Comments on Proposed Tax Appraisal Methodology for Solar and Wind Energy Projects
September 3, 2021
The appraisal methodology for solar and wind energy projects proposed by New York State Department of Taxation and Finance on August 2, 2021 (the “model”) needs to be modified to use discount rates that more accurately reflect risks and operating realities for clean energy projects in New York State, and that are consistent with those used by professional New York State assessors in clean energy project appraisals; to exclude intangible assets; and to reflect more accurately how wind and solar facilities earn revenues. As currently structured, the model produces a valuation in excess of true fair market value and is thus not a legally defensible model for the State of New York to use. The Alliance for Clean Energy New York (ACE NY) and the New York Solar Energy Industries Association (NYSEIA) both oppose the use of this model as proposed and respectfully request that the New York State Department of Taxation and Finance (DTF) significantly modify its approach.
By materially underestimating the discount rate and overestimating revenues, the DTF model’s outcomes exceed fair market value, in violation of the State Constitution, N.Y. Const. art. XVI, § 2 (“Assessments shall in no case exceed full value.”) The DTF model, as proposed, will also suppress the development of renewable energy projects required to support the state’s renewable electricity mandates as established in New York’s Climate Leadership and CommunityProtection Act of 2019 (CLCPA), while the intent of the legislation included in the 2021-2022 Enacted State Budget that lead to this proposal was to support efforts to meet the State’s renewable energy goals. The Memo in Support for this legislative proposal stated that DTF should develop this appraisal model to “establish a process for creating a standard methodology for the assessment of wind and solar projects that facilitates meeting New York’s aggressive carbon reduction goals.”
In these comments, ACE NY and NYSEIA recommend three changes to the proposed DTF model.
(A) Use significantly higher discount rates in the model to better reflect risk and operating realities for clean energy projects in New York State, and that are consistent with those used by professional New York State assessors in clean energy project appraisals;
(B) Exclude intangible assets like environmental attributes from the model, as required by law;
(C) More accurately estimate revenue by adjusting to account for basis risk, curtailment, congestion, production profile, and capacity market revenue differences.
As a second option, we believe the admittedly complicated task of accurately forecasting the revenue for wind and solar projects, both utility scale (“Tier 1”) and distributed (“VDER”), can be best achieved by modeling aligned with how industry investors approach valuation. This type of after-tax, market-based model would more accurately represent fair market values and reflect how the renewable energy industry values facilities.
Finally, ACE NY and NYSEIA cannot emphasize enough the positive impact that a standardized and workable appraisal methodology will have in New York State. A standardized methodology will bring certainty to taxing jurisdictions and project developers alike and will guide and assist in the negotiation of Payment In Lieu of Taxes (PILOT) agreements. But a model that results in excessive or un-financeable property taxation will simply kill wind and solar project development in New York.