NewEnergyNews: TODAY’S STUDY: NEW ENERGY INCENTIVES AND TAX POLICIES

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Gleanings from the web and the world, condensed for convenience, illustrated for enlightenment, arranged for impact...

The challenge now: To make every day Earth Day.

YESTERDAY

  • ORIGINAL REPORTING: Taming the Wild West: The CA ISO’s Bid For A Regional Electricity Market
  • ORIGINAL REPORTING: A Closer Look At The Plunging Cost Of Battery Energy Storage
  • ORIGINAL REPORTING: New arrival Spruce ups game for 'trusted energy advisor' role
  • THE DAY BEFORE

  • TODAY’S STUDY: What Utilities Are Planning For Solar
  • QUICK NEWS, September 27: Facts Check Trump – Fed Investments In Solar A Huge Success; Top Midwest Utility In $2 Billion Wind Buy; Solar Cost Increasingly Beating The Market
  • THE DAY BEFORE THE DAY BEFORE

  • TODAY’S STUDY: The Future Of Offshore Wind Foreseen
  • QUICK NEWS, September 26: The Sonification Of Climate Change; Wind Is Red, White, And Green; The New Hybrid Solar-Storage Concept Module
  • THE DAY BEFORE THAT

  • Weekend Video: Good News On Climate – The Public Is Starting To Get It
  • Weekend Video: The Libertarian Failure On Climate Change
  • Weekend Video: New Energy Is Doable – And Is Being Done
  • AND THE DAY BEFORE THAT

  • FRIDAY WORLD HEADLINE-World Gets A Step Closer To Enforceable Climate Laws
  • FRIDAY WORLD HEADLINE-New Energy Ready To Power The World Future
  • FRIDAY WORLD HEADLINE-Sahara Sun Could Power The World
  • FRIDAY WORLD HEADLINE-World’s Biggest Offshore Wind Turbines Building Off UK Coast
  • THE LAST DAY UP HERE

    THINGS-TO-THINK-ABOUT THURSDAY, September 22:

  • TTTA Thursday-Why Having Babies Could Be The Climate Change Answer
  • TTTA Thursday-Big Texas Wind Backed By Amazon
  • TTTA Thursday-Big Sun Sparkles In Nevada
  • TTTA Thursday-EV Racing Coming To The Streets Of Brooklyn
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    Anne B. Butterfield of Daily Camera and Huffington Post, f is an occasional contributor to NewEnergyNews

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    Some of Anne's contributions:

  • Another Tipping Point: US Coal Supply Decline So Real Even West Virginia Concurs (REPORT), November 26, 2013
  • SOLAR FOR ME BUT NOT FOR THEE ~ Xcel's Push to Undermine Rooftop Solar, September 20, 2013
  • NEW BILLS AND NEW BIRDS in Colorado's recent session, May 20, 2013
  • Lies, damned lies and politicians (October 8, 2012)
  • Colorado's Elegant Solution to Fracking (April 23, 2012)
  • Shale Gas: From Geologic Bubble to Economic Bubble (March 15, 2012)
  • Taken for granted no more (February 5, 2012)
  • The Republican clown car circus (January 6, 2012)
  • Twenty-Somethings of Colorado With Skin in the Game (November 22, 2011)
  • Occupy, Xcel, and the Mother of All Cliffs (October 31, 2011)
  • Boulder Can Own Its Power With Distributed Generation (June 7, 2011)
  • The Plunging Cost of Renewables and Boulder's Energy Future (April 19, 2011)
  • Paddling Down the River Denial (January 12, 2011)
  • The Fox (News) That Jumped the Shark (December 16, 2010)
  • Click here for an archive of Butterfield columns

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    Some details about NewEnergyNews and the man behind the curtain: Herman K. Trabish, Agua Dulce, CA., Doctor with my hands, Writer with my head, Student of New Energy and Human Experience with my heart

    email: herman@NewEnergyNews.net

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      A tip of the NewEnergyNews cap to Phillip Garcia for crucial assistance in the design implementation of this site. Thanks, Phillip.

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    Pay a visit to the HARRY BOYKOFF page at Basketball Reference, sponsored by NewEnergyNews and Oil In Their Blood.

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  • THINGS-TO-THINK-ABOUT THURSDAY, September 29:

  • Mars Sees Threat To Chocolate In Climate Change
  • Wearable New Energy
  • Picture Proof That U.S. Offshore Wind Lives
  • BMW’s Used Battery Power Plant

    Tuesday, January 05, 2016

    TODAY’S STUDY: NEW ENERGY INCENTIVES AND TAX POLICIES

    Net metering & feed-in tariffs: Understanding the tax implications of distributed generation policies

    December 2015 (Clean Coalition)

    Executive Summary

    Policies designed to support customer-sited distributed generation (DG) are evolving. For years, net energy metering (NEM), or “net metering”, has been used widely across the country, but many states are now studying or transitioning to successor NEM policies.1 As new tariffs or standard contracts are developed, it is essential that policymakers consider the potential tax implications of each option because this may affect the ability of the NEM successor policy to continue to drive successful deployment of customer-sited solar photovoltaic (PV) systems.

