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Solar Projects Would Pay $7K A Year Instead Of Taxes Under Treasury-Backed Bills

September 13, 2022

After similar legislation was struck down in 2020, non-residential solar power developers could have another chance to sidestep taxes by someday entering a 20-year direct payment agreement with local governments. 

Wednesday, the Senate Energy and Technology Committee heard testimony on the “Solar Energy Facilities Taxation Act,” which has been nearly two years in the making.

Under SB 1106 by Sen. Curtis VANDERWALL (R-Ludington)and SB 1107 by Sen. Kevin Daley (R-Lum), commercial-scale solar projects, where property is being leased or owned, could apply for a “solar exemption certificate” with their local government. 

After a 90-day period, the municipal government could opt to enter a 20-year relationship where the developer pays the community $7,000 per megawatt annually as Payments in Lieu of Taxes (PILT). 

This summer, Ford Motor Co. made headlines when it made the largest renewable energy purchase from a utilities company in the United States, partnering with Detroit-based DTE Energy to add 650 megawatts of new solar energy capacity for Michigan by 2025. 

The aforementioned purchase is projected to elevate the overall amount of installed solar energy by nearly 70% in the state. 

This month, the Comcast telecom company also announced new agreements with Consumers Energy and DTE Energy to purchase wind and solar energy for its Michigan cable operations, according to the Grand Rapids Business Journal

The agreements are calculated to embody a combined yearly volume of around 52,000 megawatt-hours. 

However, as solar energy progresses, so do concerns about how the taxation surrounding solar can be “complex and confusing,” resulting in a heightened risk for litigation. 

“I think what this bill does is it kind of allows us to maybe step away from those zoning issues for a short period of time and just focus on the taxation. If communities are struggling to figure out what the values are or dealing with that decline in revenue that they might see under our traditional tax system, this gives them a definite option to move forward with the PILT structure,” said Brian VanBlarcum, the senior tax manager at Consumers Energy. 

After the noon committee hearing, VanBlarcum explained to MIRS that when it comes to property taxes for a utilities company’s facility site, “they are actually paid by our customers.” 

“The one thing that this offers, in addition to predictability for our local host communities, (is) it provides predictability in what our customers will pay in property taxes that are included in their energy costs going forward,” VanBlarcum said. “And we believe it’s a pretty competitively priced PILT payment that is the right amount for our customers to pay.” 

Under the present-day system, according to the Michigan Townships Association (MTA), local units of government utilize multiplier tables from the State Tax Commission (STC). With up-to-date resources from the commission in-hand, an assessor will review a facility on an annual basis, computing what the assessed value would be and what the tax liability would be. 

“So with that assessment they have with personal property, it’s usually your tax liability is higher at the front end versus maybe five, eight or 10 years later…it decreases,” Judy Allen, MTA director of government relations, told MIRS. “The local unit has said this is what we anticipate for that revenue, and then it comes in at a much lower level. That’s never a good situation.” 

The 2020 legislation, which was vetoed by the Governor at the end of the year, allowed for the owner or lessee of a solar power facility to pay $4,000 per megawatt annually to the municipality, as well as an extra $500 per megawatt of nameplate capacity. 

The exemption certificate’s lifespan, under the killed bills, would conclude when whichever of the following occurred first: 

  • When the facility caps off commercial operations permanently. 
  • When a termination date agreed upon by the developer and the local government is reached. 
  • When the developer fails to make the yearly payment by Mar. 1 after the due date, authorizing a municipal government to revoke the certificate. 

This year’s set of bills, however, has already acquired support from the Michigan Department of Treasury. During the committee hearing, Aaron Keel, director of legislative affairs for Treasury, said the legislation strikes the right balance to incentivize large-scale solar development to meet Michigan’s long-term energy needs. 

“We recognize the PILT as the best tool to incentivize solar development, bringing us in line with other states in our region in leading to further economic development. We also recognize a solar PILT incentive as the best way to provide flexibility, uniformity and certainly,” Keel told the committee. 

The MTA is neutral on the bills. Allen said the 90-day timeline for approval is a concern, as the municipality would need board approval to send a request to be reviewed by a professional engineer or attorney. She additionally explained the MTA would like to ensure the STC gives guidance for assessors to figure out the property value of large-scale utility battery storage. 

As for the $7,000 per-megawatt payments, Allen said: “$7,000 today is going to be different than $7,000, 20 years from now. Our members would have liked to see that higher.” 

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