This article comes from law firm Bricker & Eckler LLP and is authored by Christopher M. Montgromery.
Six Ohio counties have declared themselves “Alternative Energy Zones” under a state law enacted last year that reshaped the tax regime for renewable and advanced energy projects. The designation speeds the approval process for developers, reducing the uncertainty and cost of seeking county-by-county approval, and locks in revenue at a set rate for the counties where energy projects are located. The long-term viability of the new arrangement in these counties is unclear, however, because the authorizing law will sunset at the end of this year without legislative action.
The law in question, passed by the Ohio General Assembly as Senate Bill 232, significantly reduced the state tax burden on renewable and advanced sources of energy generation, such as solar, wind, co-generation, and clean coal. Under the old laws, taxes on solar and wind were estimated to be approximately $115,000 and $40,000 per megawatt (MW), respectively—rendering Ohio a less competitive marketplace for deployment of these technologies. The new law reduces this tax burden on qualifying projects to $6,000 to $9,000 per MW.
SB 232 works by exempting qualifying energy facilities from real and personal property taxation upon meeting certain specified requirements. In place of those taxes, owners of eligible projects are required to make “payments in lieu of taxes” (PILOTs) of $7,000 per MW for solar projects and $6,000 to $8,000 per MW for all other renewable energy projects, plus clean coal and nuclear.
Projects with a nameplate capacity of 5 MW or more must receive formal approval from county commissioners in each county where the project is located. Additionally, commissioners may negotiate for additional service payments from the owners of those projects. Taken together, the service payments and PILOT payments cannot exceed $9,000 per MW.
Alternatively, county commissioners can adopt a resolution declaring the county to be an Alternative Energy Zone. Under such a resolution, county commissioners prospectively agree to approve all applications for energy projects seeking the tax treatment under SB 232. The resolution can also set the additional service payment that eligible projects will have to make in addition to the PILOT payment.
So far, six Ohio counties have adopted Alternative Energy Zone resolutions: Clinton, Hardin, Noble, Paulding, Putnam and Van Wert. And a seventh, Henry County, is considering doing so. The counties are mostly clustered in northwest Ohio, where a number of large wind farms are under development.
News reports indicate that commissioners in Alternative Energy Zone counties view the designation as a potent economic development tool. For energy developers considering sites, the automatic approval of projects in Alternative Energy Zone counties removes a potentially lengthy step in the development process and signals a county’s openness to renewable and advanced energy projects. The resolutions also provide more certainty about the additional service payments that project owners must make. The counties that have designated themselves as Alternative Energy Zones thus far have opted to charge eligible projects the maximum amount available under SB 232, or $9,000 per MW.
Counties’ use of the Alternative Energy Zone designation, however, may ultimately be short-lived. The changes to the Ohio tax code in SB 232 are set to expire on December 31, 2011. Efforts to extend SB 232 are currently underway, and counties’ ability to take advantage of the Alternative Energy Zone designation will depend on the success of a legislative fix.
Filed Under: News, Policy