One of the requirements for solar electricity to achieve broad adoption and cost competitiveness with traditional forms of energy generation in the United States is widely accessible and low cost financial capital. The Department of Energy’s SunShot goals, which would result in solar energy contributing to 14% of the nation’s total electricity production by 2030, would require approximately $250 billion of solar electric generation deployment (DOE 2012). Currently, solar electric generation projects are primarily financed by institutions deploying private capital, which often require a high return on their investment. As a result, there has been a growing interest in financial policies and structures that would help migrate financing of renewable energy projects from private sources of capital to public capital markets (Mendelsohn 2012).

One investment vehicle that has been discussed by legal and financial experts in the project finance community to accomplish this is a real estate investment trust (REIT). While REITs have historically provided capital for buildings, they have recently been used to help finance other types of property, such as cellular towers and transmission lines.2 The purpose of this study is to examine the fundamental physical, functional, and operational characteristics of a photovoltaic (PV) system in the context of the characteristics of “real” property as defined by the tax code, to help determine whether REITs can own PV systems. The solar market has treated PV as “personal” property for federal and state tax purposes. If the IRS were to classify PV as “real” property, it would likely have implications on existing market structures. This work has been reviewed and informed by real estate, tax and project finance attorneys as well as experts in PV technology and deployment, however should not be viewed as an exhaustive study of the legal and tax issues surrounding the topic.