How Do Public Agencies Finance Solar?
What are the best options for school districts, cities and other public agencies to finance solar projects? Let's have a look.
Power Purchase Agreements (PPAs)
A 20 to 25-year arrangement with a solar developer, where the developer sells the generated electricity back to the site owner. Read more about the benefits and risks of PPAs.
Tax Exempt Lease
Also called a TEML (tax exempt municipal lease), TELP (tax exempt lease purchase) and Muni Lease: a capital lease using the equipment or real property as collateral. The leases typically have a 3.5-4.0% all-in effective interest rate, and come with up to 20-year terms. Tax exempt leases are relatively easy to arrange, compared to bonds and COPs.
California Energy Commission (CEC) Loans
Loans that can be used for energy efficiency / conservation and renewable generation projects. Public school districts are eligible for 0% interest loans, 1% for municipal agencies, with a cap of $3 million per loan, and up to 20-year terms. Subject to funding availability, these loans are in high demand and sometimes have waiting lists. Sage has recently assisted Benicia Unified School District with a successful $3.0M CEC loan application for their 1.2 MW solar PV project.
Qualified Zone Academy Bond (QZAB)
Similar to CREBs, but is site based and requires min 35% FRPL (free and reduced price lunch = low income) student population at the site, 10% matching from private entities (easy to do), curriculum partnership with business (easy to do). Up to 20-year terms for energy projects typical, 1-1.5% all-in effective interest rate.
General Obligation (GO) Bonds
Bonds that are repaid by taxpayers, including financing and issuance costs. Their high issuance cost, voter approval requirement, and impact on bonding capacity mean that these are issued for large facilities projects with energy projects included in the package. Since the bond is paid by taxpayers, there is no requirement for the school to repay the bond, which means all savings go directly to the agency’s operating budget. GO Bonds are one of the most efficient forms of renewable energy financing for schools, equivalent to cash grants.
Proposition 39 (P39)
A cash grant program for public schools, established by the California legislature via the California Clean Energy Jobs in fiscal year 2013-14 and was recently extended.
P39 1.0 funds must be claimed with an Energy Expenditure Plan (EEP) submitted by February 26, 2018. Funds must be encumbered (a project executed by signed contract or invoice) by June 30, 2018. New legislation recently signed by Governor Brown extends this program indefinitely (known as P39 2.0), though it is not clear that there will be similar energy efficiency/ renewable energy grant funding in future years. Projects must meet a 1.01 Savings-to-Investment Ratio (SIR) to be approved. Cash purchase of solar PV projects utilizing solely P39 funds may have difficulty meeting the 1.01 SIR without a cash contribution from the school. Some districts have elected to use P39 funds as a pre-payment for a PPA, lowering the price they pay for energy throughout the 20 to 25 -year term. PPA prepayment typically easily meets 1.01 SIR. Sage pioneered utilization of P39 funds for PPA prepayment by assisting the Larkspur-Corte Madera School District’s first in state P39 PPA project in 2015.
Proposition 51 State Bond (P51)
Passed in 2016, the first bonds are now being sold by the state. Funds can be used for solar and energy efficiency projects, but projects must first be approved by the state [what are the conditions?]. Bonds are typically sold, and funds are made available, twice a year.
Cash Purchase
Cash funding is allocated from a public agency’s general fund, typically from reserves. Since cash reserves are built up from taxpayer funding or sale of assets, cash purchasing financial performance is identical to cash grants or GO bond funding.
Want to learn more about how to finance your next solar energy project? Read more from our CEO, Arno Aghamalian, in the Washington Post.
If your organization is considering an efficiency or renewable energy project, Sage can conduct an independent, investment-grade feasibility study to determine the most cost-effective measures and available financing options that meet your unique needs. The result is a clear assessment that enables stakeholders and decision makers to understand the options and determine how best to move forward. Call us today to get started.
Sage Renewable Energy Consulting is not a Municipal Advisor and cannot give advice with respect to municipal securities or municipal financial products to you absent your being represented by, and relying upon the advice of, an independent registered Municipal Advisor. Sage Renewables is not subject to fiduciary duty with regard to you or the provision of information to you. Information about municipal securities and/or municipal financial products, if any, is provided for educational purposes about possible financing options and is not the provision of advice, or a recommendation to pursue any particular financing option. Consult with your independent registered Municipal Advisor about the financing option(s) appropriate for your situation.