LBO: Solar and wind sales-tax exemptions coincide with rising renewable share but direct effects unclear
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Summary
The Legislative Budget Office told the committee that installations and renewable shares have increased while cautioning it cannot empirically isolate how much of that growth is directly attributable to the state's sales-tax exemptions for distributed solar and wind systems. LBO reported FY2026 foregone-revenue estimates of $10 million (solar) and $12 million (wind).
The Legislative Budget Office presented a bundled evaluation of two sales-and-use-tax exemptions intended to encourage solar and wind installations.
"The objective of the solar energy systems general sales and use tax exemption is to incentivize and promote the implementation and utilization of solar energy systems in the state of Minnesota to achieve a greater percentage of renewable energy contributions to the state's electricity fuel generation mix," Thomas Rainey, program evaluator at the LBO, told the committee. He gave a similar statement for the wind exemption.
Rainey said the evaluation was limited to distributed energy resources (systems under 10 megawatts, interconnected to distribution) and therefore did not attempt to assess larger utility-scale projects. The LBO reported estimated foregone revenue to the state general fund of $10,000,000 for solar and $12,000,000 for wind in fiscal year 2026.
The office showed that wind rose to about 21% of Minnesota's electricity generation mix by 2020 and solar to about 3%, and presented maps showing concentration of installations by ZIP code (solar concentrated near population centers; wind where resource potential is higher). But Rainey repeatedly cautioned: "we are unable to state the degree to which these policies influence uptake in renewable energy as multiple state, federal and private programs have incentivized the utilization of solar and wind energy systems." The report therefore treats the exemptions as one of several overlapping incentives that may have contributed to uptake.
Rainey and other LBO staff also discussed alternatives and tradeoffs: a sales-tax exemption potentially reaches a broader population and is administratively efficient, while a direct-payment incentive (grant or loan) can better target financial barriers but is cost-limited. The Department of Revenue provided revenue-neutral calculations that would only slightly lower the state sales-tax rate when done in isolation (from 6.875% to 6.866% for wind and to 6.868% for solar, as presented).
Several senators pressed LBO staff on whether the evaluation's language implied objectives were met when the office could not causally attribute outcomes. Senator Droskowski said the presentation appeared to assume success without isolation of policy effects: "we have no idea whether we're meeting the objective or not," he said. LBO staff replied that data limitations and overlapping policies prevent empirical attribution; they offered to follow up with additional analyses where feasible. The commission's vote to recommend a modification will be detailed in the 2026 annual report, LBO said.
