Dive Brief:

• An Arizona Department of Revenue interpretation of the state’s tax code that third-party-owned (TPO) solar is subject to property taxes could cost the average customer leasing a residential solar array approximately $152 per year, compromising solar’s competitiveness as a source of electricity in 2013’s third-biggest U.S. residential solar market.
• The levelized cost of electricity (LCOE) for TPO distributed solar in Arizona in 2014 is $0.111 per kilowatt-hour, below the average retail rate of electricity of $0.113 per kWh for the residential market, but adding the recently imposed annual fixed charge of $0.70 per kilowatt increases the LCOE by $0.005 per kilowatt-hour to $0.116 cents per kilowatt-hour, slightly above that retail electricity rate.
• Adding a property tax of 0.6696% increases the LCOE another $0.005 per kilowatt-hour to $0.121 per kilowatt-hour, well beyond the competitive price for residential electricity.

Dive Insight:

The LCOE represents the per-kilowatt-hour cost of building and operating a generating plant over an assumed financial life and duty cycle and is used as a summary measure of an energy source’s competitiveness in the electricity marketplace. 

Distributed solar is generally considered cost-competitive if its LCOE in a state is at or below the retail price of electricity.

LCOEs used in this analysis included the 30% federal Investment Tax Credit and 5-Year MACRS accelerated depreciation but no state incentives because 52% of residential solar in Arizona in Q1 2014 was installed without a state incentive.