The World's #1 Renewable Energy Network for News, Information, and Companies.
Untitled Document

Public-Private Partnerships Can Help Finance Renewable Energy Projects

Even in tough economic times, great opportunities exist, especially for governments and tax-exempt organizations interested in using of renewable energy. In fact, it is precisely these tough times that are making renewable energy the smart choice right now. This is especially true for cities and schools, where declining tax revenues and high operating costs are forcing cutbacks to balance budgets.

Because investments in renewable energy can often lower otherwise fixed operating costs, renewables are a wise solution – one where everyone wins, as long as you go about it the right way. 

In general, renewable energy investments, like solar systems, have a substantial upfront cost.  For most, this poses a challenge for tight budgets.  As a result, clever city managers and school administrators are looking for solutions that solve the problem of meeting energy needs while managing and lowering costs.

A good solution exists and here’s how it works.

In general, renewable energy equipment, like solar panels, wind turbines, biomass, and geothermal heating and cooling systems, qualifies for large federal income tax benefits which cover up to 30 percent of the costs for such equipment – with resourceful structuring, the tax benefits can often times generate up to 40 percent of the equipment costs. 

The problem for governments and tax-exempt organizations is that they don’t pay taxes and therefore when purchasing renewable energy equipment, these entities could end up paying more.  Fortunately, if the government or school can arrange a proper public-private partnership, this is not true.

So how is this done? Simply by not owning the equipment – at least for the five-year period that is required by the U.S. tax code. If the government or tax-exempt entity allows a private partner to legally own the equipment, and simply signs a five-year energy service agreement, the tax benefits can be realized by the private partner and the school or government takes advantage of the lowered energy costs.

There are other partnerships that can be structured and an experienced renewable energy tax advisor can help sort through the tax code.  For example, in some instances ownership by a so-called “blocker corporation” may allow the school or tax-exempt entity to hold partial ownership of the equipment.  Unfortunately, this it isn’t a solution for governments (only for tax exempts) because of special federal tax rules that differ for governments. 

So what can be done if neither ownership, lease, nor a blocker works?  Focus on the tax law rather than just state law.

There is also a little known, and highly esoteric, federal income tax rule whereby if a taxpayer can establish ownership for federal income tax purposes, you can in essence ignore state law legal ownership for federal tax purposes.  Therefore, if the IRS agrees that, based on all the facts and circumstances of the transaction between the public and private parties, the private party is the owner of the equipment, even if there is a bona fide state-law lease or legal title held by an exempt entity, then federal tax benefits may be realized by the private party.  But again, I highly recommend that you seek tax counsel of the utmost competency, and cooperative tax-exempt partners in order to take advantage of this type of “threading the needle” on tax code.

As I mentioned earlier, the simplest solution is for a private sector party to own the renewable energy equipment and sell the energy back to the government or tax-exempt entity through an energy services contract or a power purchase agreement (PPA). By selling energy under contract where the contract is not characterized as either ownership or a lease for federal tax purposes, the federal (and maybe state) tax benefits stay with the private party. As long as such sales of energy are legal in your state, this is a powerful solution.

Lee J. Peterson is a tax senior manager at Reznick Group, a top 20 national accounting firm.  

 

Untitled Document

Get All the Renewable Energy World News Delivered to Your Inbox

Subscribe to Renewable Energy World or email newsletter today at no cost and receive the latest news and information.

 Subscribe Now

RELATED ARTICLES

Solar water heating

California Regulators Propose Expansion of Eligibility Requirements for Solar Water Heating Program

Jennifer Delony The California Public Utilities Commission has proposed expanding the eligibility requirements for customers seeking ...
Solar

Florida Supreme Court Takes Up Solar Question

Wayne Barber Because Florida remains one of only four states where current laws expressly deny citizens and businesses the freedom...
solar net metering

Lithuanian Net Metering Hits Snag from Outset

Linas Jegelevicius The much anticipated net metering in Lithuania has hit a major snag from the very start – the introduced network oper...
Solar energy

Colorado PUC Orders No Changes to Solar Net Metering

Vince Font In what is being lauded as a “fair outcome” for consumers, utilities and the solar industry alike, the Colorado Publi...

PRESS RELEASES

Canadian Solar Wins Five Solar Power Projects Totaling 185 MW in Brazil

These power projects were won under a 20-year Power Purchase Agreement (PPA) with the B...

$100 Off of 5-day Advanced PV Project Experience. Download a Topic Schedule.

Assemble, ground, energize, and commission a complete grid-tied SolarEdge system from s...

Intersolar AWARD „Solar Projects in India“ – Applications being accepted until September 18

The Intersolar AWARD in the category Solar Projects in India honors projects in the fie...

National Thought Leaders to Present on Today's Clean Energy Issues & Trends During IREC's 3iForum at Solar Power International

"An encore to the standing-room-only sessions the past two years, IREC again brings som...

FEATURED BLOGS

Washington, DC Bridges the Solar Gap

The District of Columbia has enjoyed 15 years of strong economic growth. But prosperity is spread unevenly across the...

Sell Through Hypothesis

You first learned to hypothesize, or make educated guesses, in grade school science class. Now it’s time to ref...

Cronimet / THEnergy study: In solar for mines size does not always matter - Reducing CAPEX with energy efficiency and load shifting

Munich, September 2015. Mining companies are constantly gaining interest in solar solutions because frequently solar ...

Final Program Now Available for GRC Annual Meeting & GEA Geothermal Energy Expo

GRC Annual Meeting & GEA Geothermal Energy Expo - Final Program from

FINANCIAL NEWS

Lee Peterson is a licensed attorney and Senior Tax Manager for CohnReznick’s National Renewable Energy Practice. To date, Lee has been a critical tax advisor in over 10 billion dollars of renewable energy projects within the U.S. and its’ territor...

CURRENT MAGAZINE ISSUE

Volume 18, Issue 4
1507REW_C11

STAY CONNECTED

To register for our free
e-Newsletters, subscribe today:

SOCIAL ACTIVITY

Tweet the Editors! @jennrunyon

FEATURED PARTNERS



EVENTS

Successfully Integrating Solar: A Proactive Approach

•      What does the increasing solar penetrati...

Doing Business in Europe – in partnership with GWEC, the Global Win...

There is now 128.8 GW of installed wind energy capacity in the EU (appro...

Doing Business in South Africa – in partnership with GWEC, the Glob...

Wind Energy in South Africa has been expanding dramatically, growing fro...

COMPANY BLOGS

Sell Through Hypothesis

You first learned to hypothesize, or make educated guesses, in grade sch...

Vacancy? No Problem!

Have you ever tried to sell an efficiency product or service to a prospe...

Final Program Now Available for GRC Annual Meeting & GEA Geothermal...

GRC Annual Meeting & GEA Geothermal Energy Expo - Final Program f...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS