Developers and assessors of renewable projects can now count on a discounted cash flow approach to assess solar and wind projects for real property tax purposes.
When the assessment model was included in the state’s recently approved budget, it provided clarity; historically, assessors throughout the state have lacked uniformity in assessing renewable energy projects.
New York’s Department of Taxation and Finance adopted the appraisal model in 2022, but litigation held it up from full adoption, with petitioners claiming it violated the New York State Administrative Procedure Act because the agency did not follow all required steps to implement the law. By including the rule in the state budget, the lawsuit became moot and the court ordered a Stipulation of Discontinuance. The approved budget bill also stipulated assessors who failed to use the model in 2022 will not be held liable.
Discounted Cash Flow is a valuation method used to estimate the value of an investment based on its expected future cash flows. The analysis projects how much money an investment will generate in the future, and then discounts that cash flow to arrive at an estimated current value of the investment.
The Tax Department consulted with many others in creating the appraisal model, including:
- New York State Energy Research and Development Authority
- New York State Assessors Association
- Alliance for Clean Energy
- New York State Economic Development Council
- renewable energy developers
Assessors were to use the new model in 2023. If they did not, they will have to correct their assessments using the new model. Developers can file a grievance if that doesn’t happen.
Solar and wind project developers still have the opportunity to negotiate payment in lieu of taxes (PILOT) agreements through the use of Industrial Development Agencies or the Real Property Tax Law Section 487 exemption. Nevertheless, assessed values and estimated property taxes will likely be a factor in such negotiations.
Discount Assessment Rates for Renewable Energy Projects
The discount rates are separated into three distinct categories based on investment risk associated with system type and size.
|Large-scale solar (pre-tax, 5 megawatts and larger)|
|Weighted cost of debt||0.519||4.00%||2.08%|
|Weighted cost of equity||0.481||10.58%||5.09%|
|Base discount rate per WACC||7.16%|
|VDER1 Solar (pre-tax, 1-5 megawatts)|
|Weighted cost of debt||0.300||4.50%||1.35%|
|Weighted cost of equity||0.700||9.50%||6.65%|
|Base discount rate per WACC||8.00%|
|Wind (pre-tax, 1 megawatt and larger)|
|Weighted cost of debt||0.316||4.00%||1.26%|
|Weighted cost of equity||0.684||12.28%||8.40%|
|Base discount rate per WACC||9.66%|
- 1 VDER = Value of Distributed Energy Resources
- Note: The rates specified above are before-tax discount rates. These rates will be combined with the local full-value property tax rates before use in the Solar and Wind Appraisal Model.
Harris Beach’s Energy Industry Team continues to monitor this situation and related energy matters. Should you have a question about energy-related matters, please reach out to energy lawyer Robert J. Ryan at (518) 701-2715 and Rryan@harrisbeach.com, or the Harris Beach attorney with whom you most frequently work.
This alert is not a substitute for advice of counsel on specific legal issues.
Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as Washington D.C., New Haven, Connecticut and Newark, New Jersey.
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