ABRAMS ENVIRONMENTAL LAW CLINIC OF THE UNIVERSITY OF CHICAGO LAW SCHOOL
July 18, 2018
Ms. Kavita Kale Via E-Filing Michigan Public Service Commission 7109 W. Saginaw Hwy. P. O. Box 30221 Lansing, MI 48909
RE: MPSC Case No. U-18232
Dear Ms. Kale:
The following is attached for paperless electronic filing:
Direct Testimony and Exhibits of Jackson Koeppel on behalf of Soulardarity.
Proof of Service.
Sincerely,
Mark N. Templeton [email protected]
xc: Parties to Case No. U-18232 Robert Weinstock, Counsel for Soulardarity – Pro Hac Vice Christopher M. Bzdok, Counsel for Soulardarity Lydia Barbash-Riley, Counsel for Soulardarity Jackson Koeppel, Soulardarity
THE ARTHUR O. KANE CENTER FOR CLINICAL LEGAL EDUCATION 6020 SOUTH UNIVERSITY AVENUE / CHICAGO, ILLINOIS 60637-2786 (773) 702-9611 / FAX: (773) 702-2063 / www.law.uchicago.edu/mandel
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter, on the Commission’s own motion regarding the regulatory reviews, revisions, determinations, and/or approvals Case No. U-18232 necessary for DTE ELECTRIC COMPANY to fully comply with Public Act 295 of 2008
DIRECT TESTIMONY OF
JACKSON KOEPPEL
ON BEHALF OF
SOULARDARITY
1 I. Introduction and Summary
2
3 Q: Please state your name, occupation, and business address.
4 A: My name is Jackson Koeppel. I am the Executive Director of Soulardarity, 21 Highland
5 Street, Highland Park, Michigan, 48203.
6
7 Q: Please describe your work experience.
8 A: I studied climate change and social inequity at Oberlin College in Oberlin, Ohio, until I
9 transferred to Wayne State University to pursue my work on community solar advocacy.
10 I moved to Highland Park, Michigan in 2012 and co-founded Soulardarity, an
11 organization rooted in the Highland Park community, to organize community-owned
12 solar streetlights and improve weatherization to reduce home energy usage. I am
13 presently co-directing and growing Soulardarity, as well as organizing regionally and
14 nationally to democratize and decarbonize our energy economy. I am also working on
15 wealth redistribution, democratization of land ownership, local development, and other
16 projects to build community control and local assets. I have been part of the LeadNow
17 Fellowship organized by SustainUS and the Will Steger Foundation's Intergenerational
18 Co-Mentorship fellowship, and I recently received the Brower Youth Award for my
19 work.
20
21 Q: For what purpose was Soulardarity created?
22 A: In 2011, DTE Energy (“DTE”) repossessed more than 1,000 streetlights from Highland
23 Park, Michigan, a predominantly minority and low-income city, after its municipal
1 1 government defaulted on its utility payments. Soulardarity was formed in 2012 by a
2 coalition of Highland Park residents who wanted to help alleviate the crisis by installing
3 community-owned solar-powered streetlights in Highland Park. Soulardarity’s mission
4 has subsequently broadened to include community energy education and advocacy for
5 community solar and greater equity in Michigan’s energy generation and delivery system.
6 Through activism and advocacy, Soulardarity seeks to emphasize the particular needs,
7 experiences, and perspectives of low-income and people of color communities.
8
9 Q: What is Soulardarity’s focus?
10 A: Soulardarity’s goal is to improve access to affordable, clean energy for low-income and
11 people of color communities. As such, Soulardarity promotes solar street lighting, solar
12 bulk purchasing, energy education, and expanding access to clean energy to improve the
13 economic condition of low-income communities, especially low-income communities of
14 color, in southeast Michigan. Soulardarity has developed a partnership with other
15 Michigan stakeholders interested in energy justice and affordability, including
16 experienced solar installers and developers.
17
18 Q: Has Soulardarity previously intervened in or commented on an MPSC matter?
19 A: Yes, I filed a comment on behalf of Soulardarity in MPSC matter U-18418 regarding the
20 proposed Integrated Resource Planning process, in which I advocated that the process
21 include more robust engagement with diverse stakeholders. Soulardarity also commented
22 during the MPSC staff’s development of the Distributed Generation Tariff in MPSC
23 matter U-18383, advocating for changes that would increase transparency and access to
2 1 solar energy by low-income and people of color communities. Finally, Soulardarity
2 joined a Response to Prior Comments in U-18076 concerning DTE’s application for
3 approval of a previous amended Renewable Energy Plan.
