Interest in adopting solar energy is growing among business & home owners across the USA, and many of these energy consumers have questions related to the options available for integrating solar PV systems onsite.
There are three basic methods used in the industry to adopt distributed solar energy:
- Purchase the system outright using cash or a loan
- Engage in a Power Purchase Agreement
- Engage in a Solar Lease
Purchasing a system outright has a number of benefits including Federal Tax Credits and depreciation (if a customer is a taxable entity, with tax liabilities). The energy consumer owns the system and utilizes the power generated by the system, for the life of the equipment (typically 25-35 years). The downside to this approach is that it also entails a significant cash outlay that may be too rich for existing capex budgets. Additionally, if anything goes wrong with the system any maintenance, repairs or upkeep are the responsibility of the energy consumer.
Another methodology utilizes a Power Purchase Agreement (PPA). A PPA is a long term agreement (generally 15 to 25 years) that typically has no upfront cost.
Using a PPA, the energy consumer is charged a set electric rate which is typically below their current cost of electricity, allowing them to save money from day 1. The PPA rate either remains flat, or escalates at a fixed rate (usually 1-2%) over the course of the agreement. If electricity costs rise (due to energy inflation) at a faster rate than the escalator rate within the PPA, then the energy consumer will realize exponential savings annually, throughout the term of the agreement.
A solar PPA is not a financing mechanism, however, like traditional loans or leases. Once the initial term has ended, the energy consumer usually has the right to purchase the system for fair market value, or enter into a new PPA at a reduced rate. Another significant difference is how PPAs and Leases are treated on an energy consumer’s balance sheet. PPAs are typically not found on a balance sheet, as are loans & some leases, therefor many energy consumers prefer PPAs as they tend to not limit borrowing capacity.
Power Purchase Agreements are most useful for tax exempt entities, such as non-profits like municipalities, churches, and public schools. Since non-profit entities are unable to benefit directly from available tax benefits (like the Federal Investment Tax Credit and depreciation) from owning a solar PV system, utilizing a PPA from SCF is the most cost-effective way to adopt solar energy. In this scenario, SCF would monetize the tax benefits as the system owner, and then pass on these benefits to the customer in the form of lower PPA rates.
Facts about Solar Leases
A Solar Lease is a medium term obligation often utilized by for-profit entities especially in territories where PPA’s are not allowed. Unlike a PPA, the off-taker pays a fixed lease payment instead of paying for the power generated by the solar system. Most Solar Lease programs have term lengths between 7-10 years, and most will likely have a residual payment that would need to be paid at the end of the lease term if the customer is purchasing the system.
Since the term length of the lease is considerably shorter than a typical PPA term, the ability for the customer to save money in the system’s first year of operation is usually limited, and in most cases will require the customer to pay more than they would otherwise pay for their energy consumption.
One often overlooked fact of Solar Leases, is that they require the customer to perform system maintenance on the solar array during the lease term. If the system stops working for any reason, the customer is still obliged to make the lease payments whether or not the system is producing electricity.
Why Choose a PPA or Lease Instead of Outright Purchase?
Some people may wonder why purchasing their solar PV system outright isn’t a better choice, as opposed to a PPA or a Solar Lease, and the answer may depend on both location and business type.
As mentioned previously, tax exempt entities are unable to benefit from tax benefits, meaning a Power Purchase Agreement would be much more cost-effective. For commercial and industrial off-takers or other for-profit entities, the answer often comes down to available CAPEX budget and maintenance.
Solar panels and inverters do fail, and when they do, it’s very beneficial for an energy consumer to be able to rely on the PPA provider to monitor its system, and to pay for repair and maintenance rather than covering that expensive work out of their own pocket.
The fact that the array can be purchased outright at the end of the agreement also means that there’s no need to worry about losing the benefits of ownership once the PPA or lease term is up.
How Does SCF Help Consumers Save with PPA’s?
SCF utilizes the Solar Access to Public Capital (SAPC) Commercial Power Purchase Agreement for all of its projects, which is an industry standard PPA. This reduces legal costs, complexity, and project transaction costs, which permits SCF to offer better terms to energy consumers.
Using SCF’s proprietary software, the SCF Suite℠, members can instantly price their projects and try various options in order to evaluate project economics.
If you are evaluating a project and would like to learn more, please don’t hesitate to contact Dan Holloway @ email@example.com or fill out the contact form to get in touch with SCF.
