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Obama Touts Solar Strides And New Commitments

President Barack Obama has unveiled a report on the state of solar energy in the U.S., outlining the efforts his administration has made in promoting solar technology development, deployment and job creation.

The president delivered remarks from a Walmart in Mountain View, Calif., in recognition of the commitment the company has made to deploy solar power at its U.S. locations. Obama noted that 300 private- and public-sector organizations have made similar commitments to deploy 850 MW of solar capacity.

Obama’s speech is part of an ongoing effort to promote his climate change initiative, which was bolstered by the release of a government report cataloging the threats posed by climate change. The president has made solar power an important part of his administration’s effort to counteract the threats described.

According to the president, the U.S. solar sector has experienced significant progress, including:

• Steep declines in solar technology costs, particularly with regard to the price of solar panels;
• Research to decrease the price of solar, notably through the efforts of the SunShot Initiative; and
• Expansion of solar jobs, mostly due to the boom in installations.

The solar report details numerous existing programs and initiatives in place to promote growth of the U.S. solar sector by providing financial support for projects, offering job training, expanding solar into rural and low-income areas, deploying solar on public lands, and supporting research and development programs, among others.

Obama promised to take a number of executive actions to promote renewable energy, including an effort to enlist community colleges to help build a skilled solar workforce. In the speech and supporting White House documents, the president noted that the Department of Energy’s Solar Instructor Training Network (SITN) “will support training programs at community colleges across the country that will assist 50,000 workers to enter the solar industry by 2020.” That will be an increase from the SITN’s existing 400 community colleges that have trained more than 22,000 people to work in the solar sector since 2010.

Citing the Department of Defense’s commitment to deploy 3 GW of renewable energy on its military facilities by 2025, the White House has also directed the General Services Administration to identify opportunities for potential federal aggregated solar procurements for its facilities in and near Washington, D.C., and northern California.

 

REIT turn

One of the more eye-catching elements of Obama’s solar program was his indication that the U.S. Treasury Department and Internal Revenue Service (IRS) would clarify how real estate investment trusts (REITs) relate to renewable energy installations.

According to the White House, this is important because REITs, “a key component of many retail investors’ portfolios, generally hold only real property. The new guidance will provide clarity regarding the treatment of renewable energy installations in REITs, thereby helping to promote investment in the sector.”

The role of REITs as a source of funding for renewable energy development is constrained by the requirement that the bulk of its assets must be “real property.”

Kelly Kogan, a senior attorney in the project finance and tax practice at Chadbourne & Parke, points out that the definition of that term came out in 1962 and up to now had never been updated. This has led to uncertainty in the industry over which assets meet that definition.

Unfortunately, industry observers say the proposed rules fail to do more than explicitly state rules that have already been operative.

The REIT clarifications cover solar installations as ground-mount sites that serve the grid and as ground and roof mounts intended primarily to serve buildings on the site, even if grid connected.

Mounts affixed to the land in foundations are considered real property, as is the "exit wire" for connecting the array to the grid. However, the PV modules, which can be removed and still function, are not. In the case of arrays that serve buildings on the site as a utility, these are considered real property if they are permanently attached to the building that they serve - or nearby land - and the owner of the land, building and the solar array is the same.

"Significantly, these rules are extremely consistent with how the IRS has been interpreting the definition of 'real property' to date," Kogan says of the clarification. "This means that they don't really expand the category of solar assets that are good REIT assets beyond those that were eligible before this proposed regulation."

In a sense, the president promised more than the IRS delivered.

Kogan is quick to point out that the agency does not really have that much freedom of action in this area. The clarification confirms that the types of property REITs can hold are probably not going to be subject to a radical revision.

She says the notion some people hold that all the IRS has to do is issue a ruling to open up REITs for renewables "with the stroke of that pen" has never been correct.

"One positive from the rules, however, is that they do create some certainty in terms of what the IRS would have issued in a ruling, which means that developers can begin to run numbers in proposed structures to see if they are viable without having to go through the time and expense of requesting a letter ruling," Kogan says.

Andrew Redinger, managing director and head of KeyBanc Capital Markets' utilities, power and renewables group, says any disappointment over REIT rules should not come as much of a shock given how venerable they are as financial instruments.

"The reason you have yieldcos is that there are limitations in REITs," Redinger says.

While noting that it would have been beneficial to be able to bundle the entirety of a solar asset into a REIT from a convenience standpoint, developers can get financing at comparable rates through yieldcos.

- Michael Puttré