It sure sounds like you are in the business of generating electricity and selling it to the power company. It's the same as if you owned a large generating plant, just on a smaller scale. So it has to be reported as business income, not other income, and that means you have to pay self-employment tax. At least that seems to be the position that the IRS is taking, and it does seem reasonable.
However, this seems to be an unsettled area of tax law, so the rules might not really be clear. I suggest that you consult a local tax attorney (not just a tax return preparer) who can research the current status of the law and recommend an approach for you to take in dealing with the IRS. There may be something you should do to protect your interest if the issue is settled in your favor in the future. You might also have expenses that you can deduct against the business income, which would reduce both the income tax and the self-employment tax. We haven't discussed that possibility here. Ask the attorney about all these issues.