It’s a common dream among automakers and renewable energy advocates: electric vehicles powered by the sun, no longer reliant on fossil fuels. It is a common goal that has been achieved in many prototypes, and is even available as an optional solar roof upgrade on the Prius Plus, billed as a means to top up the cars battery. But just how realistic is it that we will see fully solar powered cars in our lifetime?
While the tech behind solar materials is rapidly advancing, the amount of surface area necessary to provide any meaningful charge in a short amount of time is still unrealistic on a personal vehicle. It would take roughly 80 hours for one of Tesla’s semi-trucks to fully recharge their batteries, even with many times the surface area of a normal car. That doesn’t mean however that our cars can’t be fully solar powered, but for the near future our focus should likely remain on receiving that charge from a home-based system.
While charging stations are becoming more common in many cities, they still are nowhere near as ubiquitous as gas stations, meaning that most electric vehicle owners will need to charge their cars at home. It seems counterproductive to charge from the grid, especially considering the cost of so much electricity, which is why a home or business solar grid can be the perfect solution to power electric vehicles.
The first question on most people’s minds: how much will it cost to install, and how much will it cost to charge? There are quite a few variables to keep in mind, such as location and state solar incentives. However, most calculations show solar installation and batteries costing equal to or less than paying for electricity when calculated per day. To read a detailed breakdown of the potential costs, you can check out this article by Solar Power Rocks.
How SCF Can Help Your Business Power A Solar EV Fleet
Maybe you run a small business with a good amount of roof space that is interested in powering several electric company vehicles, or maybe your church or school would like to install a solar charging station in your parking lot. Sustainable Capital Finance provides commercial solar financing, and can help with applications like these and more, providing commercial solar PPA solutions to EPCs and Developers for projects as small as 100kW.
On September 27th, California Governor Jerry Brown approved the bill to extend SGIP, the Self Generation Incentive Program that will provide battery installations in California homes, schools, commercial and non-profit organizations with as much as $700 million in funding. This certainly serves as a vote of confidence in California’s support of solar energy, and most likely a sign of similar renewable-friendly policies to follow.
The program gives rebates to qualifying distributed energy systems, potentially lowering the cost of adding PV system batteries by $1,000s.
SGIP has existed since 2006, initially founded as a means to encourage peak load reduction by funding solar, it eventually turned into the main funding source for behind-the-meter batteries. Companies like Stem, Sunverge and Tesla have taken advantage of the incentives for systems smaller than 30 kW.
While some companies took advantage of its first-come, first-served submission process, some large changes have been enacted since that changed the awarding system with a lottery focused on projects with that offer additional grid-balancing or greenhouse gas reduction efforts. In addition, a declining incentive structure similar to the California Solar Initiative (CSI) program were put into place that would reduce payouts throughout the programs lifetime.
This program should help California continue to lead the nation in behind-the-meter battery installations, lowering the costs of PV solar as an alternative to grid power.
How SCF Can Help Finance Your Solar Project
Sustainable Capital Finance is a commercial & industrial (C&I) solar financier, providing PPA solutions to EPCs and Developers for projects as small as 100kW.
The permit and inspection process can be lengthy and difficult, often leading to costly expenses before a project can get under way, especially if design and engineering work is included. Local governments must issue a permit before any PV system is installed, and inspect it before connection to the grid. Additionally, zoning permits as well as engineering and safety code permits are required; all of that adding up to a lot of potential hassle and expense.
Many states have made moves towards easing the permit process however, such as California which recently announced the Solar Automated Permit Processing (SolarAPP) initiative, a program that should ease the permitting process and reduce expenditures of solar projects.
Beginning with the aforementioned initiative, SCF has analyzed some of the most progressive states and the steps they’ve taken to ease the permit and inspection process for solar developers:
With the goal of making the permit process more routine, straightforward and efficient, the Solar Energy Industries Association (SEIA) and The Solar Foundation revealed the brand new initiative, SolarAPP.
The plan will attempt to enact reforms such as:
- Creation of a system design standard for solar projects that qualify;
- Listing established equipment standards for solar projects that go through the initiative process;
- A program to enact skills and safety training/certification for solar installers in order to ensure that their projects comply with codes and laws, removing the need for the traditional permit process;
- Establishing an administrator to guide implementation of the plan, overseeing state and local jurisdictions and utilities as SolarAPP is put into place.
- An online platform for local governments to sign up and vet proposed systems, lowering the cost of approvals.
The implementation and hopefully the success of this program should help to spur other states to enact their own reforms of these processes.
