by Douglas Hutchings, PhD
The largest economic development bill introduced this legislative session might end up being SB145,a bill to amend the definition of “public utility,” and to amend certain definitions under the Arkansas Renewable Energy Development Act of 2001, sponsored by Sen. Dave Wallace (R-Leachville). This policy, at its core, enables Arkansans to take full advantage of federal tax incentives by allowing “third-party ownership” of solar arrays and certain other electricity generation sources. This allows greater access to the economic benefits of solar while maximizing the federal dollars supporting local infrastructure.
When an investor builds a solar array, they receive a 30 percent federal tax credit and can depreciate 85 percent of the system in the first year. Taking a $600,000 solar system that will generate $50,000 of electricity per year, this equates to roughly $300,000 in federal tax benefits at the 24 percent tax bracket. This hypothetical system would pay for itself in six years and provide a simple annual return-on-investment of just over 16 percent for the next 25+ years. Leveraging funds from higher tax brackets, placing the system in an Opportunity Zone, or building larger systems to bring the cost down all result in an even better investment.
There are literally thousands of these systems waiting to be built to power local businesses, agricultural operations, and our communities. Unfortunately, current policy requires the electricity consumer to be an owner of the system. This means that non-profits get zero tax benefits and effectively must pay twice as much for a solar array. Companies that already have significant depreciation due to an expansion or otherwise don’t have the taxes to offset are similarly disadvantaged. SB145 enables capital to come off the sidelines to build these systems and share in the benefits.
The best solar array is one that you own directly as you capture 100 percent of the benefits. Ownership is not always feasible and SB145 allows more Arkansans to participate in the economic benefits of solar. Twenty-six (26) states allow third-party ownership and the top 25 states collectively account for 99.6 percent of distributed solar deployments. Regardless of your feelings on federal incentives for solar, they exist. It is a shame that Arkansas blocks ourselves from taking full advantage. I wear my bias on my sleeve but SB145 is just good public policy.
Douglas Hutchings received his PhD from the University of Arkansas in 2010 and has been working in solar since 2008. His experience spans from the semiconductor device physics all the way through deployment and maintenance of solar arrays. Douglas is a regular contributor to technical publications and was recognized as one of the “Nation’s Top New Inventors” by Inventors Digest for his contributions to the solar industry. He career is focused on reducing the cost and increasing the availability of solar generated electricity.