Solar Energy in Ohio and the Impact on School District Revenues

Ohio’s electricity generation landscape has been changing significantly for the past several years.  Changes in natural gas extraction technologies and energy markets have made electricity generating plants powered by natural gas much more economical and have by extension made nuclear and coal powered plants less economical.  In the past three years Ohio has had three coal fired plants close, reducing the electricity generating capacity of the state’s power plants by 17.5% from 26,464 MW to 21,852 MW. In addition, in October 2020 it was announced that two more power plants (Zimmer and Miami Fort, both in SW Ohio) with over 2,600 MW of combined capacity, are scheduled to close by the end of 2027. This would further reduce Ohio’s aggregate electricity generating capacity by another 12% to 19,231 MW.

Furthermore, anyone who lives in Ohio and has been within spitting distance of a personal computer, tablet, smartphone or newspaper over the past year is no doubt familiar with the HB6/First Energy scandal and the financial peril in which it places Ohio’s two nuclear power plants (which together account for 2,120 MW of electricity generation – nearly 10% of the state’s current generation capacity).

Finally, Ohio has also developed several utility scale windfarms that (as of 2019) generate 738 MW of electricity and is also home to 24 electricity cooperatives under the umbrella of Buckeye Power and 85 Ohio municipally owned electric systems that are affiliated with American Municipal Power.

Table 1 provides a brief overview of Ohio’s current “investor-owned” electricity generating landscape (this table omits the municipal and cooperative electricity generators).

Table 1: Overview of Ohio’s Current Investor-Owned Electricity Generation Landscape

Type of Power # of Power Facilities Total Generation Capacity (MW)
Coal 7 11,161 MW
Natural Gas 12 7,986 MW
Nuclear 2 2,120 MW
Other (Oil & Petroleum Coke) 2 585 MW
“Traditional Source” Total   21,852 MW
Wind Power Several 738 MW
Wind + Traditional Total   22,590 MW

Source: Data for this table has been assembled over the past several years by Howard Fleeter and is drawn from a variety of sources including the internet and newspaper articles. Therefore, the figures in Table 1, while believed to be generally correct, may not be 100% complete, accurate or current.

While the shift in Ohio’s electricity generation landscape has created considerable financial problems for school districts in which coal and nuclear power plants are located as these plants lose value or close entirely, that is not the focus of this article. Rather, the focus of this article is on the recent surge (pun intended) in utility grade Solar power facilities within the Buckeye state.

Table 2 provides an overview of the number of Solar electricity projects that have been placed before the Ohio Power Siting Board as of May 7, 2021. A map of currently proposed solar electricity generation projects can be found at: (click “download”)


Table 2: Proposed Solar Electricity Generation Projects as of May 7, 2021

Power Siting Board Status # of Solar Facilities Total Generation Capacity (MW)
Pre-Application Phase 5 780 MW
Application Pending Phase 19 3,672 MW
Application Approved Phase 10 2,197MW
Facility Under Construction 2 370 MW
Solar Facility Operational 1 150 MW
Solar Power Facility Total 37 7,169 MW

Source: Ohio Power Siting Board, May 7, 2021

The data in Table 2 show that there are currently 37 solar electricity generation projects at various stages of approval by the Ohio Power Siting Board with a combined generation capacity of 7,169 MW.  The additional generation capacity would increase Ohio’s electricity generation capacity by more than 30%. The additional electricity if all of the solar projects become operational would be 2.75 times the number of MW of the 2 coal power plants slated to close in 2027. Industry sources estimate that Ohio could experience up to $5 billion in investment in utility scale solar electricity generation facilities over the next several years.

