PILOTs — a way to discourage solar, wind projects?

In the closing months of 2016, the Montgomery County Legislature passed a law to allow PILOT tax agreements for new solar and wind projects within the county.

The Fulton County Board of Supervisors has discussed doing the same thing, which has me wondering whether 2017 will prove to be the year that the rural counties of New York state begin a major push to tax-renewable energy production.

One of the bright spots of 2016 was the undeniably rapid expansion of solar and wind energy in the U.S. Last year, according to the U.S. Energy Information Administration, solar energy accounted for 11.2 gigawatts of new electrical capacity — the most of any energy source; natural gas accounted for 8 GWs, wind 6.8 GWs, nuclear 1.1 GWs, hydroelectric 0.3 GWs and petroleum 0.3 GWs.

In Montgomery County, there are solar projects in the city and town of Amsterdam, the town of Florida and a 1,000-acre solar farm in Canajoharie. Projects are proposed for other parts of the county, too.

In Fulton County, a 22.3-acre solar farm has been proposed for Elmwood Avenue in the town of Johnstown, which would have 14,220 solar panels.

Why have solar and wind been expanding so fast? A World Economic Forum report published in December showed installation of new solar and wind power is now less expensive in 30 countries than installation of new fossil fuel capacity. The report anticipates the rapid decrease in the cost of new solar and wind will enable those energy sources, even without the help of government subsidies, to reach “grid parity” with fossil fuels in more than two-thirds of the world’s countries in less than 10 years.

But for now, solar and wind companies say they still need the government subsidies to help promote their projects. One such subsidy is the New York state property tax law section 487 exemption for solar and wind energy systems.

Section 487, first enacted in 1977, then again in 1990 and again in 2014, makes new solar and wind projects property-tax exempt for 15 years, unless local governments pass laws to “opt-out” of the exemption and replace it with a 15-year payment in lieu of taxes agreement, as Montgomery County did in October and Fulton County is considering doing.

When I interviewed him for this column, Fulton County Administrative Officer Jon Stead said the proliferation of solar projects has prompted some counties to look at opting out of the state’s tax exemption and putting in PILOT agreements.

“This is quite a bit different than most of the property tax exemptions that municipalities have to deal with. Usually, there is no exemption unless the local tax jurisdiction enacts it, so this is the reverse. So, I think many counties, including our own, were not that familiar with this provision of the law, 487, but now because there are more and more of these projects like this, with alternate energy, it’s becoming an issue we’re trying to get familiar with,” Stead said. “One of the things we’ve seen, in our discussions of this, is the implication of this to municipalities like Fulton County, Montgomery County, Herkimer County, most of the upstate counties, many of them have the types of open tracts of land and larger tracks of land where either solar or wind farms could be constructed, but [these projects] don’t necessarily have to have a local benefit to them in terms of reduced power and electrical costs.

“Some of them are sponsored by organizations, businesses that are 50 or 100 miles away. One of the ones in our area is actually sponsored in conjunction with RPI, so the Rensselaer Polytechnic Institute is going to get reduced electric costs as a result of a solar farm in Fulton County. But if there is no PILOT program or property tax, the local jurisdictions really would not get any benefit out of that property, which might otherwise be generating sales tax and so forth.”

In Montgomery County, the new 15-year PILOT schedule for solar and wind farms in the first year will be 50 percent of the increase in assessed value attributed to the solar or wind improvements and then gradually increase to being taxed at its full value by the end of the 15-year period.

Stead’s point about local governments getting no direct benefit from many of the renewable projects for 15 years makes sense, unless the PILOT agreements stop the projects from happening at all. When Montgomery County passed the PILOT plan for solar and wind, Josh Katz of Onyx Renewables Partners, a New York-based solar company, said at the time that the PILOT agreement will deter investment in new solar and wind projects.

“After 15 years of operating these projects, before property taxes, our company has made $891,000, which is after investing $5 million,” Katz said. “With the current property tax proposal that you all are voting on, that will result in a tax obligation of $1.4 million, meaning that after 15 years of operation, and a $5 million investment, our company has lost $524,000. That’s negative 2 percent return.”

If Katz’s calculations are correct, then counties that choose to go the PILOT route instead of sticking with the state’s exemption aren’t really trying to get revenue out of these projects as much as just preventing them from being built. The proof will come when we see if solar and wind projects shut down in Montgomery County or if the proposals to build them abruptly stop after this. If they do, then the PILOT taxes are still too high even with the rapid decrease in the cost of building solar and wind.

Stead told me the discussions that have happened so far on the Fulton County Board of Supervisors have included the idea of possibly only offering the PILOT agreements to commercial wind and solar projects and keeping the 15-year state exemption in place for residential solar or wind projects. I like that idea better than the county opting out of the exemption altogether.

Mark LaVigne, Deputy Director for the New York State Association of Counties, told me he believes his organization will be having discussions with many of its member counties in 2017 to see how they are dealing with the implications of property tax law section 487. I suspect more than a few of them will be implementing the PILOT approach. Governments are used to being able to tax energy production and consumption, like the sales tax on gasoline which punched big holes in several local governments when the price of gas dropped over the past several years.

To me, the great benefit of solar energy, and to a degree wind, is the opportunity for people to lower their energy costs, replacing expensive fossil fuels with power systems that use free energy sources – the sun and wind. Giving people the opportunity to power their own homes with solar panels, to store energy in new battery technology, to liberate themselves from the boot of the power grid and the big energy companies – that is the opportunity of renewable energy. Getting society to that point is going to be very tricky and these PILOT agreements illustrate part of the reason why. Our system isn’t set up to handle anything free, and I suspect we will begin to see more and more roadblocks put up to renewable energy generation locally and likely on the federal level, over the next four years at least.