What are the alternative funding mechanisms for renewables?
With the first reduction in the solar tax credit, known as the investment tax credit (ITC), which enables homeowners and companies to subtract a portion of their solar costs from their taxes, businesses and nonprofits may wonder what other alternative financing mechanisms are available for renewables.
*Homeowners can no longer claim the solar tax credit in 2022, while commercial businesses can continue to take advantage of 10% of the cost of the solar energy system.
Solar Power Service Agreements (SPSA)
A Solar Power Service Agreement (SPSA) is a financial arrangement in which the photovoltaic (PV) system is owned, operated and maintained by a third party developer and a host customer agrees to install the device on its property and to purchase the electrical output of the system from the solar service provider for a specified period. This financial arrangement allows the host consumer to obtain reliable and often low-cost power.
The host customer buys the energy produced by the PV system rather than the PV system itself with this financial model, while also allowing the host customer to bypass many of the conventional barriers to the installation of on-site solar systems: high upfront capital costs, system performance risk, and complex design and permitting processes.
This model has been popularized in Arkansas as a result of recent legislation, Act 464 of 2019, passed by the Arkansas General Assembly, which allows governmental entities to net-meter renewable energy purchased from a private producer. This arrangement reduces costs, in part by preserving federal tax incentives available for investments in power-producing solar facilities.
Utilizing the SPSA model, Pulaski County recently announced that they have selected Today’s Power, Inc. (TPI) to provide approximately 8 megawatts (MW) of solar-produced power for county use. The TPI sun-tracking solar array will occupy approximately 40 acres at the Little Rock Port Authority Industrial Park. TPI will finance, operate and own 100 percent of the solar array.
Learn more about SPSA’s on the Environmental Protection Agency’s website.
Modified Accelerated Cost-Recovery System (MACRS)
Commonly paired with the ITC for commercial solar purposes, MACRS allows businesses to recover investments by depreciation deductions in certain assets. A number of renewable energy technologies, such as solar, are eligible and are classified as five-year property. Bonus depreciation was sporadically used different years at available at different levels. Most recently, The Tax Cuts and Jobs Act of 2017 increased bonus depreciation to 100% for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023.
For more information on the federal MACRS, see IRS Publication 946, IRS Form 4562: Depreciation and Amortization, and Instructions for Form 4562.
Arkansas Energy Performance Contracting (AEPC)
Energy Performance Contracting (EPC) is a tool for paying for efficiency upgrades such as renewable generation over time. The Arkansas Energy Office offers assistance to state agencies, institutions of higher learning, municipalities, and counties throughout the seven step EPC program. The program provides an effective and user-friendly process with standardized documents and help every step of the way. The Arkansas EPC Program was directed by law in 2013, developed by industry professionals and financial representatives in 2014, and expanded to include municipalities and counties in 2015, and school districts in 2019.
“AEPC has seen strong interest since its start in late 2014,” said Katie L. Niebaum, Executive Director of the Arkansas Advanced Energy Association. “Twenty-one projects have been fully executed or are in active development, with total executed contract value worth $102.5 million guaranteeing nearly $150 million in energy savings. Those figures are expected to more than double by the end of 2019. AEPC is a significant economic development initiative for the state, a driver of advanced energy jobs and a key cost-saving tool for Arkansas’s public entities.”
If you would like to explore the possibilities of performance contracting for your organization, contact Program Manager Chet Howland and/or any of the pre-qualified Energy Service Companies (ESCOs).
Property Assessed Clean Energy (PACE)
The Property Assessed Clean Energy (PACE) model is an innovative mechanism for financing energy efficiency, water efficiency, and renewable energy improvements on private property. PACE programs exist for commercial properties in most states.
Eligible commercial property owners in Pulaski County can secure 100% upfront, fixed rate, long-term financing for qualified energy upgrades through the Pulaski PACE program.
“Commercial property owners in Pulaski County, as well as the cities of Fayetteville and Springdale, can take advantage of PACE financing, which has the potential to not only reduce utility costs and enhance the value of real property, but also create desirable jobs and generate lasting economic development,” AAEA’s Niebaum said.
PACE has been a leading priority for AAEA and its members since the advanced energy business community helped secure its passage in 2013, Niebaum added.
“A bipartisan consensus of General Assembly members saw PACE as an answer to the financing barrier that had discouraged property owners from addressing deferred maintenance measures and making desired capital improvements that reduce utility costs and have the added benefit of improving their property value,” Niebaum said. “The payments, paid via a special assessment on the owner’s property, must be less than the amount of energy savings achieved, so business owners experience an increase in cash flow.”
If you have any questions or would like to see if your project qualifies, call 501.537.0190 or email firstname.lastname@example.org.
Rural Energy for America Program (REAP)
With increasing climate change and rising energy costs, rising numbers of farmers and rural businesses are trying to generate their own renewable energy and reduce their energy costs. The Rural Energy for America Program (REAP) offers grants and loans to farmers and businesses to improve energy efficiency and purchase wind, solar or other renewable energy systems, as well as grants to assist with energy audits and renewable energy development.
The program provides guaranteed loan financing and grant funding to agricultural producers and rural small businesses for renewable energy systems or to make energy efficiency improvements. To qualify for this program farms and businesses must be in an area other than a city or town with a population of greater than 50,000 inhabitants and the urbanized area of that city or town.
You can check your eligibility and learn more at the United States Department of Agriculture and Rural Development.
Rural Energy Savings Program (RESP)
The Rural Energy Savings Program (RESP) provides loans to entities that agree to make affordable loans to help consumers implement cost-effective, energy efficiency measures. This program, authorized by Congress in the 2014 Farm Bill, helps to build a cleaner and more sustainable domestic energy sector for future generations. RESP will help lower energy bills for rural families and businesses and will reduce barriers to investment in energy efficiency projects or activities.
Funds may be used for the purpose of implementing energy efficiency measures to decrease energy use or costs for rural families and small businesses. Rural areas are defined as areas with a population less than 20,000.
In 2019, Today’s Power was awarded $50 million RUS loan funds for the purpose of rural energy efficiency projects. Whereas they can lend the funds and offer programming that increases energy efficiency measures to decrease energy use or costs, including solar, storage, energy storage, electric vehicle chargers, and more, to electric cooperatives and other utilities, their customers (commercial and residential), the agricultural, industrial, and public sectors in qualifying rural areas.
Learn more on the United States Department of Agriculture and Rural Development’s website.