Kieran Coughlan: Tax boost for solar PV farming

The National Planning Framework for Ireland 2040 suggests that up to 40% of our electricity will come from from renewable sources by 2020, with strategic aims of over 50% by 2030, and more by 2040.

Solar PV offers just one of the renewable energy options, others include wind, wave, biomass and hydro sources.

According to the Sustainable Energy Authority Of Ireland, Ireland has a national target to reduce energy demand by 20% of the average energy use during the period 2000–2005, through energy efficiency measures, and has a binding EU target for renewable energy use to be 16% of final energy use, and 10% of energy use in the transport sector, by 2020.

From a standing start in 2005, Ireland had gone some way to reaching its targets, with a reduction of about 8.6% of final energy consumption by 2015, and about 10% of our energy consumption from renewables in 2017.

Overall energy usage in Ireland continued to decline from highs in 2008 of about 16 Mtoe (million tonnes of oil equivalent) to near 13 Mtoe in 2014, but an upward usage trajectory has started, in line with our economic recovery.

Ireland’s economic growth continues to accelerate, by 5.2% in 2016, 5% for 2017, and an expected 4.2% for 2018.

As the economy improves, it become much more difficult to attain the targets of renewable energy use and reducing energy consumption. Failing to meet these targets could cost us hundreds of millions.

It was widely expected that the Government would enhance its support for solar renewable projects through a “REFIT” tariff scheme like that in place for decades, which was mainly taken up by wind energy projects, whereby electricity producers are paid a subsidised price.

In the past week, Minister Denis Naughten said the final version of the Renewable Electricity Support Scheme is expected to receive Government approval within months.

This will be followed by a formal application for EU State Aid approval.

Solar energy is just one of the technologies which can be employed to meet our targets. In Germany, electricity production from solar, wind and bio-mass amount to 7%, 18.8% and 8.7%.

At the end of 2016, only 0.01% of Ireland’s electricity consumption came from solar PV, but the number of solar farms for which planning has been applied for and achieved increased exponentially over the past couple of years.

Solar projects for which planning has been received are believed to be capable of generating 700MW, sufficient to power 100,000 to 140,000 homes, with almost three times this amount in the immediate planning pipeline.

Solar projects have now got a boost from the taxman, with farmers being in a position to pass on their farms while benefiting from Agricultural Relief, thanks to changes introduced by the Finance Act 2017 passed last December.

Subject to certain conditions, land in a gift or an inheritance, on which solar panels have been installed, is to be regarded as qualifying agricultural land for the purposes of the tax relief.

Along with all the usual criteria which must be satisfied, lands occupied by solar panels can potentially qualify for Agricultural Relief where less than 50% of the land is occupied by solar panels and ancillary equipment.

In addition, subject to conditions, the ‘active farmer’ requirements can be met where a beneficiary leases land for the installation of solar panels.

While the rental income attainable for engaging in long term leases with solar developers has made such proposals lucrative, the long-term tax consequences of entering a solar contract can put some land owners off such projects.

Of course, there are other tax implications, such as Capital Gains Tax, Stamp Duty, VAT and Income Tax, which have not changed in the most recent Budget and Finance Act, and must be contended with in order to avoid pitfalls.

But at least the changes on the Agricultural Relief front give clarity and support for solar projects.

Individuals should obtain professional advice relevant to their individual circumstances.

Chartered tax adviser Kieran Coughlan, Belgooly, Co Cork.(086) 8678296

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