Financing Rooftop Solar for Non-Profits

California Solar has worked to encourage and evaluate solar PV options for non-profit organizations, primarily houses of worship. Many of the issues faced by congregations are encountered by other non-profits, especially the inability to capture tax benefits. Our experience with congregations, evaluating the financial benefits and finding financing, apply to non-profits in general.

 Over 1000 congregations of all faith traditions in the United States have installed solar PV systems to provide electricity and as a visible statement of faith and stewardship.  As to whether a PV system financially benefits a particular congregation, the answer is “it depends.” Each congregation’s unique costs and savings need to be compared.  It is much easier to financial justify a PV system in a location with high average electricity costs such as Hawaii, California, and the Northeastern states than if costs are at or below the national average.   As example, electricity in California (300 congregations with PV systems) and Massachusetts (100) averages 17 – 18¢ per kilowatt hour (kWh); conversely, electricity in Louisiana (1 congregation with a PV system) and Oklahoma (2) averages less than 8¢ per kWh.  State policies also have a major influence on the viability of a solar PV system; installation costs vary, but not greatly, nationwide.

Installing a PV system is not synonymous with “Fund Raising.”  Hundreds of congregations have found ways to finance PV systems over time, resulting in monthly and annual savings typically with no front-end costs.  These savings provide flexibility to constrained budgets and free funds for other congregational needs.  These financing options allow for payments over time—spreading the cost over 5, 10 or up to 25 years.  In IPL’s national experience, there are four major methods by which congregations fund PV systems, including outright purchase, leasing the system (numerous variants, including congregant leases), entering into a power purchase agreement (PPA), or financing through a Property-Assessed Clean Energy (PACE) loan; not all of these are allowed in all states.  A summary of our experience with the strengths and weaknesses of each are provided below.

Also, instead of building your own system, Community Solar projects are authorized in approximately 20 states.   These are local solar facilities (typically not on-site) shared by multiple subscribers who receive credit on their electricity bills for their share of the power produced.  Despite widespread enabling legislation, only Minnesota, New York, Massachusetts and Colorado have realized a significant number of installations; size restrictions, fees, terms by which PV-generated electricity is credited to a shareholder’s bill, and slow permitting by utilities appear to be contributing to the low adoption rate.  We do not have sufficient experience to assess the economic benefits of this approach, so we have not addressed them here-in.  Developments of this option can be followed at the website https://ilsr.org/national-community-solar-programs-tracker/  .

How do you know if the PV system is a good investment?  Compare your PV acquisition costs (plus any supplemental electricity purchased from your utility) with the expected cost of continued utility-purchased electricity for the next 20 years (or appropriate analysis period).  Any PV installer who provides a proposal should include this analysis as part of their bid. 

 

Table 1.

Key Benefits and Drawbacks of PV Finance Options for Congregations

Type of Financing Benefits Drawbacks
Direct Purchase – Greatest immediate
  reduction in electrical costs

– Minimizes future payments

– Most effectively avoids future
  cost increases
– Pride of ownership
– May be able to generate  
 revenue through Solar RECs

– No capture of tax credit benefits
  (resulting in higher cost than alternatives)
  unless combined with Lease

– Need to obtain complete funding up-front

– Responsible for maintenance of non-
  warrantied items

Lease – Reduced annual cost
  (Otherwise not competitive)

– Pricing certainty

– Fixed monthly and annual  
  costs

– Captures partial tax credits

– No operating risk during lease
  term
– Shorter term than PPA
  (can be 6 years)

– Lowest long-term cost and
  lowest net present value
  (20 year) if pre-paid

– Annual cost increases as part of contract

– Balloon payment at end of lease

– Possibly more front-end paperwork

– Responsible for maintenance of non-
  warrantied items following end of lease
– A lease arrangement may complicate
  sale of the property

Power Purchase Agreement (PPA) – Reduced annual cost
  (Otherwise not competitive)

– Pricing certainty (depends on
  contract terms)
– Reduced variability of annual
  costs

– Captures partial tax credits

– No (or minimal) maintenance
  responsibility for term of
  agreement

– Typically, long term (20-25 years)

– Life-time cost often higher than Lease

– Fluctuation in monthly payments during the
   year

– Annual cost increases as part of contract
– Responsible for maintenance following end
  of PPA
– A PPA arrangement may complicate sale
  of the property

Property Assessed Clean Energy (PACE) – Traditional measures of
  credit worthiness aren’t
  applied; can benefit
  congregation’s ability to secure
  loan
– Spreads cost of system over
  life of system (longer term)
– May be able to generate 
  revenue through Solar RECs *
– Typically, long term (20-25 years)
– Fails to capture either environmental
  tax credits or interest payment deductibility
– Adds interest costs to installation costs
– Interest rates may be higher than
  alternatives 
– Often promoted by contractor who receives
   a financial benefit
– Large biannual payments can be a shock
– Loan terms may complicate sale of the
  property

              * Renewable Energy Credits

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