Calcom Blog

HOW PUBLIC AGENCIES FINANCE SOLAR FOR OPTIMAL RETURNS

February 5, 2019

Public finance for solar projects can be like figuring out a rubik’s cube – if you put the right pieces in place, they fit together perfectly. But getting started can be a bit mystifying. Since public entities can’t directly take advantage of the Federal Investment Tax Credit (ITC), what is the best way public agencies like water districts, municipalities and other public entities can finance solar and gain the maximum financial benefit?

Let’s review the options.

Cash Purchase of public solar projects can be accomplished by tapping an agency’s public funds, typically from reserves accumulated from tax revenue or the sale of assets. Even without the tax benefits, paying cash for a PV system usually has the quickest return on investment. However, many public agencies don’t have a lot of spare cash on hand, which makes it necessary to raise cash through general obligation (GO) bonds. Since these must be voted on by the public, GO bonds can take an inordinate amount of time and may not ultimately be the most efficient route to going solar.

Solar Loans may also be used to finance all or part of your public PV system. In California, low-interest loans for energy efficiency and energy generation projects are available for public agencies through the California Energy Commission. The loan can fund up to 100 percent of the project cost (up to $3 million) and must be repaid from energy savings within a maximum of 20 years. Applications are accepted on a first-come, first-served basis and are subject to funding availability.

Tax-Exempt Leases: If your organization does not have sufficient cash and does not qualify for a
solar loan, a tax-exempt solar lease can be a good option. Solar leases can immediately reduce utility costs and lock in lower cost electricity for terms typically ranging from 7 to 10 years. At the end of the term, the lessee typically has the option to purchase the system at a reduced cost.

Power Purchase Agreements (PPAs) are commonly utilized for public agencies that simply
want to reduce costs and enhance their environmental sustainability but not own the asset. Public sector PPAs are a fast, efficient way to benefit from clean energy, at little or no upfront cost. A developer installs solar on- or off-site and sells the power to you at a fixed rate that is generally lower
than fossil fuel electricity.

With PPAs, public agencies pay only for the energy the system produces, at the same guaranteed low rate every month. A PPA is essentially a long-term service contract, usually for a period of 15-20 years. And because the system is not owned by the public entity, operations and maintenance are handled by the developer, with no need to manage warranties.

Choosing the Right Solution

Public agencies who choose to go solar today can benefit greatly from the savings and sustainability benefits – even without the tax breaks. CalCom Energy can help evaluate whether cash, loan, lease or a public-sector PPA is the right option for your public agency. We can help you find the right finance partner and even help you negotiate the terms.

Contact us to evaluate your finance options today.

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