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On January 1, 2017, the KHI News Service became part of KCUR public radio’s new initiative, the Kansas News Service. The Kansas News Service will continue to cover health policy news and broaden its scope to include education and politics. All stories produced by the former KHI News Service are archived here. Stories and photos may be republished at no cost with proper attribution and a link back to KHI.org.

Property tax change part of largely symbolic renewable energy bill

Deal negotiated by wind industry worries solar, environmental advocates

By Andy Marso | May 12, 2015

Property tax change part of largely symbolic renewable energy bill
Photo by Andy Marso Rep. Dennis Hedke, chairman of the House Energy and Environment Committee, speaks at a news conference about an agreement between the wind industry and opponents of the state’s renewable energy standards. At left is Gov. Sam Brownback, and at right are Sen. Susan Wagle and Kimberly Svaty, a lobbyist for the wind coalition.

When Gov. Sam Brownback announced an agreement last week between the wind industry and opponents of the state’s renewable energy standards, most of the attention focused on the renewable energy mandate becoming a voluntary “goal.”

But rolling back the renewable energy standards largely was a symbolic win for opponents of the standards. The buildup of wind power has most of the state’s utility companies already past the final requirement of 20 percent of peak capacity from renewable sources by 2020.

From a policy standpoint, the more consequential part of the pact is the wind industry agreeing to a 10-year cap on property tax exemptions for devices that generate renewable energy. That change would go into effect Jan. 1, 2017, if the bill, which was in a conference committee Tuesday, passes the Senate.

Under current law, the exemption is good for as long as the device generates energy.

Rep. John Carmichael, a Democrat from Wichita, said the Dec. 31, 2016, deadline for the full exemption could set up Kansas for a temporary turbine-building boom.

“There may be a window here where the wind industry could put some substantial assets and growth into Kansas real quick in order to take care of a lifetime of the project tax exemption,” Carmichael said.

But Kimberly Svaty, a lobbyist for the wind coalition, cautioned against expecting too much of a boom — or the resulting bust afterward.

The Dec. 31, 2016, date was put into place largely to protect seven wind projects already in process. The developers on those projects signed purchase agreements with public utilities to buy wind energy at a fixed price for 20 years and expect the lifetime exemption.

Other new projects would have to secure a permit from their county or complete a filing with the Kansas Board of Tax Appeals to qualify. Neither is quick or easy, Svaty said, making it unlikely there will be a rush of new builds in the next 18 months.

“Might there be one or two projects that will come under that? Potentially,” Svaty said. “But they will be well-vetted projects and projects that are moving forward. More than likely, anyway.”

An $8 billion force

Svaty said the lifetime property tax exemption was enacted when few expected the state’s wind industry to become its current $8 billion force. The 10-year tax abatement brings it more in line with what other energy sources enjoy, removing one more grievance for those who say state officials have distorted the market by favoring renewable energy sources over fossil fuels.

Those grievances were voiced frequently at the Statehouse by lobbying groups like the Kansas Chamber and Americans for Prosperity and shared by influential lawmakers like Rep. Dennis Hedke, chairman of the House Energy and Environment Committee, and Sen. Rob Olson, chairman of the Senate Utilities Committee.

The near-annual attempts to repeal the renewable energy standards worried investors as they decided whether to put their capital into Kansas wind projects.

But what really spooked them, Svaty said, was when legislators introduced a bill this session to levy a 4.33 percent excise tax on renewable energy.

Facing a budget crisis, legislators are likely to put together a tax increase package and vote on it with little warning. In that atmosphere of uncertainty, Svaty said, the hearing on the renewable energy excise tax bill had the effect of “completely destabilizing the investment environment.”

“Developers and investors, where they had been concerned before, were getting very seriously concerned,” Svaty said.

So in exchange for assurances that the excise tax would not be enacted, wind industry advocates agreed to soften the renewable energy standards and cap the property tax exemption at 10 years. After 10 years, renewable energy devices will be taxed as commercial property, which is a lower rate than public utilities.

Hedke said the 10-year limit is meant to bring renewable sources more in line with fossil fuels with regards to property taxes. The threat of an excise tax played a minimal role in the talks, he said.

“Excise tax never really got very far, so I don’t see it as a major component of the agreement,” Hedke said. “I think the balancing of the property tax world was the main driver.”

