Editor’s Notes: Taxing the Sun, Part II

Back to the Drawing Board: California Alters Plan to Tax Solar Panels

It’s not over yet. Last year we reported that California had proposed a monthly tax of $8 per kw on solar panels. At this rate, an average system would have cost the homeowner $160 per month. This was to be a set cost, whether or not the system was in use, and not accounting for the fact that solar panel output diminishes over time. Now the state’s Public Utility Commission is looking in another direction.

Why look at taxing solar panels in the first place? As a monopoly, the utility companies are heavily regulated. They are also guaranteed a modest return on their investment. The utility companies are required to maintain their power grids for the good of everyone. Further, solar panels not only diminish the amount of power supplied to homes, or loss of income, but the utility companies are required to pay the homeowner when the unused power from the solar panels is reverse-supplied and bought back, a net-metering program. The power from these solar panels is supplied through the utility company’s own equipment, or more loss of income. Their argument makes sense; equipment has to be maintained and the utility company is entitled to a fair profit. However, as with everything when the government gets involved, the implementation can be anything but fair.

We noted at the time that this was no doubt just the opening volley. The proposed monthly tax of $8 per kw was just to see how much push-back they would get. Well, they got plenty. SunPower®, a large supplier and installer of solar panels based in San Jose, California, was very critical, stating that this proposal would cost jobs and significantly slow the solar panel industry in California. Homeowners also voiced their concerns. According to some reports, after the initial announcement, more that 128,000 people across California sent letters to Governor Newsom voicing their opposition. Several pundits got into the act and pointed out that with the state’s history of rolling-blackouts and utility-caused wildfires, this was not the time to discourage solar panel installation. I’m going to go out on a limb here and say that many California residents were not happy campers.

So, the California Public Utilities Commission went back to the drawing board. Various alternative proposals were also immediately shot down, including lowering the per kw rate, a flexible rate depending on the age of the roof, and a one-time install tax. None of these alternatives were well-received.

It should be noted that California is not the first state, nor will it be the last, to implement a tax on solar panels. In the West, Arizona charges 93¢ per kw per month. Hawaii took a different approach. Rather than tax the solar panels directly, it has reduced the rate the utility companies are required to pay the homeowner under the electricity net-metering program.

To its credit, California has now proposed a plan similar to that of Hawaii, although at this writing the exact details have yet to be finalized, and according to one source, may be tabled. Under this plan, you pay for what you use from the utility company, and still get paid back for what you supply to them from your solar panel array, albeit at a now lower rate. You’ll note that with this system, no tax money goes to the state. It’s simply a lower net-metering rate on your monthly electric bill. Additionally, if you are living off the grid or if your solar panels are no longer in use, you are no worse off than you were before.

Yes, solar panels do stop working. Like a battery, solar panels become less efficient over time. They lose about 1% of their efficiency every year, so ten years later, their output is at 90% of capacity. Eventually photovoltaic (PV) panels will stop working altogether. The newest generation of PV panels currently on the market last around 25 years. The older PV panels had about half that life span. Once they no longer output electricity, they can be replaced, removed, or left on the roof as a fossilized monument. It was recently reported that California had to pulverize a large quantity of obsolete solar panels and buried them in a landfill, so it’s evident that some building owners are removing or replacing them. All products, no matter how environmentally friendly, have a life span, and in this case, the same products intended to help the environment ironically ended up in a landfill.

The solar industry has received more than its fair share of tax incentives. The 26% Federal Tax credit is currently available on the installed price in addition to any state credits. The goal of these tax credits is to encourage PV use and help reduce our dependence on foreign oil, and it worked. With PV costs dropping and utility costs increasing, there has been dramatic growth in rooftop solar installations over the past several decades. Now a portion of that free ride has come to an end.

Marc Dodson