How Nonprofits Can Benefit from Clean Energy Incentives
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Organizations are installing solar more than ever because 10+% returns on investment are still achievable. In addition, environmental benefits are continuing to grow. Nonprofits and public institutions are no exception, and want to reduce their carbon footprint while cutting energy costs. How can these organizations take advantage of the clean energy incentives that are vital to a project’s financing?
First, let’s review the most basic economic benefits provided to all organizations for solar projects:
reduced electricity bill due to electricity production from the solar array
a second stream of income here in Massachusetts from the sale of Solar Renewable Energy Certificates (SRECs).
SRECs vary in price between $180 and $350 per SREC under the current program. One SREC is credited to an organization for every 1,000 kWhs of electricity produced.
Although nonprofit organizations cannot utilize the 30% federal tax credit available to private owners, there are several ways a solar project can be structured to extract the value of the tax credits. Nonprofits team up with investors to structure a solar development that achieves the goals of each party. The nonprofit receives the benefit of secure, low cost of electricity, stable cash flow, and returns on their equity in the 10%-12% range. The tax equity investor/partner receives a 30% federal tax credit during the initial year of operation. In addition, some investors are also able to take advantage of accumulated depreciation. Solar projects have a 25- to 35-year life span, and are able to depreciate the expenses of the project over only five years, producing significant cash flow after taxes(CFAT).
Some nonprofit organizations may not have the capital to finance a solar project. There are several methods of developing solar that allow nonprofits to produce clean, renewable energy and benefit financially. One of which involves the nonprofit setting up a Net Metering Credit Sale Agreement (NMCSA) with another entity to buy the credits produced by the nonprofit’s solar array. Another option involves the nonprofit participating in a community solar array.
A nonprofit having a Net Metering Credit Sale Agreement (NMCSA) with another entity is a way for the nonprofit to show regular income that enables the nonprofit to secure financing from a bank. A nonprofit and, perhaps, a municipality come to an agreement that the nonprofit will sell 100% of the credits produced by its solar array to the municipality at a discount. Essentially, the nonprofit sells $1.00 worth of electricity credits for $0.80 to the municipal customer. This system benefits both the nonprofit and the municipality. The nonprofit is producing income from net metering credit sales and saving money on its electricity bill.
FireFlower Alternative Energy recently completed a solar project with a nonprofit that is using just such a net metering credit sale agreement to leverage the financial benefits provided by solar energy. Planet Aid, a nonprofit organization, structured a net metering credit sale agreement with the City of Quincy, Massachusetts to sell net metering credits at 80% of the value of the credits, providing financial benefits for both parties for 20 years.
Planet Aid COO, Fred Olsson (middle), joined by Senator Ryan Fattman (left) and Representative Brian Murray (right)
Community solar, another option for nonprofits, can be a bit more complex. Community Solar projects are developed by a solar development entity, and a portion of the array, and/or the benefits from the array, are sold. The credits produced are applied to the buyer’s meter, reducing electricity costs and providing savings to the buyer. To learn more about community solar projects, read our blog “Community Solar and Microgrids.” Because the investment requires less cash up front, this option is often much more viable for nonprofits.
There are many ways a nonprofit can benefit from solar energy. Whether as a developer, a partner in a development, through a net metering credit sale agreement, or via Community Solar, nonprofits are able to secure benefits that reduce costs and provide operating capital.