Group Asks IRS to Clarify Status of Solar Services Agreements

June 28, 2019

Honorable David Kautter
Assistant Secretary (Tax Policy)
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Subject: Tax code Impact Clarification Related to Solar Services Agreements for Non-Profit Entities

The Smart Electric Power Alliance (SEPA) is a not for profit organization focused on empowering the evolution of the power industry toward cleaner, more intelligent solutions. While there has been great progress made toward this goal, tax-exempt organizations have been hindered in their ability to take advantage of clean energy solutions such as solar power and energy storage due to certain tax disadvantages. Groups such as non-profit organizations, public school systems, and municipalities offer great promise as facilitators of dean energy adoption but are often unable to benefit from the subsidies themselves that have helped grow the industry.

There are few options for those with tax-exempt status to finance projects in a way that allows them to gain the savings associated with the Federal Solar Investment Tax Credit. First, a tax-exempt entity can enter into a Purchase Power Agreement (PPA) and potentially receive favorable pricing from the owner of the facility. Second, a tax-exempt entity can enter into a Services Agreement and receive similar pricing considerations. While the first option is addressed specifically in the tax code (section 7701(e)(3), the second option is not adequately addressed, leaving uncertainty.

SEPA works with its members to further its mission in a variety of ways including a strong focus on evolving new business models that have the potential to enhance solar's standing as an increasingly affordable electricity option within the U.S. energy mix. The need to offer creative new solar product and service offerings is critically important to sustaining those solar growth rates. As demonstrated from recent research conducted by SEPA and its partners, solar projects that can take advantage of the ITC are priced more competitively and tend to be larger in scope than those that do not qualify for subsidies.

Clarity from the IRS on the status of Solar Service Agreements could substantially enable the growth of this business model as a solution for tax-exempt entities. Benefits to tax-exempt entities would be similar to those achieved by Purchase Power Agreements as clarified through IRS Code section 7701(e)(3), which was designed to enable private enterprises and tax-exempt entities to reduce their costs by sharing the tax benefits of accelerated depreciation and investment tax credits.

Sincerely,

Jennifer Szaro
Vice President, Content
Smart Electric Power Alliance (SEPA)