Can Tennessee value solar and wind power property at less than its full installed cost for property tax purposes?

Subject

Opinion No. 13-28, Valuation of Certified Green Energy Production Facility Property, March 26, 2013

Plain-English summary

The original property-tax statute for "green" energy production facilities, Tenn. Code Ann. § 67-5-601(e), was already on the books. SB1000 would have rewritten subsection (e) to give it a tighter analytic structure. The new version was based on a legislative finding: green-energy property (geothermal, hydrogen, solar, wind) generally produces less electricity than conventional sources because the energy source is intermittent. That intermittency, combined with unusual market conditions, means the property's "sound, intrinsic, and immediate value" is significantly less than its total installed cost. If that real productive limitation weren't built into the property tax assessment, investment in green energy would be unreasonably discouraged.

The bill set initial valuation caps by source:

• Wind: initial value not to exceed one-third (1/3) of total installed costs (because wind facilities run at roughly 1/3 capacity over the course of a year).
• Solar: initial value not to exceed 12.5% of total installed costs (reflecting solar's lower capacity factor).
• Other green sources (geothermal, hydrogen, etc.): initial value not to exceed the appropriate capacity factor, as determined by the State Board of Equalization in consultation with the Department of Environment and Conservation.

The AG concluded SB1000 was constitutionally defensible. The structure paralleled an earlier amendment to SB1000 that the AG had already approved in Op. 13-19 (March 11, 2013). The legislative findings were credible. Wind and solar capacity factors are well-documented, and tying valuation to capacity factor reflects real economic value. Marion County v. State Bd. of Equalization, 710 S.W.2d 521 (Tenn. 1986), upheld a similar use-based valuation framework for greenbelt agricultural property under Tenn. Const. art. II, § 28 (which carefully governs ad valorem property taxation and narrowly limits exemptions). The same logic applied here: it wasn't an exemption, it was a use-and-capacity-based valuation method consistent with the constitutional requirement.

Importantly, the AG read the bill as setting maximum caps and requiring assessors to take the legislative findings into account, but not imposing absolute caps on appraisals. If a specific facility's productive value really did exceed the capacity-based cap, the assessor was not forbidden from going above it. That preserved the assessor's discretion to fix value on a property-by-property basis, which the constitution requires.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Tenn. Code Ann. § 67-5-601 has been amended periodically. The constitutional framework (Tenn. Const. art. II, § 28 plus Marion County) is stable. Renewable energy capacity factors have changed since 2013 (solar capacity factors have grown), so anyone analyzing the current rule should look at both the current statutory text and the current technology.

Background and statutory framework

Tenn. Const. art. II, § 28 sets the uniform taxation requirement for ad valorem taxes. Property is to be assessed according to its value, with limited exemptions allowed only when narrowly justified. The constitution distinguishes "exemptions" (which require explicit constitutional or statutory authority) from "valuation methods" (which can incorporate use-based or capacity-based factors so long as they reasonably reflect actual value).

Greenbelt precedent. Marion County v. State Bd. of Equalization, 710 S.W.2d 521 (Tenn. 1986), upheld the use-value assessment of agricultural and forest land under the Agricultural, Forest, and Open Space Land Act of 1976. The Court reasoned that valuing land at its agricultural use value (rather than its highest and best use) reflected the actual restricted use of the property and was constitutional under art. II, § 28. SB1000 used a parallel logic: valuing green energy property at its capacity-limited use rather than its theoretical maximum.

The capacity factor concept. A power plant's "capacity factor" is the ratio of actual annual energy output to the theoretical maximum if it ran at full capacity every hour. A natural gas plant might have a capacity factor of 50-90%; a nuclear plant 90%+; a wind farm roughly 30-40%; a solar PV installation roughly 12-25% (the AG used 12.5% for solar and one-third for wind, reflecting the technology of 2013). The bill tied the valuation cap directly to that capacity factor, with the State Board of Equalization setting the factor for sources other than wind and solar.

The certification framework. Under SB1000, to claim the favorable valuation, a property owner had to file with the Comptroller a copy of the "green energy production facility certification" issued by the Department of Environment and Conservation, or file a schedule or statement under § 67-5-1303, effective as of January 1 of the claim year, by March 1 of the first claim year. The Department of Environment and Conservation reported monthly to the Comptroller on approved certifications.

Earlier opinion 13-19. This Office had already opined that an earlier draft of SB1000 was constitutionally defensible. The amendment analyzed in Op. 13-28 was similar in structure but tightened up the language. The AG cross-referenced Op. 13-19 rather than re-running the full analysis.

Common questions

Does this give green-energy facilities a tax break?

In a sense yes, but the AG framed it as a more accurate valuation, not an exemption. Wind and solar facilities really do produce less electricity per dollar of installed cost than conventional generation. If property tax tracks productive economic value, the lower valuation just reflects reality. The greenbelt cases (Marion County) approved the same logic for agricultural land.

Why is this different from an unconstitutional tax exemption?

Article II, section 28 narrowly limits property tax exemptions. The opinion characterized SB1000 not as an exemption but as a valuation method. An exemption removes property from the tax rolls entirely (or removes a defined portion of the value); a valuation method assesses how much the property is worth in the first place. Marion County drew this distinction for greenbelt land.

Could the bill have capped valuations absolutely?

The AG noted that the bill set caps but required the assessor to take the legislative findings into account. The AG read this as not imposing an absolute cap. That's important. If the bill imposed an absolute cap that ignored individual property differences, it would have been a more difficult case under article II, section 28. As written, it left assessors with the flexibility to fix value on the facts of each property.

Who decides the capacity factor for non-wind, non-solar green energy?

