Considering Solar for Distributors: Part 1
As solar technologies continue to grow in sophistication and to drop in price, the incentives to join the solar revolution have never looked brighter. However, every opportunity comes at a cost. For energy distribution organizations, developing a reliable solar resource is likely worth the costs, but it’s important to keep all the variables in mind for the sake of making an informed decision and building a reasonable, responsible implementation plan.
I had a chance to discuss such issues with Mark Aeilts, an expert in energy distribution with more than thirty years of experience in the rural electric cooperative system. “There are a lot of things to consider for a co-op or municipal power provider if they’re adopting a solar strategy,” he says. While the full list of factors and influences could likely fill a book, Aeilts suggests a short list to start us off with the most important considerations.
1: Existing Contracts
“To begin with, you have to know what your current legal standing allows,” says Aeilts. “Is there a Full or Partial Requirement Wholesale Power Contract? If so, then be sure to comply with the provisions of those agreements.” Such a contract might allow for a percentage or a defined quantity of solar energy to be built by the distribution cooperative, but even if a power contract does not allow your organization to own a solar array to sell the energy to your members, you may still consider serving your headquarter’s needs with solar in the form of a demonstration project for your members. Involving legal counsel on existing contracts is pivotal at the start of your investigation into solar.
2: Tax Credits
The government uses tax credits to incentivize businesses and private citizens to invest in renewable energies, but co-op and municipal power distributors often are not taxable entities and therefore do not qualify for these incentives. There is hope, though, says Aeilts: “Cooperatives [and municipals] can look for tax-equity partnerships to help establish their solar plans.” Finding investors who could benefit from the tax breaks can make adding renewable energy to a non-profit organization’s portfolio an economically feasible reality. To that end, there are a few available options. “Co-ops can turn to the National Renewable Co-op Organization [NRCO] for arranging agreements with tax-equity partners,” says Aeilts. “And both co-ops and municipal energy distributors can try to cultivate relationships with local investors to achieve the same thing.” He goes onto suggest, “Possibly the simplest option is to solicit a Request For Proposal (RFP) in the form of a low bid using instruments such as a Power Purchase Agreement or lease.” In such a case, “A qualified bidding company may respond to the RFP and assume liability for almost everything—contractors, construction, maintenance, tax credits, legal, and anything else—and they then own the installation for an initial period (usually seven to twenty five years). Then, depending on the utility’s situation, they may also seek an option to become the owner of the array after that period.” Alternatively, working with a company such as Simpleray who specializes in working with electric cooperatives can bring the cost and term down dramatically – typically to 10 years or less. There are multiple paths available to make the responsible, progressive move toward renewable energies. For a more in depth look at the future of these credits, see our blog here.
Until recently, a legitimate limiting factor to the adoption of renewable energy platforms has been the cost. Fortunately, prices are plummeting as production costs fall and the appeal of “green” energy continues to rise. According to Aeilts, now is the time to maximize the use of falling solar prices combined with solar incentives before the incentives disappear. “Hedging against future fossil fuel price increases is probably being underestimated. […] Most coal-based generation is going to become more expensive.” He also forecasts the coming of far stricter regulations on natural gas, once it becomes widely publicized that methane, “is ten times worse in regards to the greenhouse effect.” Social and political forces will continue to pressure the energy market toward renewable energies. The tax credits, however, may not be there when the stragglers make the switch. Aeilts explains that it’s likely far wiser to, “achieve savings through net-metering or other solar tax incentives […] now before the incentives are reduced.” So, while weighing all available evidence is necessary, decisive action is likely the most beneficial.
There are many more considerations in the decision to invest in solar. We’ll tackle more in the next post, Considering Solar for Distributors, Part 2.