4
5 Q: What is the purpose of your testimony?
6 A: I am presenting Soulardarity’s objections to DTE’s proposed amended Renewable
7 Energy Plan in U-18232 (“REP” or “plan”). DTE’s plan insufficiently addresses the
8 particular needs of many of its low-income and people of color ratepayers and ignores the
9 potential value of investments in community solar as a renewable energy source. I believe
10 it is in the interests of both ratepayers and DTE that DTE reconsider its lack of
11 commitment to community solar in this plan.
12
13 Q: Please provide an overview of the topics you will discuss in your testimony.
14 A: I will first discuss Soulardarity’s concerns about the lack of participation by people of
15 color and low-income ratepayers in DTE’s planning process, which has yielded a plan
16 that ignores particular needs and concerns of many of DTE’s most vulnerable ratepayers.
17 I will then discuss our concerns with the plan itself, while offering proposals for ways the
18 plan could be improved.
19
20 Q: Are you sponsoring any exhibits?
21 A: Yes. I will sponsor “Get Free,” a report authored by the University of Michigan’s Dow
22 Sustainability Fellows Program (Exhibit 1), “Community Solar Program Design Models”
23 by the Smart Electric Power Alliance (Exhibit 2), and “A Guide to Community Solar:
3 1 Utility, Private, and Non-profit Project Development,” commissioned by the National
2 Renewable Energy Lab (Exhibit 3).
3
4 II. Fair Representation of Diverse Stakeholders in DTE’s Proposed Plan
5
6 Q: What are your concerns about fair representation in the formation of DTE’s
7 proposed plan?
8 A: The need for clean, reliable, and community-based energy is particularly critical for low-
9 income and people of color customers. These ratepayers’ communities have historically
10 borne a disproportionate share of the harms of fossil fuel-based energy systems, from
11 localized public health impacts to economic dependence on obsolescing coal-based
12 energy facilities that many communities were built around. These concerns are especially
13 salient to the residents of Highland Park, who felt firsthand their dependence on others
14 when DTE repossessed the city’s streetlights.
15
16 The lack of any allocation to community-based clean energy projects in DTE’s proposed
17 plan reflects inadequate consideration of the needs of DTE’s low-income and people of
18 color ratepayers. DTE’s reliance on industrial wind farms and renewable energy credits
19 (“RECs”) fails to address the concerns these ratepayers have about the safety and
20 reliability of their energy sources.
21
22 Q: Why is this proceeding before the MPSC an adequate forum for the participation of
23 all ratepayers in the development of DTE’s REP?
4 1 A: The procedural and financial requirements to participate in such a proceeding make
2 participation by ordinary ratepayers almost prohibitively difficult. As a consequence,
3 only established organizations with access to legal resources can hope to present their
4 views in an administrative proceeding of this nature. DTE should proactively seek out the
5 views of its ratepayers, including its low-income and people of color ratepayers, in order
6 to make its REP inclusive and broadly representative.
7
8 Q: How could DTE ensure better representation of the diverse needs and concerns of
9 its ratepayers?
10 A: DTE can take a number of steps to make its REP more responsive to the needs of its low-
11 income and people of color ratepayers. DTE should hold both public meetings and
12 meetings with members of and leaders from diverse communities, working to solicit and
13 consider ratepayer needs, preferences, and concerns. DTE should also conduct and
14 provide to the public an analysis of the impact of different energy sources on low-income
15 and people of color ratepayers.
16
17 The concerns we have now mirror those we addressed in our previous intervention
18 against DTE in matter U-18418. There, we offered recommendations that apply with
19 equal force to the present proceeding. Those recommendations included a specific focus
20 on the demographics most impacted by energy decisions; DTE-provided education to
21 communities who will be affected by DTE’s decisions; engagement opportunities at
22 multiple venues, times, and formats; and clear articulation of how stakeholder input will
5 1 impact the process and set binding requirements around that impact. The complete list of
2 recommendations can be found at U-18418-0060.
3
4 III. DTE’s Proposed Plan and Community Solar
5 Q: What are your primary concerns with DTE’s proposed plan?
6 A: Along with our concerns about the lack of participation of a diverse group of DTE
7 ratepayers, we believe DTE is making a mistake in neglecting to invest in community
8 solar projects at all and particularly in those kinds of projects in areas comprised of low-
9 income and community of color ratepayers.
10
11 Q: What is community solar?
12 A: According to the National Renewal Energy Laboratory, community solar is “a solar-
13 electric system that, through a voluntary program, provides power and/or financial
14 benefit to, or is owned by, multiple community members.” See Exhibit 3, page 2.
