Appraisal methodology for solar and wind energy projects
RPTL § 575-b was held to be unconstitutional in the recent court decision of Airey et. al. v. State of New York. That decision is now on appeal.
Assessors seeking guidance regarding the Airey litigation and its relevance to the Tax Department’s 2025 valuation model should contact their municipal attorneys.
The 2021-2022 Enacted State Budget established a process for the New York State Department of Taxation and Finance to develop a standard appraisal methodology for solar and wind energy systems with a nameplate capacity equal to or greater than one megawatt.
The Tax Department—in consultation with the New York State Energy Research and Development Authority (NYSERDA) and the New York State Assessors Association (NYSAA)—will annually develop:
- an appraisal model using the discounted cash flow approach for solar and wind energy systems, and
- discount rates to be applied to the models.
Beginning with 2022 assessment rolls, RPTL § 575-b requires assessors to use the model and discount rates to value and place assessments on affected solar and wind energy systems.
Note: Municipalities will continue to have the flexibility to negotiate payment in lieu of taxes (PILOT) agreements.
Summary of changes to 2025 model
- Revenue forecasts, expense forecasts, and discount rates have been updated.
- Wind capacity factors have been revised to reflect technology improvements over time.
Final 2025 discount rates
The discount rates below are based on the economic principle of weighted average cost of capital (WACC). The cost of capital is a forward-looking measure comprised of the time value of money and investor risk. It takes into account the expected rate of return that market participants require to attract funds to a particular investment. The cost of capital is synonymous with the discount rate that is typically used in renewable energy discounted cash flow analysis.
The discount rates are separated into two distinct categories based on investment risk associated with system type.
| Solar (1 MW and larger) | |||
|---|---|---|---|
| Weighting | Cost | Weighted cost | |
| Debt (pre-tax) | 51.50% | 7.00% | 3.61% |
| Equity (pre-tax) | 48.50% | 8.50% | 5.65% |
| Nominal WACC (pre-tax) | 9.25% | ||
| Real WACC (pre-tax) | 6.59% | ||
| Land-based Wind (1 MW and larger) | |||
| Weighting | Cost | Weighted cost | |
| Debt (pre-tax) | 36.20% | 7.00% | 2.53% |
| Equity (pre-tax) | 63.80% | 9.00% | 7.87% |
| Nominal WACC (pre-tax) | 10.40% | ||
| Real WACC (pre-tax) | 7.71% | ||
The nominal discount rate is converted to real through the formula RR=((1+RN)/(1+RI))−1, where RR is the discount rate in real dollars, RN is the discount rate in nominal dollars, and RI is the anticipated rate of inflation (assumed 2.5%).
Note: The rates specified above are before-tax discount rates. These rates will be combined with the local full-value property tax rates before use in the Solar and Wind Appraisal Model.
Final 2025 Solar and Wind Appraisal Model
- 2025 final model (Excel)
- Unlocked final 2025 model: formulas viewable for analysis and consideration (Excel)
- User Guide (pdf)
Note: The model utilizes earnings before interest, taxes, depreciation, and amortization (EBITDA).
For more information
If you have questions, or if you would like to be added to our mailing list on this topic, email renewables.model.questions@tax.ny.gov.
Resources
- RPTL 575-b
- Questions and answers (updated December 28, 2023)
- Land Valuation and the Solar and Wind Appraisal Model
- Summary of 2024 public comments and responses
- 2024 Final Model (Excel, to be used only for 2024 assessment roll)
Definition
Discounted Cash Flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. The analysis projects how much money an investment will generate in the future, and then discounts that cash flow to arrive at an estimated current value of the investment.