The State Board of Equalization, in consultation with the Department of Environment and Conservation. The bill specified one-third for wind and 12.5% for solar; for everything else (geothermal, hydrogen, etc.), the Board would set the factor based on the technology's actual capacity to generate electricity.

Was the bill enacted?

SB1000 went through several drafts. The AG analyzed multiple versions in Op. 13-19 and Op. 13-28. The exact final form and enactment status should be checked against Tennessee's current statute on green energy property valuation.

Citations

Tenn. Code Ann. § 67-5-601 (property tax valuation); § 67-5-1303 (filing requirements). Tenn. Const. art. II, § 28 (uniform taxation). Marion County v. State Bd. of Equalization, 710 S.W.2d 521 (Tenn. 1986). Companion AG opinion: Tenn. Att'y Gen. Op. 13-19 (Mar. 11, 2013).

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2013/op13-028.pdf

Original opinion text

S T A T E O F T E N N E S S E E
OFFICE OF THE
ATTORNEY GENERAL
PO BOX 20207
NASHVILLE, TENNESSEE 37202

March 26, 2013

Opinion No. 13-28

Valuation of Certified Green Energy Production Facility Property

QUESTION

Is a proposed amendment to Senate Bill 1000/House Bill 0062 of the First Session of the 108th Tennessee General Assembly (hereinafter "SB1000") constitutionally defensible in the manner in which it sets forth guidelines for valuing certified green energy production facility property?

OPINION

Yes.

ANALYSIS

The proposed amendment to SB1000 would delete subsection (e) of Tenn. Code Ann. § 67-5-601 and substitute the following language:

(1) The general assembly finds that any property that generates electricity using 'green' sources such as geothermal, hydrogen, solar or wind, is generally capable of producing less electricity than conventional sources due to uncertain or intermittent energy sources or other factors, that net operating income will be affected by unusual cost and market conditions, and that the commercially competitive disadvantage of these 'green' energy source properties evidences that their sound, intrinsic and immediate value is significantly less than their total installed costs. The general assembly further finds that unless these circumstances are considered in the determination of value for tax purposes under this chapter, investment in property to generate electricity from 'green' sources will be unreasonably discouraged, denying the citizens of Tennessee the environmental benefits associated with the greater use of these domestic renewable energy sources for power generation.

(2) Based on the foregoing findings, the sound, intrinsic and immediate value of 'green' energy source property should not initially exceed a percentage of total installed costs equal to the ratio of projected electricity output over a period of one (1) year to the maximum capacity of the property, as follows:

(i) The sound, intrinsic and immediate value of wind source property should not initially exceed one-third (1/3) of total installed costs;

(ii) The sound, intrinsic and immediate value of solar source property should not initially exceed twelve and one-half percent (12.5%) of total installed costs; and

(iii) The sound, intrinsic and immediate value of other 'green' source property should not initially exceed its appropriate capacity factor as determined by the state board of equalization in consultation with the department of environment and conservation.

(3) The assessor of property, or the comptroller of the treasury, in the case of public utility property, shall take the foregoing findings into account in determining the sound, intrinsic and immediate value of 'green' source property when the property is initially appraised and each time the property is reappraised. A copy of the green energy production facility certification issued by the department of environment and conservation, or filing of a schedule or statement pursuant to § 67-5-1303, effective as of January 1 of the year for which valuation under this subsection is claimed, shall be required and shall be provided by the property owner to the comptroller's office by March 1 of the first year for which valuation under this subsection is claimed. The department of environment and conservation shall report each month to the comptroller a listing of certifications approved in the preceding month, and shall provide copies of certification records to the comptroller on request. On or before the scheduled reappraisal in each county, the comptroller shall advise the assessor of known locations of certified or other 'green' energy property and whether the property is assessable locally or centrally.

This amendment is similar in language and structure to another proposed amendment to SB1000, which this Office opined to be constitutionally defensible in Tenn. Att'y Gen. Op. 13-19 (Mar. 11, 2013). Consistent with the analysis in that opinion, the above amendment likewise is constitutionally defensible. The language of the above amendment, like the previous version, sets forth a credible rationale for establishing lower values for certified green energy production facility property, reciting the uncertain or intermittent nature of green energy sources and the fact that net operating income from such property is affected by unusual market conditions. The amendment sets forth a reasonable valuation method that takes into account the property's projected electricity output over a one-year period as compared to the property's maximum capacity for that time period. Moreover, in giving the State Board of Equalization authority initially to establish the value of green energy production property other than wind and solar facilities, the amendment sets reasonable guidelines based on the facilities' capacity to generate electricity, in light of the restrictive manner to which its use is limited. See Tenn. Att'y Gen. Op. 13-19, at 3.

This approach is consistent with the rationale upon which the Tennessee courts have found that the limited use of greenbelt property justifies a reduction in its valuation. See Marion County v. State Bd. of Equalization, 710 S.W.2d 521, 523 (Tenn. 1986). This approach has been held to be in accordance with article II, section 28, of the Tennessee Constitution, which carefully specifies how ad valorem property taxes are to be administered and narrowly limits the circumstances when exemptions are permitted. Id. In addition, the proposed amendment requires the local assessors and the comptroller to take the General Assembly's findings into account in appraising certified green energy production facility property, but, as we interpret its provisions, the amendment does not impose an absolute cap on appraisals of such property.

Under these circumstances, the proposed amendment is constitutionally defensible as written.

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

MARY ELLEN KNACK
Senior Counsel

Requested by:
The Honorable Ken Yager
State Senator
G-19 War Memorial Building
Nashville, Tennessee 37243

The Honorable Randy McNally
State Senator
307 War Memorial Building
Nashville, Tennessee 37243

The Honorable Lowe Finney
State Senator
312 War Memorial Building
Nashville, Tennessee 37243