Assembly considers tax exemption for power producers
Interest is growing in renewable energy in Alaska. And private companies want a slice of the action.
The Kenai Peninsula Borough Assembly is considering a tax exemption that would apply specifically to power producing for-profit companies, called independent power producers.
The catalyst is a proposed project to build a 60,000-solar panel farm on the Kenai Peninsula, from company Renewable Independent Power Producers. CEO Jen Miller is asking for a tax exemption to help with the project's high regulatory costs.
"The project would pay $3.8 million in property taxes over its 25-year life," Miller said. "That’s down from — if it was not exempt at all — it would pay $4.6 million.”
Independent power producers are private companies that generate electricity and sell it to public utilities like Homer Electric.
Because they’re for-profit companies, it’s not a guarantee lower costs of production will automatically translate to lower rates for ratepayers. But it is in their best interest to keep rates low so that they’re cost competitive when selling to utilities.
The amendment the assembly is considering, sponsored by assembly president Brent Johnson, plays on an existing tax exemption for businesses that contribute to the borough’s economic development. Those companies, if they fit certain criteria, are already eligible for exemptions of up to 50 percent for no more than five years.
The amendment at hand would exempt IPPs up to 2.65 mills. The borough’s total mill rate is 4.7 mills.
Miller had originally asked for an 80 percent property tax exemption.
“But the years — going from 5 years to 15 — that does help our project," she said Tuesday. "It does not guarantee the project will move forward, but it certainly helps.”
Members of the assembly who have voiced support for the ordinance say a solar farm would add more value to land that’s currently not being used for anything at all. Miller estimates the solar project would meet 6.5 percent of Homer Electric’s energy needs and said it would add more part- and full-time jobs to the peninsula.
But Borough Mayor Charlie Pierce has pushed back on the idea of a tax exemption, at this meeting and others.
Pierce said he’d like to know exactly how much co-op members will save, beyond Miller’s rough estimates.
"What I’m trying to wrap my arms around is, what are we gaining from it? You say that the cost of power is going to be less, but what is it? It’s very vague," he said.
The solar farm was the catalyst for the ordinance.
But the exemption would apply, more broadly, to IPPs of all kinds. And there are others eyeing the Kenai as a project site. Ocean Renewable Power Company, based in Maine, is applying to harness Cook Inlet’s world-class tides as an energy source. The company already signed a joint development agreement with HEA.
Last year, a committee tasked with reviewing Renewable IPP's proposal recommended to the borough that it provide tax exemptions to any independent power producer that sells energy to utilities.
The Resilience and Securities Advisory Commission, which brainstorms ways to make the Kenai Peninsula Borough more sustainable, said IPP projects are usually limited by the costs of construction and high borough property taxes are a deterrent.
Chris Rose is executive director of Renewable Energy Alaska Project, a non-profit that advocates for renewable energy statewide. He said IPPs are going to be key players in helping the state achieve its renewables goals. But he said they need incentives to come to Alaska.
"The more IPPs who come — and I think we want independent power producers to come to create some competition, to bring some specialized skill, to take the project risk — the more of them that participate in the nascent market the Railbelt has, the more we’re going to hear about this issue of property taxes," he said.
Rose said the ongoing creation of a common set of reliability standards for the Railbelt will make the Railbelt more friendly to IPPs going forward, too.
David Thomas, with HEA, said the co-op doesn't have a stance one way or the other on the tax exemption. He said the co-op will decide if rates are competitive before inking a power purchasing agreement. The co-op has said it’s looking for new ways to diversify its intake from high-cost Cook Inlet natural gas, today responsible for 86 percent of its overall power.
There will be a hearing on the proposed tax exemption policy, Ordinance 2022-08, at the assembly meeting on May 3.