s just the latest of a dozen alternative energy companies that have flocked to the Beaver state recently.

REC spokesman, Andy Noel, says one of the reasons they’re coming, is the tax credit that buyers of a new solar array can receive.

Andy Noel: “Half of the cost of the system will be taken in a state income tax offset -- the business energy tax credit. An additional 30 percent on top of that can be taken off their federal tax credit. And then there’s a cash incentive that, depending on the size of their system, can cover an additional 10 to 20 percent of the cost of the system. So those added up, can offset between 90 and 95 percent of the system.”

That means the feds and the state will pay for up to 90 percent of your new solar array and you get free power. It’s quite the deal.

Indeed, the program has proved to be very popular with businesses, politicians and environmental groups.
But there’s a fly in the ointment.

In order for a tax credit to be worth something, you have to pay tax.

And since schools, non-profits and many other organizations don’t pay tax, they can’t benefit from the credit.

So -- and here’s where it gets tricky -- the state has created a secondary market for tax credits.

For example, if a non-profit, say OPB -- built a $1 million solar panel array on its roof, the station could sell – or ‘pass-through’ -- its tax credits to another company.

But, explains Steven McGrath of Sustainable Solutions Unlimited, in order to encourage another company to buy the credits, they have to be sold at a discount. 

Steven McGrath: “The pass through rate as it’s currently set is 33-and-a-half percent of the eligible cost. So that would mean that a pass-through partner would pay the project owner $335,000 for that $500,000 in tax credits.”

In other words, OPB would only get $335,000 in exchange for half a million dollars worth of tax credits. And McGrath says, the pass-through company, is getting a sweetheart deal.

Steven McGrath: “It’s like putting money in a bank account and getting it back with 17 to 30 percent interest, depending on how you look at it. This is obviously much higher than most of us expect to get for what is essentially a very safe investment.”

McGrath says the discount was initially created to be generous because nobody knew if companies would buy the credits. But, he says, things have changed.

Steven McGrath: “I don’t think it is necessary any more to set it that high to get the investors that we need to make this happen.”

McGrath says reducing the size of the incentive would essentially free up more state money so other alternative energy systems could be built.

Steven McGrath: “If you look at the amount that the extra pass-through rate has cost the state in the history of the program. It’s in the 10s of millions of dollars. That’s money that could have supported projects had the rate been brought more into line sooner.”

But that’s not how the director of the Oregon Department of Energy sees it. Michael Grainey says the size of the incentive is about right. He says it's good for the nonprofit--and the state, since the tax credits are collectible over a period of five years.

So for the OPB example: by selling the tax credit the station gets $335,000 immediately – instead of $100,000 each year over five years. 

Michael Grainey: “Its seems like this is at least a reasonable rate. It may need some adjusting next year, and we’re certainly open to that. But at least for right now, it seems to be working.”

Grainey says the Oregon Department of Energy will review the pass-through incentive – probably at a public rule-making meeting after state lawmakers meet next year.

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© 2008 OPB