Solar IT Schedule
The mission at SDC Energy is to help finance the expansion of solar electricity generation across the U.S - one rooftop at a time. But, despite the enormous market potential in commercial solar installations, major challenges remain. Unlike residential solar that has standardized financing based on credit score or utility-scale solar that has the benefit of scale, the general commercial and industrial solar market has neither. Oftentimes, solar contractors call upon companies like SDC Energy to help them with financing solutions, particularly for all the religious and non-religious non-profit businesses that cannot take advantage of the Federal Energy Investment Tax Credit (which was recently extended at the 26% rate for another two years, before reducing to 22% in 2023, then leveling out at 10% afterwards). The challenge of obtaining financing for these commercial solar installation projects frequently kills the deals due to limited scale and unfavorable underwriting rules by traditional bank financing.
We can solve this expansion problem, but first an idea from recent history. The Regan Tax Reform Act of 1986 introduced a significant change in definition of income sources that limited active income investors from investing in passive investments with one exception; one asset category was granted a special exemption: Oil and Gas exploration. Fresh off the heels of the 1970’s energy crisis, our Nation’s elected officials realized the national importance of oil reserves. As of 2020 the U.S. ranked eleventh in the world of proven oil reserves according to OilNow’s 2020 report. Whether that can be directly correlated to the passive activity loss exemption from the Tax Act of 1986 is difficult to say, but Congress gave a clear incentive to motivate investors over the years to support, invest and grow the amount of oil production in the U.S. This has been a major benefit to investors looking for a tax strategy but flawed with oil price market volatility risk. Something we can solve with solar financing structures to give investors a consistent low risk return.
The current Biden administration has shown strong support for advancing renewable energy objectives in our Nation. If they take a page from the Tax Reform Act of 1986 and grant a similar exclusion to passive loss rules for solar projects the Nation will realize a significant gain in solar adoption across the commercial roof landscape that has been stymied by lack of financing. Instead of the solar industry relying on the large financial institutions for solar financing, which have already demonstrated a reluctance to financing commercial and non-profit business solar installations, creating the exemption that will allow ordinary active-income investors to participate in solar financing in a massive way – giving people the power to vote climate change with their tax dollars.
What we Need is for Congress to:
1. Give taxpayers that invest in "behind the meter" solar projects the same exemption to passive loss rules as oil drilling (IRC § 469(c) (3) passive activity defined for working interests in oil and gas property and Reg. § 1.469-1T(e)(4)(v) (v) special rules for oil and gas working interests; and
2. Revise the 26% investment tax credit (IRC § 48) to resume the 30% credit for behind the meter “commercial” solar projects; and
3. Permanently remove the excess business loss limits (IRC § 461(l)) to allow taxpayers to use the depreciation losses, without limitation, created by the solar projects.
