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 |
– 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- |
Lease | – Reduced annual cost (Otherwise not competitive) – Pricing certainty – Fixed monthly and annual – Captures partial tax credits – No operating risk during lease – Lowest long-term cost and |
– Annual cost increases as part of contract
– Balloon payment at end of lease – Possibly more front-end paperwork – Responsible for maintenance of non- |
Power Purchase Agreement (PPA) | – Reduced annual cost (Otherwise not competitive) – Pricing certainty (depends on – Captures partial tax credits – No (or minimal) maintenance |
– Typically, long term (20-25 years)
– Life-time cost often higher than Lease – Fluctuation in monthly payments during the – Annual cost increases as part of contract |
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
A Simple Solution for NEM 3.0 ?
Well, admittedly nothing is simple when it comes to the California Public Utility Commission (CPUC) rule-making process and energy politics more generally in California. But the following proposes a solution as to how some greater equity can be established in utility billing without gutting the essential growth of rooftop solar in this state. As will be shown, a 5-year shortening of the benefit period and moderate increase in PV household utility payments allows homeowners to retain a competitive return on their PV investment while correcting some of the cost-shifting of the current approach.
To review, there are two sides to the debate on establishing new billing/ cost recovery rules for utility customers with rooftop solar PV systems. (Utilities are the investor-owned utilities (IOUs), primarily Pacific Gas & Electric (PG&E), Southern California Edison (SCE) and San Diego Gas and Electric (SDG&E)). These utilities observe that rooftop solar has grown to 25% of peak load for PG&E, 33.1% for SDG&E and 16.1% for SCE—well beyond the targets set in original enabling legislation. They contend this high share of rooftop generation has created such problems as:
Those supporting a more solar-supportive NEM argue that specific changes proposed by the utilities to address the above problems would double the cost of solar with such changes as:
They further contend:
There are clearly some major differences of fact and perspective. And to some extent, a few arguments on each side are not addressed by the opposing perspective. (Meaning they aren’t being challenged?)
But what seems salient to us is:
So where do we (CaliforniaSolar.org) see an opportunity for common ground? We find taking the economic perspective of a homeowner who is considering a solar PV system helps identify this opportunity.
This perspective arises as a neighbor (“Bob”) asked this editor to help him evaluate a PV system for his home in June 2021. (Disclosure: this editor has had a 2 kW rooftop PV system for 10 years.) Bob’s annual consumption is 6200 kWh; we identified that a system of about 4 kW at a cost of about $13,000 (about $10,000 after tax if he could fully utilize the benefits) would meet Bob’s household demand.
Would this be a good investment for Bob? ABSOLUTELY! With projected PG&E cost increases and NEM 2.0 rules, this investment (using the after-tax cost and other fixed charges) provided him a 20-year return on investment of 18%– substantially better than any other opportunity. Bob’s problem is now finding an installer with the capacity to take on the project!
BUT what if Bob could only benefit for 15 years? Still a 14% rate of return. Shortening the duration of the benefit period from 20 to 15 years would not be a “deal breaker” for him. Or, what if he was required to pay a share of the grid-supplied electricity he was not using, perhaps 25% of the retail rate of what he was self-generating? (In effect, a cost recovery or “in lieu of” fee.) His rate of return (20 years) would be 10%, a return he still found attractive. Finally, allowing him to pay a 25% cost-recovery fee AND for only 15 years (before returning to full retail) would make his financial return marginally more attractive (compared to other investments) at 7%, but for him still desirable as he’s also committed to producing environmental (carbon emission reduction) benefits.
We observe that as Bob’s cost-recovery payment would be about $400 per year ($35 per month), he would eliminate any cross subsidy he was placing on homeowners who could not afford a PV system even assuming the highest (IOU) charges identified.
Our conclusion? From the perspective of a possible PV customer, a 5-year shortening of the benefit period and a modest rise in fees (25% or less then full retail equivalent) appears not to have a strong adverse impact on the financial benefits of a PV system as an investment for a homeowner. It appears there is room to maneuver with increased utility revenues and reductions in benefits to homeowners installing PV systems that result in benefits to each, while continuing California’s lead (and example-setting) for the energy transition we badly need.