7/16/2009

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CITY OF BOSTONThomas M. Menino, Mayor

Environmental and Energy ServicesJames W. Hunt, III, Chief

Solar Financing: Shedding Light on Solar Incentives

July 16th, 2009Green Roundtable 2

City of Boston Climate Action Plan

2000: Boston joins ICLEI—Cities for Climate Protection

2005: Mayor Menino signs U.S. Mayors Climate Protection Agreement Kyoto Protocol targets

2007: Executive Order Relative to Climate Action:

– Greenhouse Gas Emissions reduction goals:

• 7% below 1990 levels by 2012

• 80% below 1990 levels by 2050

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� All private projects over 50,000 square feet must be LEED “Certifiable”

� All public projects must be LEED Silver certified

� 10 million square feet of LEED construction is currently in the pipeline.

Green Building Action Plan

Brigham & Women’s Hospital

John Hancock Building

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Green Affordable Housing Program

• Department of Neighborhood Development (DND)

• $2 million from Massachusetts Technology Collaborative

• 140 kW on 240 units of housing

• All housing must now be:– PV ready– LEED Silver certifiable– ENERGY STAR or equivalent

• Over half of current Boston capacity is cited on affordable housing

1460 DOT Ave.

7 Sussex St.

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Fenway Park April 9, 2008

Thomas M. MeninoMayor of Boston

Samuel W. BodmanUS Secretary of Energy

25 MW BY 2015

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PV Technical Potential:

670-900 MW(14%-19% 2006 electricity

consumption)

7http://gis.cityofboston.gov/solarboston

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Where are we? Where are we Going?Solar Installed Capacity

0

200

400

600

800

1000

1200

1400

1600

1800

1984… 1995… 1999… 2001 2002 2003 2004 2005 2006 2007 2008

Year

kW

SWH

PV

PV Market Growth Scenarios

0

20

40

60

80

100

120

140

160

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Year

25%

35%

45%

55%

65%

Market Growth

� Installed capacity increased over 300% from 2006-2008

�480 kW to 1.8 MW of PV and solar hot water heating

� 50% average annual PV market growth rate (2002-2007)

� 47.8% average annual growth (PV and SWH) necessary to meet Mayor’s goal of 25 MW by 2015

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Solar Policy

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Investment Tax Credit• Investment Tax Credit

– 30% for PV

– In place through December 31, 2016

– Carryforward 20 years for commercial and through at least 2016 for residential

– Previously, $2000 cap for residences; now uncapped and can take against the alternative minimum tax

– Utilities can now get it

– Have to be rich

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Modified Accelerated Cost Recovery System (MACRS)

Year Percentage

1 20.00%

2 32.00%

3 19.20%

4 11.52%

5 11.52%

6 5.76%

•50% bonus depreciation available for systems installed in 2009

•If claiming federal tax credit, depreciable basis reduced by 15%

•Approximately 90% of PV systems can be depreciated according to MACRS, 5% can be depreciated on 20-year schedule, and 5% can’t be depreciated

•MACRS provides an approximately 26% net present value (= 12% better than standard depreciation)

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Financial Crisis

Good-Bye Tax Equity 14DRAFT 14

RE Finance: U.S. Landscape• RE investing in the US is tax-driven; this continues to be true today, even if recent legislation

has temporarily expanded the options for monetizing federal tax credits.

• RE finance thru mid-2008 was characterized by:

– Complex structures necessary to allocate tax benefits to parties with tax liability (“Tax Investors”).

– Available capital exceeds RE project demand, resulting in downward pressure on Tax Investor returns and debt yields.

• Finance Landscape in 2009

– Investment capital liquidity severely constrained.

– Project capital requirements exceed available funding, resulting in higher Tax Investor returns.

– Tax Investor financing is largely unavailable with consolidation in the market, constrained capital and uncertainty about future income tax liability, leading to a “flight to quality”.

– Debt terms (rates and tenors) have tightened, lenders are more selective and the number of “club financings” (a group of banks sharing risk equally) have increased.

– Tenor (debt term) have shortened - many banks offering ‘mini-perms’ which require re-financing after 5 –7 years.

– Temporary move away from PTC risk toward the ITC / Cash Grant.

• Summary – Project capital is severely constrained and what is available is expensive.

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Hello IRS

Commercial PV gets 30% grant in 2009/10 16DRAFT 16

RE Finance: U.S. Landscape• Near term market drivers

– ITC and Cash Grant: increases financing options (allows lease transactions for wind); increases pool of investors; eliminates production risk.

– Reduced access to development capital slows the new project pipeline.

• Longer-term trends

– Discussions of national RPS and Carbon Cap & Trade.

– Sunset date on Cash Grant may suggest continued tax-based incentives

• Summary

– The current supply of capital is limited, and costlier than pre credit crisis, with only the best projects being financed (i.e. “flight to quality”).

– Long-term recovery will be driven by regulatory policy and general economic conditions.

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Massachusetts Tax Benefits

• 20-year value-added property tax exemption

• Commercial:– 100% income tax deduction

• = ~9.5% tax credit• = ~5.7% net value tax credit after federal interaction

• Residential– 15% tax credit

• Capped at $1,000• Three year carryforward

– Sales tax exemption

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Incentives for PV 1Residential Rebates

(www.masstech.org/solar)

Base Incentive $1.00

MA Components $0.50

Moderate home value adder $2.00

Moderate income adder (<120% of median income)

$1.25

Total possible rebate $4.75

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Incentives for PV 2Non-Residential Rebates

Commercial Rebates for Incremental Capacity ($ per watt (dc))

Incremental Capacity

First: Next: Next: Next:

1 to 25 kW

> 25 to 100 kW

> 100 kW to 200 kW

> 200 kW to 500 kW

Base Incentive $3.15 $3.00 $2.00 $1.40

PLUS: Additions to Base

Massachusetts Company Components Adder $0.15 $0.15 $0.15 $0.15

Public Building Adder $1.00 $1.00 $1.00 $1.00

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Interactions with Tax Credits

• If grant is taxable income, apply full tax credit to full installed cost

• If grant is non-taxable, subtract out grant value from tax credits before calculating benefits

• Example:– Taxable commercial rebate has 66% total value after

federal interaction– Non-taxable commercial rebate has ~44% total

possible value

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Net Metering

Type CapacityGenerating

source

Treatment by

Utility –

Gov.

owned

Treatment by Utility

– private Transfer of Credits

# of Designees for

Allocation of

NM credits

Class I up to 60kW Solar and Wind

~Retail

~Retail

May be transferred to another customer in same utility territory

no more than 5

Class II> 60kW to

1 MW

Agricultural products, Solar & Wind

~Retail

May be transferred to another customer in same utility territory

no more than 10

Class III

From

Agricultural products, Solar & Wind

Without distribution cost for each kWh

May be transferred with utility’s permission no more than 50

1 to 2 MW

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Renewable Energy Credits

Customer

Utility

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REC Options• Generator retires and claim “greenness”

• Sell to REC broker/aggregator– Ex. Mass Energy Consumers Alliance– $0.03/kWh for three years

• Try to sell on your own into RPS– Register with NEPOOL GIS REC tracking system– Register with MA Department of Energy Resources

• Wait for DG carve-out rules to be developed– RPS carve-out for generators 2 MW and under– ? %– ? Technologies– ? structure

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Questions?

Andy Belden, Solar Boston Coordinator

Andy.belden@mc-group.com(703) 963-9163

Wilson Rickerson, ConsultantWilson.rickerson@mc-group.com