Financial Impact of Solar Electricity Generation on Ohio’s School Districts
As is the case with other electric generation property, solar electric generation facilities would be treated as public utility tangible personal property (PUTPP) with the value of the facility established by the Ohio Department of Taxation. However, unlike in the case of coal, natural gas and nuclear power plants, the Ohio Revised Code allows for counties to choose to opt to abate the value of the solar generation facility and accept a Payment in Lieu of Taxes (PILOT) instead.  This provision was originated in SB 232 in 2010 and has subsequently been extended (currently though 2022) by the Ohio legislature.

Senate Bill 232 establishes a PILOT payment of $7,000 per MW to be split among local taxing jurisdictions in proportion to their share of taxes received (school districts typically receive roughly 65% of local property taxes in Ohio) along with an additional $2,000 per MW that would go directly to the county. Solar electricity generating facilities are currently estimated to be in service for 30-35 years, and based upon a limited amount of currently available data, it appears that the PILOT amount would typically be less over time than the expected PUTPP tax revenue. However, because solar facility owners have the right to appeal the valuation set by the Ohio Department of Taxation, and because whatever value is set will depreciate over time, actual property taxes may be less than initially estimated and will by design decrease over time. In this regard, the PILOT payment may be a more stable and certain source of revenue than are the PUTPP taxes.

Thus, the question for school districts, other local governments and county decision-makers is whether to opt for the PUTPP tax revenue or the PILOT payment. Below is a list of pros and cons of the two choices.

PILOT Pros:  
1) Annual stable, defined amount 
– while the exact PILOT payment will be recomputed each year by the county auditor based on the share of tax revenues flowing to each local government jurisdiction in the area, the school district’s share of the $7,000 per MW PILOT amount is expected to be a relatively stable and well-defined amount over the 30-35 year lifespan of the solar installation.

2) No impact on state aid – a major advantage of the PILOT payment option is that because the PILOT essentially abates the property value of the solar installation, the school district’s tax base is not increased. In normal times when Ohio has a functioning state aid formula, an increase in property valuation results in a reduction in the district’s state foundation aid (unless the district is on the guarantee).  However, if the PILOT approach is taken, the value of the solar facility is NOT added to the district’s property valuation and no reduction in state aid will occur.

PILOT cons: 
1) Likely less revenue
– Based on both the largely rural location of the proposed solar installations (which means relatively low property tax rates) as well as the limited amount of data currently available regarding their value, the PILOT will likely generate less revenue over the life of the project than property tax revenues as currently projected.  Note also that the expected revenue calculation would also be influenced by the impact on state aid if there is no PILOT agreement; however, it is not possible to make calculations of that nature at the moment because Ohio does not currently have a school funding formula in place.

Property taxes pros:
1) More Revenue?
– The primary reason to reject the PILOT agreement is if the school district expects to get more revenue over the life of the project from increased property taxes than from the cumulative PILOT amount.


Property taxes cons:
1) The property tax revenue calculation must include the likely resulting loss of state aid for the school district due to increased valuation
– As discussed above this is because without the PILOT, the valuation of the solar installation is added to the tax duplicate of the school district, making them richer in the eyes of the state aid formula.

2) The owner of the solar installation can appeal the PUTPP valuation set by the Tax Department – As we know from the Rover and Nexus cases, the pre-project Tax Revenue estimates are just estimates – they can be lower than the estimated amount if the utility challenges the Tax Department’s valuation of the solar installation.

3) Tax revenue declines annually due to depreciation – It is likely that a 30-year depreciation schedule will be applied by the Tax Department with the assessed value decreasing by about 3.3% per year down to a minimum valuation of 15%.  PILOT payments will not be subject to depreciation.

The main advantage of forgoing the PILOT is the prospect of getting more revenue over the life of the project from the property taxes. However, not only is there no guarantee that the estimated revenue will actually be what is received, but also there will likely be an (unknowable right now) loss of state foundation aid unless the school district in question is on the guarantee (or in a recurring nightmare I have, the gain cap).

Thus, based upon what we know at the current point in time, the PILOT has the twin advantages of more certainty in revenue over the life of the project and no potential loss of state foundation aid.