College: Essay Example

5SOLAR POWER PANELS & TAXATION IMPLICATIONS

THE INSTALLATION OF SOLAR POWER PANELS: THE TAXATION IMPLICATIONS

College:

Introduction

According to High Commission of India (2011), Australia has the world’s highest average solar radiation, which certainly provides enormous potential for the generation of solar electricity. In recent years, many Australians have put this to good use. Over the last six years, for example, Australians have installed over a million rooftop photovoltaic (PV solar energy systems (ESAA 2014). There are two main reasons why many have preferred solar energy: rising electricity costs and for environment-related issues (that is, going ‘green’) (KPMG 2010). Regardless, the installation of solar panels has notable financial (particularly, in this case, taxation) implications. Related to this must be the government support via feed-in tariffs (FiTs) and generous subsidies to encourage householders and business to invest in solar technology.

Taxation Implications

Indeed, the financial implications of using solar energy have been a key incentive for the installation of solar panels in Australia. Many Australian householders cite concerns over rising energy costs as their main reason for investing in these solar units. These householders are, therefore, taking advantage of these government incentives and FiTs.

In 2009, for instance, the Australian federal government introduced incentives for home owners (such as solar credits and tax rebates) to encourage installation of solar energy panels. Australia’s Research and Development (R&D) Tax Concession has resulted in a number of tax deductions for companies that invest in solar energy (among other renewable energy sources) (KPMG 2010; ESAA 2014).

But this perceived financial relief is not as straight-forward as it may seem, a fact that reveals taxation implications of solar panel installations on both those who have installed them or not, although more for those who do not have solar systems

Somehow, someone somewhere pays for the government subsidies for solar systems. In the very basic sense, household without solar help cover power bills for those with solar systems. Apparently, transferring from non-solar to solar use costs households millions of dollars annually. The Australian government has since wound back direct subsidies for solar systems (panels). Still, according to ESAA (2014), there remains a ‘hidden subsidy’ that still drives electricity bills for households without solar. This subsidy stems from “the costs of building and maintaining the thousands of kilometers of poles and wires that deliver electricity to… homes and businesses” (ESAA 2014, p.2). Ultimately, the households pay less for the network since they generate some of their electricity on their own and do not depend entirely on the network. Still, the households using solar could be among the biggest network users, importing and exporting electricity at different hours of the day.

The FiTs have the same taxation implications on non-solar households. Essentially, FiTs are payments to solar households that sell back electricity into the national grid to encourage installation of solar panels. The Australian government’s premium FiTs for solar households (since 2006) can be “as much as three times the retail price of electricity” (ESAA 2014, p.2). Again, in the end, the costs of funding for these schemes (by local distribution businesses) are passed onto other non-solar households.

Other taxation implications are not as direct and impact on all citizens in the country. Household solar energy have impacted on electricity networks maintenance costs. For example, there are areas where installed solar energy is so much that it forces network providers to spend more (millions of) dollars to upgrade the grid and cope with increased supply. The twist is that solar households take less from the grid as they generate their own power. In other words, they pay less to the network although they may actually cost the network more than non-solar customers. ESAA (2014) estimates this extra cost to Australian power bills at about $340 million annually. Ultimately, these extra costs have to be recovered in other ways. Network businesses may adjust their businesses. Although the impact of this is higher on non-solar households, solar households are also affected.

Conclusion

Going green has becomes a key concept in today’s world and for good reason. In this respect, many governments (like Australia) have taken a number of initiatives to encourage the use of alternative (renewable) sources of energy. No doubt, solar energy is a vital part of sustainable management practice. However, while these initiatives will ultimately be of great benefits to the government and the people, their financial implications (such via taxations) can be hard to measure- at least in the short term. Generally, though, there are direct taxations associated with the cost of installing these panels (McCaskill 2011). In other indirect ways, government subsidies have implications on who pays more (solar or non-solar households), as well as then costs associated with added pressure on the grid as a result of solar households’ electricity feeds into it. It is also possible that business benefits more (at least accumulatively) from these government incentives than households (ESAA 2014). Still, one cannot ignore the bigger financial relief that solar households enjoy above non-solar (or other renewable energy source) households despite the challenges cited.

Bibliography

Energy Supply Association of Australia (ESAA) 2014, Who Pays for Solar Energy?

ESAA Discussion Paper. Viewed 25 May 2014, http://aefweb.info/data/Who_pays_for_solar_energy.pdf

High Commission of India 2011, Market Report on renewable Energy in Australia. Viewed

25 May 2014, http://www.hcindia-au.org/pdf/report%20on%20renewable%20energy%20in%20australia.pdf

KPMG International Cooperative 2010, Taxes and Incentives for Renewable Energy,

KMPG International. Viewed 25 May 2014, http://www.kpmg.com/UA/en/IssuesAndInsights/ArticlesPublications/Documents/KPMG-ENR-Sustainability-Taxes-and-Incentives.pdf

McCaskill, A 2011, Calculating the Cost of Solar Power, The Switch Report, July