Consider Low-Cost Siting Options
Providing city-owned land as opposed to developers bringing the land has the potential to generate low-cost siting options, as discussed previously.
Learn from Historic Deals in the Area
Learning about prices from other community solar projects in your region can help you make an informed decision about how much the total project might cost. If recent solar deals have been completed in the region, try to connect with project developers to understand the pricing. However, keep in mind that community solar pricing differs from on-site projects because of the cost of managing subscribers.
Estimate Net Savings and Costs
Once you have some information about potential project site(s), it is helpful to carry out a back-of-the-envelope economic analysis of the project(s). Savings will be calculated by comparing the bill reduction with the subscription payment. Elevate Energy’s Community Solar Business Case Tool incorporates the subscription business models into an economic valuation framework and is extremely helpful for estimating subscription cost management and options.
- Year-one savings
- Lifetime savings
- Net present value (NPV) of lifetime savings
- Financing costs
- Program management and subscription costs
- Solar production details:
- Expected project size
- Expected production
Explore the Option of Reducing Cost by Capturing the ITC
The ITC, otherwise known as the federal solar tax credit, allows you to deduct a percentage of the cost of installing a solar energy system from your federal taxes. This percentage is being decreased over time as solar is becoming competitive on its own. The percentage is 26% in 2020, 22% in 2021 and then 10% by 2022. After 2022 it will no longer apply to residential projects.
Barriers to capturing the ITC include the following:
- Taxable income is needed: Making use of tax credits requires a taxpayer to have sufficient taxable income, which is not always the case.
- Some entities are unable to claim the ITC: Electric co-ops, municipal utilities, and public utility districts are exempt from federal income taxes and thus cannot directly benefit from federal tax incentives.
While barriers exist, there are many ways to overcome these challenges, which include the following:
- Self-financing: Enlist a community special purpose entity (SPE) that has enough tax appetite to fully utilize federal tax benefits.
- Flip structure: Work with a tax equity investor who would own the project to monetize the tax benefit until an agreed rate of return is achieved (at which point the ownership would flip back to the community SPE).
- Sale/Leaseback: Enlist a community SPE to install the solar system, sell it to a tax investor, and then lease it back from the investor.
NREL’s Solar Photovoltaic Financing: Deploying Public Property by State and Local Governments provides information on financing and ownerships options for governments
Reduce Hard Costs with Aggregation and Competitive Procurement
Combining multiple projects, even when owned by different parties, into the same RFP has been shown to decrease costs because it generates greater developer interest that is due to the larger total project size and requires less developer overhead per project. You should plan on reaching out to other entities considering solar projects in your area to discuss aggregation.
Read RMI’s blog posts on reducing costs through aggregation for rural electric cooperatives and lessons from aggregation, in addition to the Better Cities’ report Innovation Through Aggregation. As the project manager, you should issue a competitive RFP as discussed previously.