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

Photovoltaic Systems Share Characteristics of "Real Property"

Photovoltaic (PV) systems may meet many of the important criteria to be considered real property — a status that could make them eligible for easier financing — a new report by the U.S. Department of Energy's National Renewable Energy Laboratory, contends.

The NREL report, "The Technical Qualifications for Treating Photovoltaic Assets as Real Property by Real Estate Investment Trusts (REITs)," points out that PV systems aren't meant to be moved — thus arguably achieving the threshold of "permanence;" and don't involve mechanical energy — thus possibly meeting the criteria for "passiveness." Those are two of the criteria that could gain PV status as "real property," similar to houses or railroad tracks, as opposed to personal property, such as bulldozers or trains.

Currently, PV systems are not eligible for a major source of public funding: Real Estate Investment Trusts (REITs) which are popular among those seeking investments in real assets. Such investors hope to see stable, long-term returns typical of real assets.

The stakes are potentially huge. The U.S. REIT market is comprised of more than 100 funds with more than $450 billion in assets. Raised as a possible vehicle for public financing in recent roundtable discussions (see Mobilizing Public Markets to Finance Renewable Energy Projects:  Insights from Expert Stakeholders),  REITs are of broad interest to developers, bankers and fund managers.

"The roundtable discussions identified REITs as strong potential near-term opportunities to expand financing to the broader public markets," according to Douglas Arent, Executive Director of the Joint Institute for Strategic Energy Analysis at NREL, and lead convener of the roundtables.

That ineligibility leaves PV contending for loans in the private market where lack of supply and access allow investors to demand rates of return that can be three times higher than seen in public markets, said David Feldman, an NREL analyst and co-author of the report.

REITs have many benefits, including spreading risk over a large number of projects, and providing access to a wider range of investor classes such as pension funds and foreign and retail investors. REITs also own a large amount of commercial real estate that could host PV systems.

The chance to borrow money at much lower costs would mean reduced costs for PV power and could prompt a boom in rooftop solar installations and utility-scale PV projects.

"We're not trying to make the decision — the Internal Revenue Service will do that," Feldman noted. "We're giving them the technical information they need to make the decisions."

The report notes that power generating systems traditionally haven't been eligible for the "real property" moniker. But PV could be considered a special case. They're "passive" in that they don't require a conversion to mechanical energy in order to supply electricity to a home or office.

Other forms of energy — such as coal, natural gas, wind and concentrating solar power — use the power source to turn turbines which then send electricity to customers. The "passivity test" is meant to distinguish between real property such as land or factories and other property such as factory equipment and vehicles.

PV systems always have been designed to be "permanent," lasting 25 years or more. It doesn't make economic sense to move them, particularly now with the recent slide in the costs of solar modules.  Now, with the installed cost at about $4 a watt, and the cost of the solar module at about $1 a watt, the so-called "balance of systems" is the lion's share of the expense. For that reason, it makes little economic sense to move a PV system from one rooftop to another. And solar-leasing companies are saying as much — opting to renegotiate with the homeowner when the lease is up, rather than taking the system off the roof and putting it somewhere else.

One part of a PV system that arguably is "impassive" is the inverter that changes direct current from photons to alternating current that can be used in the home or office. But inverters operate very similarly to a transformer within a transmission system, and the IRS has deemed that transmission systems can be considered real property. The report also noted that inverters may use fans for cooling, but their primary functions are performed without using mechanical energy.

PV also can be considered an "integrated" system because its performance would deteriorate dramatically without its mounting structure, and it wouldn't perform at all without modules, inverters, wires and other components that integrate the system into a whole, the report said.  For that reason, there is an argument for all the equipment to be treated the same – either as real property or personal property.

"Whether these similarities to 'real property' are the only factors the IRS will consider when making its decision — we don't know," Feldman said. "There are similarities and differences to other real property assets."

A reclassification of PV as realty "has the potential to disrupt current financing practices in the solar market today," the report concludes.

This article was originally published on NREL Renewable Energy Finance and was republished with permission.

Untitled Document

RELATED ARTICLES

States Already Seek To Delay Clean Power Plan

Andrew Harris, Bloomberg Fifteen states led by coal-rich West Virginia asked a federal court to stall Obama administration rules intended to c...

Stolen Solar Panels and Sabotage A Challenge for Powering India With Renewable Energy

Anindya Upadhyay, Bloomberg Disappointment spread across Tarun Singh’s face when he saw that parts of his solar power microgrid in eastern India’...

Suntech Parent Company Buys Majority Share of US-based Suniva

Ehren Goossens Shunfeng International Clean Energy Ltd., the Hong Kong-based solar company controlled by billionaire Zheng Jianming,...

Sunrise in Pakistan as the Country Delves into Solar PV

Robert Harker Pakistan has joined the list of countries that are exploring solar power as a means to bridge critical energy generat...

PRESS RELEASES

Array Technologies’ DuraTrack HZ v3 Continues to (R)evolutionize at SPI

Array Technologies, Inc. (ATI) prepares to showcase its recently launched tracking syst...

Appalachian's Energy Center assists counties with landfill gas to energy projects

The Appalachian Energy Center at Appalachian State University recently completed a proj...

Redesigned HydroWorld.com Video Gallery

Hydropower news and information, and interesting promotional announcements are now avai...

30 days to GRC Annual Meeting & GEA Geothermal Energy Expo

The Geothermal Resources Council (GRC) has announced that it is only 30 days to go to t...

FEATURED BLOGS

Transitioning to Net-Zero Living

Judith and Jeffrey adore living in Belfast, Maine – a quaint harbor town of Belfast, Maine. They previously res...

The True Cost of Electric Vehicles in Australia

In order to avoid increased congestion, further greenhouse warming and lessen Australia’s reliance on imported ...

The Coming Multi-trillion Dollar Energy Investment Drive

In coming years, a multi-trillion dollar low-emission energy investment drive will get underway. Three catalysts wil...

The Perfect Elevator Pitch

The elevator pitch is a concise statement that grabs attention and communicates value, ideally leading to a next step...

FINANCIAL NEWS

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

Intersolar Europe 2016

Exhibition: June 22-24, 2016; Conference: June 21-22, 2016 Intersolar Eu...

Intersolar India 2015

Exhibition and Conference: November 18-20, 2015 Intersolar India 2015 I...

Intersolar North America 2016

Exhibition: July 12 - 14, 2016; Conference: July 11 - 13, 2016 Intersola...

COMPANY BLOGS

How To Recruit An Internal Ally

When you’re collecting information for a proposal, the person with...

The Proof Is Not Always In The Pudding

One of the best ways to turn a skeptical prospect into a buyer is to giv...

Pushing Beyond The Cushion

Efficiency projects are all too often viewed as “optional” o...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS