Table of Contents
Understanding the basics of solar energy technology, equipment, and terminology.
Solar Energy for Beginners FAQ- An introduction to the common equipment and terminology used in solar technology. Topics of discussion include solar PV systems, solar terms, system components, net metering, and financial considerations with regard to solar development.
Frequently Asked Questions
1. Project Revenue
1.1 What is the difference between a “Large-Scale Renewable” project and a “Distributed Energy Resource” project?
Solar energy projects in New York State are divided into two general categories: large-scale renewables (LSR) and distributed energy resources (DER). LSR projects, also known as “utility-scale solar,” are typically larger than 5 MWac and are built with the primary purpose of supplying wholesale electricity to the grid.
A DER project is typically 5 MWac or less and must have a customer(s), known as the “offtaker,” to purchase the electricity. Most DER projects are community solar projects, residential/commercial rooftop solar projects, or small ground-mounted solar.
1.2 What are Renewable Energy Certificates? Do All Projects Qualify?
A renewable energy certificate (REC) is a certificate created by a tracking system, such as the New York Generation Attribute Tracking System (NYGATS), that represents the environmental attributes of one megawatt hour of electricity generated from a renewable source like solar or wind. A typical New York household requires about seven megawatt hours of electricity to be powered for a full year.
RECs are used to substantiate environmental claims related to renewable energy use, such as for compliance with a State-mandated renewable compliance program, or for voluntary claims such as a climate action pledge. As such, RECs provide a tradable, traceable means for claiming the benefits of renewable electricity generation.
In New York, under the Order Adopting the Clean Energy Standard, only eligible large-scale renewable facilities are able to generate Tier 1 RECs.1 DER projects are compensated for environmental attributes under a separate compensation mechanism known as the environmental or “E” component of the VDER value stack.
1.3 How do large-scale solar projects make money?
Large-scale solar projects rely on two main streams of income to generate revenue and continue operations:
- The sale of electricity generated by the renewable generator, typically either sold in the NYISO market (wholesale) or sold to an offtaker under a contract called a power purchase agreement, which compensates projects based on the power they generate, and,
- The sale of RECs to NYSERDA or another offtaker, which provides compensation for the project’s environmental attributes. Through annual Renewable Energy Standard solicitations, NYSERDA seeks to purchase eligible RECs from renewable energy projects under long-term contracts to provide these projects with a predictable revenue stream via selling their RECs.
Once a project is operational and transfers RECs to NYSERDA, they can then be sold to Load-Serving Entities, such as utilities, for compliance under the Clean Energy Standard. By providing a contract to renewable energy developers to purchase RECs from the projects they have built or plan to build, developers are granted financial security for their projects, and once operational, the RECs can be used by utilities to comply with environmental standards.
It is important to note that projects do not receive payments from NYSERDA until they are operational and producing energy.
1.4 What is the Investment Tax Credit?
Initially implemented in 2005, the Investment Tax Credit (ITC) is an important federal policy mechanism that has propelled the growth of solar across the United States. Section 48 of the Internal Revenue Code of 2006 (as amended) allows project owners or investors to be eligible for the federal business energy ITC for installing designated renewable energy generation equipment.
The ITC allows project owners to apply a percentage of the project’s engineering, procurement, and construction costs (such as the panels, inverters, and racking equipment) as a credit towards their income taxes. The ITC is a one-time dollar-for-dollar reduction, and does not cover interconnection or some other “soft” development and financing costs.
The current ITC rate is set at 26% in 2020 and is scheduled to step down to 22% in 2021 and 10% in 2022. The ITC has been subject to frequent changes as energy policies have evolved. It is possible that the ITC may be modified or extended.
2. Local Benefits
2.1 What is RPTL §487?
New York State Real Property Tax Law (RPTL) Section §487 provides a 15-year exemption from real property taxation for renewable energy systems, including solar. This statute only applies to the value that a solar electric system adds to the overall value of the property; landowners with an installed renewable energy system continue to pay property tax on their homes and land.
Property owners must also continue to pay special district taxes (such as a fire district tax payment, but could also include a library, sewer, water, or ambulance tax ). The exemption has been a cornerstone of the State’s efforts to meet its clean energy goals, providing essential economic incentives for solar.
Local taxing jurisdictions do have the option to opt out of RPTL §487 and make the system fully taxable; however, projects may not be financially viable at full taxation. If a jurisdiction opts out of RPTL §487, it must opt out for systems of all sizes, not just large-scale, and must file copies of the local law opting out of RPTL §487 with both the New York Department of Taxation and Finance and NYSERDA.
2.2 What are PILOTs and Host Community Agreements?
If a taxing jurisdiction does not opt out of RPTL §487, it may enter into a payment-in-lieu-of-taxes (PILOT) agreement – an annual payment which replaces a portion of the property tax revenue a project would have otherwise generated. A PILOT cannot exceed the value of taxes that would be paid without the exemption.
To negotiate a PILOT agreement, taxing jurisdictions must notify solar developers of their intent to require a PILOT within 60 days after being notified of the developer’s intent to construct a project in their community. PILOT payments can also be paired with Host Community Agreements (HCAs), which provide certain benefits directly to the municipality hosting the project, and can be uniquely adapted for each municipality.
Unlike PILOTs, which are typically distributed with constraints similar to tax revenue, HCAs are flexible and can be allocated as the host community sees fit.
2.3 Why should solar projects receive tax breaks?
Even while receiving an exemption under RPTL 487, a solar project can generate economic benefits in a community by growing the tax base, creating jobs, and generating supplemental income for farmers and landowners. Solar development can take place on existing or abandoned commercial sites, brownfields, landfills, agricultural lands, former industrial sites, and otherwise underutilized sites.
Often, this land is generating minimal or no income for the municipality. By choosing to develop solar on this land, municipalities can turn underutilized sites into valuable and revenue-generating land, with the flexibility to direct PILOT payments or HCAs where the need is greatest.
Full taxation typically discourages solar project development and would cause communities to miss out on opportunities to fund local infrastructure and public services. Once installed, renewable energy systems do not create significantly increased demands on municipal services or infrastructure, so PILOT payments usually provide a net benefit to the host community.
2.4 Is solar a good use of farmland?
While local governments can implement zoning laws to protect their most productive farmland, solar can be developed on farmland in a way that maintains the current economic benefits to the community and preserves prime farmland.
In addition, solar projects can be designed with co-use in mind, as developers are more proactively designing project layouts that include fencing and water access for sheep, pollinator-friendly landscaping for honey production, and compatible native vegetation for soil and water erosion prevention.
When solar is developed on farmland, it often supplies the landowner with significantly higher income than they would have received without solar on the land, and can support the continuation of agricultural practices on farms with distressed economics, including ensuring that farms retain local ownership.
As such, the local community benefits from PILOTs, HCAs, and land lease payments. These lease payments can provide farmers with 20 years or more of guaranteed financial security, diversifying their income while preserving the land for future use. Unlike alternative types of development, such as residential construction, after decommissioning at the end of a solar energy system’s useful life, agricultural land can be returned to its original state, and farming may resume.
In many instances, even while supporting solar, the land can continue to be used for agricultural operations such as livestock grazing, beekeeping, cultivation of certain crops, or planting of pollinator-friendly vegetation under and around the panels.
New York has seen an emergence of solar projects that incorporate wildflowers and native plants to support bees, hummingbirds, and insects, and which may increase the future productivity of soil. Increasing the habitat for pollinators supports agricultural production and is great for New York’s food supply. Other options include planting shade-tolerant crops and elevating solar panels to allow farm equipment to pass safely underneath.
2.5 My region is often overcast or cloudy. Does solar really make sense in New York?
Yes! It is a common misconception that solar only works well in climates where there is abundant sunshine. Solar panels do not require perfectly sunny weather to generate electricity, and modern solar resource datasets allow developers to accurately estimate the amount of sunshine at a given location.
Solar photovoltaic (PV) technology continues to become more efficient, enabling solar projects to generate in the absence of strong, direct sunlight, and increasing the viability of project locations throughout New York. Additionally, the cooler temperatures in New York actually make panels more efficient.
Combined with the strong demand for renewable energy throughout New York, the availability of suitable land, and supportive policies, solar makes sense in most areas of New York State.
Frequently Asked Questions – Part 4 >
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