15 Community solar is an increasingly popular source of renewable energy because it not
16 only furthers the transition away from fossil fuels, which contribute to climate change
17 and have numerous adverse public health impacts, but it does so in a way that empowers
18 communities to work together towards energy self-sufficiency.
19
20 Community solar is a flexible term that can apply to projects with a variety of design
21 characteristics. Pricing models, ownership structures, and project scales vary among
22 projects. What all community solar projects have in common is the provision of equitable
23 access to reliable, self-generated clean energy, and it is this characteristic that has
6 1 motivated Soulardarity and the ratepayers we serve to advocate for including community
2 solar in DTE’s plan.
3
4 Q: What are the advantages of community solar as compared to other energy sources?
5 A: Community solar is an excellent source of clean energy because it allows ordinary
6 individuals to share in the economic and environmental benefits of clean energy
7 generation while simultaneously making the electricity grid more reliable. Unlike rooftop
8 solar systems, community solar makes solar energy accessible to DTE ratepayers who
9 would not otherwise be able to participate in solar energy generation, such as low-income
10 renters and homeowners. Furthermore, due to economy of scale a large community solar
11 installation can produce energy at lower cost while avoiding significantly lower carbon
12 emissions than a residential rooftop installation. Such systems provide reliability because
13 they are located in the communities they serve, thereby potentially providing power to the
14 local grid in the event of other outages in the power system. Community solar, like other
15 renewable energy sources, also offers powerful benefits over fossil fuels-based energy
16 sources, including substantial avoided health impacts, which are particularly acute in
17 low-income and people of color communities.
18
19 Q: How does community solar comport with the stated goals of 2016 PA 342, which
20 governs this proceeding?
21 A: Community solar is uniquely well-suited to achieving the goals expressed in Section 1
22 (2)(a)–(e), which include “the development and use of clean and renewable energy
7 1 resources,” “[diversification of] the resources used to reliably meet the energy needs of
2 consumers in [Michigan],” and “greater energy security.”
3
4 DTE’s proposed plan relies predominantly on large wind farms and RECs. Investment in
5 community solar would diversify DTE’s energy portfolio and bolster the security of
6 DTE’s electrical grid by distributing its energy portfolio to a broader range of sites.
7
8 Q: Do you believe investment in community solar is also in DTE’s own interest?
9 A: Absolutely. Community solar is a cost-effective long-term source of clean energy, as
10 demonstrated by the success of community solar projects across the country. See Exhibits
11 1 and 2. Incorporating community solar will help achieve DTE’s stated commitment to
12 diversify its energy sources. See TLS-27, lines 10–16. Community solar will provide
13 greater reliability for customers, particularly during peak usage times. This also helps
14 DTE reach the stated goal of greater energy security based on Michigan’s indigenous
15 energy resources. See TLS-27, lines 18–21.
16
17 Solar technology has continued to make rapid improvements. As a result, the cost of solar
18 energy has steadily declined and is likely to continue on this trend in the years ahead.
19 Beyond the desirable cost considerations of solar energy generation, community solar
20 programs can also help DTE in its relationships with customers by providing them
21 opportunities to participate in clean energy generation. Further, community solar can
22 become a component of DTE’s low-income and renewable energy programs.
23 Soulardarity believes that DTE may benefit in many additional ways from community
8 1 solar projects. For more on the benefits of community solar projects for utility
2 companies, see Exhibit 3.
3
4 Q: Please summarize the changes Soulardarity believes should be made to DTE’s
5 proposed plan.
6 A: Along with the steps we would like to see DTE take to include a more diverse set of
7 voices in the formation of its REP, we are seeking two significant changes to the plan
8 itself.
9
10 First, we request that DTE dedicates resources to the creation of three to five community
11 solar projects, formed in partnership with local stakeholders. These projects could be
12 designed to empower communities with involvement in the projects’ design and
13 oversight, which would help DTE forge stronger connections with its customers while
14 providing ratepayers a means to participate in the delivery of their energy needs. There
15 are several viable forms these projects could take, which are discussed below.
16
17 Second, DTE should make a long-term commitment to expanding its participation in
18 community solar projects so that community solar grows to be a significant component of
19 DTE’s overall renewable energy source portfolio. The projects proposed in the preceding
20 paragraph should be simply the first phase of DTE’s investment in community solar.
21 Community solar is a proven means of equitably delivering renewable energy to DTE’s
22 ratepayers from Michigan-based generation sources and should therefore be a mainstay
23 of DTE’s investments in renewable energy going forward.
9 1 Q: Where do you believe these projects should be located?