‘Fabulous growth’

At a news conference last week, Brownback — flanked by Svaty on one side and Olson, Hedke and lobbyists for Americans for Prosperity and Koch Industries on the other — hailed it as a major compromise that would help the wind industry continue to grow.

“It’s been fabulous growth, it’s been a tremendous investment in the state of Kansas in renewable energy and more to come,” Brownback said. “This agreement … further solidifies and stabilizes the policy environment so that the investment can move on forward in the state of Kansas.”

During a House debate a few days later, Rep. Boog Highberger, a Democrat from Lawrence, likened the agreement to the kind of compromise that happens when someone is mugged at gunpoint.

“You get your life, and they get your money,” he said. “It’s kind of a compromise, I guess.”

Environmental advocacy groups also panned the deal, saying the wind industry capitulated on measurable policy gains in exchange for promises that may not be kept.

When the hosts of the news conference were asked what assurances the bill gives that the excise tax won’t be proposed again next year if the state has budget problems, there was a lengthy pause.

“We’re not going to have budget problems next year,” Brownback said.

Jeff Deyette is a senior energy analyst for the Union of Concerned Scientists, a group that favors renewable energy as a way to ameliorate the effects of global climate change.

If the bill keeps the excise tax off the table, Deyette said, then the Kansas wind industry made a decent deal.

The renewable energy standards, while a symbol the industry wanted to keep, were largely symbolic, he said. And limiting the property tax exemption to 10 years should not kill a wind industry that has gained an $8 billion foothold in Kansas.

“While it’s a step backward for the industry in terms of what they have now, a 10-year grace period is still significant,” Deyette said. “It’s still going to provide long- term certainty. It’s not going to change the economics of a long-term wind project that substantially.”

Deyette said the 10-year limit was more likely to have a profound effect on less established industries, like solar.

“If that doesn’t get extended, that would be the real point where you’d see more of the bust cycle — if there’s going to be one — in any solar activity,” he said.

Highberger put it in more stark terms.

“This is potentially devastating to the residential solar industry,” he said.

Solar struggles

Darlene Redden, owner of Azimuth Solar Energy in Kingman, said most states offer a permanent property tax exemption for solar energy — and some offer other incentives as well.

“We are barely, as an industry in this state, hanging on by a thread,” Redden said. “The costs have come down, but it’s still extraordinarily expensive, and because there’s no other incentives in the state, we’re struggling. If they take away the one thing that keeps us level with the nation, we’re in trouble, and big trouble at that.”

Hedke said he had not studied solar issues thoroughly but was aware that Kansas gets a lot of sunshine compared to other states.

“Maybe individual people will be thinking harder about that investment with this legislation,” said Hedke, a contract geophysicist who has worked for oil and natural gas companies. “But again I think the big picture is, it is unfair to the consumer out there to carve out (renewable energy sources) and not have a relatively level playing field on a tax basis.”

Annual reports from the Kansas Corporation Commission have found the renewable energy standards responsible for about 2 percent of rate increases since they went into effect in 2010.

Travis Creswell, owner of Ozark Energy Services in Joplin, Mo., said demand for solar installations remains fairly reliant on incentives. For example, he’s ramping up the solar side of his business right now because a local utility company is offering a rebate for customers who install solar.

Creswell said those kind of rebates are more important incentives than property tax relief. The bill under consideration in Kansas isn’t likely to hurt his bottom line, he said, because his company doesn’t do much business in the state.

Redden said she wants to be part of a solar revolution in Kansas.

With lots of sunshine, even during cold days when solar works more efficiently, Kansas has the fifth-best solar energy potential of any state.

Redden lived in the state most of her life before moving to Colorado to get an associate’s degree in solar energy technology. After graduating she spent two years working in Colorado, where she enjoyed rebates and incentives that supported the solar industry.

But the pull of home was too strong, so she moved back to Kansas. For the last two years Redden has tried to build a residential solar business in the area west of Wichita, where the state has some of its strongest solar power potential.

While she said the move wasn’t a smart move from a business perspective, she still believes solar could be a new source of jobs and clean energy for Kansas.

“We’ve got everything,” Redden said. “But the state (government) is not friendly, and that’s kind of heartbreaking.”