    For this reason, the Clean Coalition conducted an analysis to compare the tax impacts on a residential customer-generator under a feed-in tariff (FIT) program as opposed to net metering. The Internal Revenue Service (IRS) has not ruled that energy sold to a utility under a FIT is taxable gross income. However, in this analysis, the Clean Coalition analyzed the implications for the customer-generator if the IRS were to determine that the revenue from energy sales under a FIT constitute taxable gross income. Under this scenario, we evaluated the tax implications for a typical California residential customer, served by Pacific Gas & Electric (PG&E), with a solar system size of 5 kilowatts (kW) at an installed price of $3/WDC.

    The conclusion is that any new income tax liability from energy sales under a FIT would be largely offset by associated deductions available under a FIT at rates up to $0.15 per kilowatt-hour (kWh)…

    NEM

    Under NEM, generation from a DG system is first used to meet on-site load. When generation from a NEM system exceeds on-site load, the excess energy is exported to the grid and the customer is credited at the full retail value of electricity for each kWh delivered. When a NEM system is not producing enough power to meet on-site load, the customer buys power from the electric utility at the standard retail rate.

    Rarely does the output of a NEM system precisely match on-site consumption. Therefore, a NEM customer exports excess power to the electric grid at some times and imports power from the grid at other times. As a result, a customer is billed only for the net electricity used during each billing period.5 In California, utilities annually “trueup” NEM customers’ bills to reconcile all electricity charges and credits for the prior 12- month billing cycle. If any remaining charges exist at this time, the utility will invoice the customer. Alternatively, the utility will issue payment for any excess electricity generated, which is known as Net Surplus Compensation (NCS).6 Customers may opt to either accept payment for NCS or receive a credit that will apply to the next 12-month true-up period.

    FIT

    Under a FIT, a customer-generator sells all power produced to the local utility at a longterm, fixed-rate and continues to buy all their energy at the retail rate. The FIT rate can be set based on any number of factors, including the benefits and costs a DG system places on the grid. In some FITs, customers can apply the fixed-rate credits against their bill, but the FIT credits are usually above or below the retail rate.

    Tax treatment under a residential FIT compared to NEM

    With NEM, a customer is simply credited at the retail rate for energy exported to the grid. Through this accounting mechanism, there is no sale of energy to the utility, which means no potential taxable income.

    Unlike NEM, a FIT approach may involve the customer directly selling electricity to the utility. Although the IRS has not ruled as such, it is possible they will determine that the sales from the utility to the customer-generator—and from the customer-generator to the utility—are separate and distinct transactions subject to state and federal income tax.7 If the IRS makes this determination, then payments received by a customergenerator from the utility for the sale of electricity under a FIT may fall within the definition of taxable gross income.

    Taxing energy sales under this scenario would appear to lessen the economic desirability of the FIT approach. However, the impact is mitigated by tax deductions associated with the DG system, which this analysis investigates. It is also worth noting that using specific language to structure a FIT may avoid tax issues altogether. For example, Austin Energy’s Value of Solar Tariff refers to “credits” and never uses the terms “sales” or “cash.”8 In this way, a FIT approach could be viewed in the same manner as behind-themeter systems such as those enrolled in NEM programs—with no sales that could potentially be construed as taxable gross income.

    Regardless, in the following analysis, we assumed that the IRS has ruled that energy sales under a FIT constitute taxable gross income, and we investigated the financial impacts of taxing energy sales under a FIT…

    Details of the analysis…A typical California customer…Electricity consumption and PV generation…Federal, state, and local tax treatments…Current rate schedule…Future rate schedule…ITC and post-ITC scenarios…Model assumptions…System costs…System financing…Full suite of assumptions…Results…Various FIT rates…NEM and FIT payback periods…NEM and FIT—with ITC expiration and rate-tier changes…Hybrid self-supply plus FIT approach...

    Conclusions

    The analysis revealed that tax deductions applied to a FIT system with a rate up to $0.15/kWh largely offset 20 years of gross income tax liability. However, to achieve a payback period similar to that of an identical NEM system, the FIT rate must increase to approximately $0.25/kWh. Even then, the NEM system would have a higher NPV over 20 years because of the increased value caused by avoiding rising retail energy prices. Finally, for systems operating under California’s new rate structure in 2019, a $0.15/kWh FIT yields a payback period similar to the NEM system, but with just over half the NPV…

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