Banks inflate solar value for tax credit

by John Farrell.

This post originally appeared on , a resource of the Institute for Local Self-Reliance’s .

has offered thousands of homeowners a “no money down” route to go
solar, broadening participation in the distributed generation
revolution. Unfortunately, this revolution has been co-opted by high
finance. Big banks have been able to write off millions in taxes by
overreporting the cost of financed solar PV projects in what may be the
country’s next banking scandal.

a phone conversation last month, Jigar Shah of Carbon War Room
(formerly chief of solar-as-a-service company SunEdison) disclosed that
while solar leasing companies can install residential solar for between
$4.00 and $5.00 per watt, they routinely claim federal tax credits on
the “fair market value,” a price nearly twice as high. A solar tax
lawyer confirmed this practice and that it also applies to the program
providing cash grants in lieu of the federal Investment Tax Credit. “The
equipment may be financed in a way that allows the solar company to
calculate Treasury cash grants on the fair market value of the systems
rather than their cost,” he wrote to me this week.

The practice boosts banks’ bottomline at the expense of federal
taxpayers and unnecessarily increases the cost of public subsidies for
renewable energy. 

In California, for example, 15 percent of small-scale PV projects
completed in 2010 were “third party owned”—code words for a solar
leasing arrangement. If banks used “fair market value” rather than the
actual system cost for the tax credits on those systems, the inflated
tax credits could have totaled as much as $30 million instead of the $18
million justified by the actual project costs. 

That’s just the tip of the iceberg. This $12 million difference only reflects about one-third of the U.S. residential solar PV market. In other words, the over-payment to banks financing solar leasing could be as much as $36 million in 2010 alone. It’s no wonder U.S. Bank .

The problem isn’t unknown to the federal government. The solar tax lawyer I spoke to noted that “Treasury has been pushing back on some fair market value claims as too high.”

Treasury should push a little harder. Why should big banks get a
bigger tax credit for the same size solar PV array than a homeowner?  

The lone bright spot is that the growth in solar leasing has slowed
somewhat in the past two years. Previously, solar leasing may have been
the only way for some individuals to capture the federal solar tax
credits, if they didn’t have enough tax liability. As an alternative,
big banks would provide up-front financing in exchange for the tax
credits (and the opportunity to inflate their value). We’ve previously discussed why tax credits make for . In
2009 and 2010, however, changes to the federal tax credits allowed
people to take a cash grant instead, reducing the need for third party
ownership. That ends in December. 

Long before that, Treasury should shut down the practice of
overestimating project costs with “fair market value.” Solar energy
incentives have built the American solar market and helped drive down
the cost of solar. Banks shouldn’t be allowed to subvert these public

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Source: Banks inflate solar value for tax credit.