New England Partnership
Massachusetts, New Hampshire, Connecticut, Vermont and Rhode Island have forged an alliance, the “New England Solar Cost-Reduction Partnership.”. Together they work to grow the regions solar market through cost reductions for permitting and connections. Additional permitting processes still exist for the states under the partnership.
While historical districts may have extra paperwork required, solar PV projects for residential units of 4 or fewer require only a short-form application in Boston, while long-form are required for all others. Building and electrical permits and inspections are also required in order to verify state and local code.
While no single standard for solar installations currently exists, the state did develop a guide for rooftop solar panel installers.
Building permit fees were waived in 2011, after a law passed applying to installations below 5 kW of capacity. Municipalities are also required to include residential solar systems in their building permit process. Training programs were also authorized state-wide to inform officials on the permitting process for solar installations.
With an expedited permit process for smaller PV systems (15kW or less) as well as net-metered systems Vermont is making strong progress towards being a leader in ease of solar permitting.
Rhode Island has stated their objectives to be refining, combining and deploying innovative tools and practices from Connecticut and Massachusetts Rooftop Solar Challenge I (RSC I) projects, and from other earlier efforts in those states and Vermont.
States Outside the Partnership
With an expedited permit process in many municipalities and a 13-step checklist to determine eligibility for the quicker process, New York is making steps to improve permitting for solar PV installations.
New solar projects in New Jersey have to be registered with the SREC Registration Program before the project starts in order to be eligible to earn credits, while local permit offices often require building/electrical permits. Local utility and jurisdiction must also complete inspections before the PV system can be connected to the grid.
While state ordinances have not yet passed for permitting processes, local entities have their own sets of rules. The state is quickly moving in a solar-positive direction however, and will most likely see legislation to improve the state-wide permitting process in the next few years.
While inconsistent across jurisdictions, some parts of Colorado make the permit process very easy, although some jurisdictions make it quite a bit more difficult.
How SCF Can Help Your Solar Project
Sustainable Capital Finance is a commercial & industrial (C&I) solar financier, providing PPA solutions to EPCs and Developers for projects as small as 100kW.
While the MASH (Multifamily Affordable Solar Housing) program is currently closed to new applicants, there is a new solar PV state incentive in town: Solar on Multifamily Affordable Housing (SOMAH); a program designed to help tenants in low-income housing benefit directly from solar savings.
The program works by giving credits to low-income tenants through virtual net metering (VNEM) tariffs, which allow system generation bill credits to be allocated among housing occupants. Each solar project will provide tenants with at least 51% of VNEM credits, saving them a significant amount of money and increasing good-will towards solar energy (one of the main intents of the program).
Property owners will still be eligible to receive the 30% Federal Incentive Tax Credit upon purchasing the solar system, and 49% of VNEM tariffs will go to common areas.
One interesting detail regarding SOMAH, the program is funded through California’s cap-and-trade greenhouse gas program, as opposed to its predecessor MASH which was mainly funded through large investor-owned state utilities.
Which properties are eligible for SOMAH?
There are several non-negotiable requirements that must be met in order to qualify for SOMAH, these are the important ones:
- The property in question must be an existing building.
- At least 1kW of electricity must be produced by the installed solar system, and no more than 5MW, alternating current rated peak electricity.
- Property must be in a designated disadvantaged community (as defined by CalEPA), or 80% of the apartment’s households must earn at or below 60% of the median area income.
- The building’s affordability restrictions must have at least 10 years remaining on the term.
- You must separately meter units, and they must be eligible for a virtual VNEM tariff.
- Your utility providers must be Pacific Gas and Electric Company, San Diego Gas & Electric Company, Southern California Edison Company, Liberty Utilities Company, and PacifiCorp Company.
Building owners are also unable to raise rent under the contract, which ensures that the system will not create any additional costs for renters, including utility allowance adjustments or other such methods of rent increase.
Timeline and funding:
The $1 billion program, which provides up to $100 million annually in incentives, will serve multi-family buildings with funding for up to 10 years. The target has been set at 300 megawatts of generating capacity by 2030, which means this program will likely be around for quite some time. SOMAH officially began in August 2018, and although there are still a few steps left before it is rolled out for applications, the program should officially begin in mid-September of 2019.
How SCF can help developers and owners make the most of SOMAH?
Sustainable Capital Finance is the perfect partner to help developers and multi-family home owners take advantage of SOMAH. Although applications will not be open until around September 2019, this is a well-funded program that will almost certainly stick around until at least 2030. If you are evaluating a project for the SOMAH program, or are interested in learning more, don’t hesitate to reach out to Dan Holloway @ firstname.lastname@example.org.