Louisiana phases out expensive tax credits on solar systems

1st August 2016   ·   0 Comments

By Susan Buchanan
Contributing Writer

You may be a homeowner stuck with roof-top panels that were purchased before you knew that Louisiana had capped tax credits on solar systems. Credit claims from taxpayers already exceed what the state can pay for them in fiscal 2015, 2016 and 2017, the Department of Revenue said in July. The tax credit program ends late next year.

Meanwhile, amid the gloom here, the Obama Administration continues to announce solar and other alternative-energy programs, many of which are residential.

In June of last year, caps on Louisiana’s solar tax credits were approved by the legislature in Act 131. “The state put retroactive caps on credits for systems purchased before June 30, 2015, effectively denying credits to people who bought before these caps became law,” Scott Oman, chief technical officer at South Coast Solar in New Orleans, said last week. The caps amount to $10 million for fiscal 2015, $10 million for FY 2016 and $5 million for FY 2017.

The state’s solar incentives had been among the most generous in the nation. “Those who bought panels before June 30 of last year were in an environment of no caps on Louisiana’s funds for solar tax credits,” Oman said. “Taxpayers are now being denied those incentives retroactively.”

“A handful of our clients made solar purchases after June of last year, knowing that the state’s credits were to be allocated on a first-come, first-served basis,” Oman said. “We’re incredibly empathetic with our clients’ predicaments. And we want them to understand that this situation was created by the legislature and not the solar companies.”

Tax credits are being phased out after the cost of the state’s program, which began in 2008, spiraled out of control several years later. And by last year, the state’s budget balance had shifted from surplus to deficit for a number of reasons.

This July 19, the Department of Revenue said taxpayer requests for solar-system credits to date had exceeded the amount available to pay claims through the program’s end late next year. Homeowners had applied for $39 million worth of credits, far more than the program covers in its last three years. “Claims under review exceed the funds available to pay them by $14 million,” the agency said.

Some recent taxpayers could be entitled to deferred claims, however. “Taxpayers who don’t receive refunds under the fiscal-year cap will be notified in writing if they’re eligible for deferred claims under the $10 million cap for 2016-2017 or the $5 million cap for 2017-2018,” the Department of Revenue said in July.

“We’re completing our review of returns received after the FY 2016-2017 cap was met, and we expect to send notices to taxpayers who will qualify under the 2017-2018 cap by August 15 of this year,” Department of Revenue spokesman Byron Henderson said last week. Taxpayers who have already qualified under the FY 2016-2017 cap were sent notices on July 19. Claims are processed in the order they were filed.

“Consumers purchasing residential solar-energy systems from this point forward shouldn’t expect to receive tax credits from the state,” the De-partment of Re-venue warned on July 19.

The cost of Louisiana’s solar credits swelled from $9 million in 2013 to over $63 million in 2014. Jeff Shaw, founder and owner of Gulf South Solar in Baton Rouge, provided some background. He’s director of the Louisiana Solar Energy Society. “The state’s solar industry crawled along from 2003, when I started Louisiana’s first, residential-solar company, until 2007–when I personally got a 50-percent solar tax credit passed in the legislature,” Shaw said. “This 50 percent was on top of the 30-percent federal tax credit, providing an 80-percent credit for solar in Louisiana.”

A 30-percent, federal Invest-ment Tax Credit can be claimed against the tax liability of residential, commercial and utility investors in solar systems.

After Louisiana’s credits went into effect in 2008, “200 contractors registered to be solar installers in the state, and the industry flourished, at least somewhat, for eight years,” Shaw said. “But a loophole that opened in the tax credit in 2010 allowed two leasing companies to drain millions of dollars yearly in solar tax credits from the state’s general fund. Credits paid to one leasing company outpaced the amount paid to 200 licensed installation companies at a ratio of 10 to 1.”

“Of these two leasing companies, one left the area,” Shaw said. The leasing companies took care of themselves, he noted. “On sold systems, tax credits were given to homeowners, not solar companies,” he said. “But on leased systems, the leasing company took the credits, and the homeowners got nothing.”

PosiGen, with offices in Metairie and out of state, is among those firms that benefited greatly from state credits, industry members said. In Louisiana, “PosiGen, a solar leasing company, has developed a low-income, solar-system leasing model that has successfully installed more than 4,000 systems since 2011,” Center for American Progress staffers Ben Bovarnick and Darryl Banks said in a study that ran on that group’s website in September 2014. “PosiGen has leveraged Louisiana’s 50-percent tax credit on purchased solar systems, 38-percent tax credit on leased systems and the federal 30-percent Residential Renewable Energy Tax Credit to reduce the costs of financing photovoltaic systems.” The Center for American Progress is a Washington, DC-based think tank.

As costs for the state’s program mounted, “the Louisiana Department of Revenue and legislators in the spring of 2015 decided to shut down the tax credit abruptly, rather than address the leasing problem,” Shaw said. “A number of local solar companies went out of business last year, and few systems have been sold in Louisiana since January.”

In addition to tax credits, solar-minded residents have other worries. “Utilities in the state have worked to shut down residential net-metering of solar to the grid, further reducing opportunities for homeowners,” Shaw said. Under net metering, solar-system owners are credited for electricity that they add to the grid. Last November, Entergy Louisiana said that it had exceeded a net-metering cap. The company, starting in January of this year, ceased compensating net-metered solar projects at retail rates.

Utilities have some sway in the legislature, Shaw said. Looking ahead, “state laws will probably be crafted to allow large-scale solar installations for utilities that will lower their costs, increasing their profits,” he predicted.

Meanwhile, as it combats climate change, the Obama Administration on July 19 announced the Clean Energy Savings For All Initiative, partnering the Departments of Energy, Housing and Urban Development, Agriculture, Health and Human Services, and Veteran’s Affairs, with the Environmental Protection Agency, to expand solar-energy access and improve energy efficiency, especially for low- and moderate-income residents.

“Programs mentioned in that announcement are great, but they won’t directly impact residential purchasers of solar systems,” Oman said. “They’re aimed more at increasing adoption of solar and storage technologies, particularly on the part of the military and other government entities.”

Shaw also downplayed the impact of the White House’s July announcement on local homeowners. “From what I gather, it’s basically a well-known recap of private industry, U.S. military and utility investments in solar power,” he said. “The current administration extended a 30-percent solar tax credit,” that was signed into law by President George W. Bush in 2008. “Since the federal credit existed when the state legislature last year ended solar credits, the credit available to Louisiana taxpayers falls from 80 percent to 30 percent,” Shaw said. Elements in the White House initiative won’t offset lost state credits, he said.

But homeowners may want to look at Washington’s plans to see if federal solar programs could benefit them somehow. To view those plans, visit https://www.whitehouse.gov/the-press-office/2016/06/16/fact-sheet-obama-administration-announces-federal-and-private-sector.

Henderson at the state’s Department of Revenue last week recommended that homeowners contact the U.S. Department of Energy for more about solar initiatives.

Industry members said not to write off residential solar in Louisiana. “The fact is that, despite the lack of tax credit funding, solar systems are still a smart investment,” Oman said. “They provide electricity over their life at less than half of current utility rates. And that’s true with only the 30-percent federal tax credit for solar energy.”

This article originally published in the August 1, 2016 print edition of The Louisiana Weekly newspaper.