Novogradac Article: State-Level Renewable Energy Tax Credit Programs Provide Valuable Subsidy to Renewable Energy Development

by Mark O’Meara

Renewable energy developers have access to a variety of incentives, from the Internal Revenue Code (IRC) Section 48E (technology-neutral) clean electricity investment tax credit to the  IRC Section 45Y clean electricity production tax credit and Section 45Z clean fuel production tax credit to the multitude of state and local grant programs, certificates and more.

But far less used are state-level renewable energy tax credit (RETC) programs. The success of Hawai‘i and the rocky history of North Carolina provide insight to more effectively leverage state-level RETCs as a valuable tool for renewable energy development. 

“State tax credits are another tool in your developer toolbox, which is always helpful,” said Jonathan Gross, Director, Energy at Monarch.

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North Carolina

The North Carolina Renewable Energy Investment Tax Credit was equal to 35% of the cost of eligible renewable energy property, which included solar, wind and other technologies. It was established in 2007 and was set to expire at the end of 2015 but was extended for one year, expiring instead by Jan. 1, 2017. The five-year credit could be applied against franchise tax, income tax or gross premiums tax.

“The program had a good run through 2016. The vast majority of solar in North Carolina during that time was built due to this credit,” said Gross. “North Carolina Sustainable Energy Association did a significant study and found that the program had a huge impact. The economic benefit of the North Carolina program was substantial. It caused the birth of an entire solar industry for the state.”

Gross said that while the program had a successful run, it had some limitations initially. “It didn’t offset insurance companies’ premium tax,” said Gross. “They changed the statute for that in 2009. That was a pivotal point for the usage of the credit. As a result, insurance companies were very active in this space.”

How the North Carolina Program Came About

Gross said that the mortgage crisis in the late 2000s led to the start of renewable energy development in North Carolina.

“In 2009, real estate developers had nothing to do because of the mortgage crisis and recession,” said Gross. “There’s a state program here [the North Carolina Renewable Energy Investment Tax Credit program]. Developers thought, ‘I can develop land for solar.’ These were multifamily and commercial developers that got into the renewable energy space. Everyone needs power and utilities were buying power.” 

Gross said that one key was that there was a standard contract for 5 megawatt solar systems and under. “By right, you had a power purchase agreement,” said Gross. “You had a standard contract and a rate schedule. This helped North Carolina build out for solar. At one point, I believe it was the third largest state for installed capacity, around 2012.” 

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