2 A: Communities with predominantly low-income and people of color ratepayers can benefit
3 economically from community solar because of the jobs such projects create. In addition,
4 low-income and people of color communities have suffered most from fossil fuel-based
5 energy with disproportionate health impacts. Consequently, considerations of fairness
6 and justice require that development of community solar projects should focus first on
7 marginalized communities and communities facing a painful economic transition from
8 older energy-generating facilities. Michigan citizens in many low-income communities
9 are employed in these kinds of facilities and are facing the prospect of job loss, while the
10 cities themselves may lose important sources of tax revenue. Examples of communities
11 that DTE should consider include Highland Park and Dearborn.
12
13 Q: What are the most common organizational structures for community solar projects?
14 A: There are several organizational structures that are frequently used for community solar
15 projects. I will summarize these models, which are discussed in greater detail on page 6
16 of Exhibit 2.
17
18 First, there is the utility-sponsored model, in which a utility owns or operates a project
19 that is open to voluntary ratepayer participation. Second, there is the special purpose
20 entity model, in which individual investors join in a business enterprise to develop a
21 community solar project. Third, there is the non-profit model, in which donors contribute
22 to a community installation owned by a charitable non-profit corporation.
23
10 1 We at Soulardarity believe that the optimal model is one that most empowers local
2 community members, including by localizing wealth creation and other benefits, to
3 ensure that they have a reliable source of clean energy, a means to participate in the
4 decisionmaking concerning their energy needs, and access to affordable energy.
5
6 Q: Are there any examples of community solar projects you believe DTE could model
7 its own possible projects after?
8 A: Yes. One of Michigan’s most encouraging examples of community solar is the Lansing
9 Board of Water and Light’s solar park. That project was especially effective because the
10 Lansing Board of Water and Light worked with local community groups to not only bring
11 clean energy to its ratepayers, but did so in a way that made participation in the project
12 cost-effective for a diverse array of communities. Soulardarity urges DTE to consider
13 project models that provide solar energy at a price that makes participation by all its
14 ratepayers feasible. Such a price should accurately reflect the true costs of various energy
15 sources, including externalities imposed on surrounding communities.
16
17 Also here in Michigan, the Cherryland Electric Cooperative (“CEC”) has developed
18 strong community solar programs and ensured that they would be accessible to its low-
19 income members. Participants in the CEC’s community solar project can purchase a
20 panel subscription to CEC’s community solar array, either in an up-front lump sum or for
21 a monthly fee, and in exchange receive $0.10 for each kWh generated by the panel in the
22 preceding month.
23
11 1 In Minnesota, the state’s community solar program now generates 364 megawatts of
2 operational capacity, and Xcel Energy has published data showing 92% of all its
3 subscribers1 are participating in its Solar Rewards Community program and are thereby
4 saving money with a shared solar subscription.
5
6 There are many community solar projects across the country that utility companies are
7 actively participating in and even benefitting from. We at Soulardarity urge DTE to work
8 with us to bring community solar to low-income and people of color communities.
9
10 Q: Does this conclude your testimony?
11 A: Yes, it does.
1 See https://ilsr.org/minnesotas-community-solar-program/.
12
DIRECT TESTIMONY OF JACKSON KOEPPEL
EXHIBIT 1
“GET FREE”
DOW SUSTAINABILITY FELLOWS PROGRAM
UNIVERSITY OF MICHIGAN
Acknowledgements This report was written by Dow Sustainability Masters Fellows in partnership with Soulardarity. Thanks to Shimekia , Soulardarity; Maria Thomas, Soulardarity; Jackson Koeppel,
Soulardarity; Grace Brosnan;Nichols Soulardarity; Margaret Woolridge, Dow Sustainability Fellows Program; Nicole Berg, Graham Institute of Sustainability; Tony Reames; School for Environment and Sustainability; David Brosch, University Park Solar Co-op; Lisa Stolarski and Brian Donovan, the Cooperation Group; Rick Bunch, Southeast Michigan Regional Energy Office
Authors Caillin Buchanan, School for Environment and Sustainability and Chemical Engineering Tyler Fitch, School for Environment and Sustainability Benny Jeong, Energy Systems Engineering Anna Lenhart, Ford School of Public Policy
December 2017
Understanding the Potential for Community Solar in Highland Park 2
Table of Contents
Acknowledgements ...... 1 Authors ...... 1
Table of Contents ...... 2
1. Executive Summary ...... 4
2. Background ...... 5 2.1 Highland Park Context ...... 5 2.1.1 Highland Park ...... 5 2.1.2 About Our Client: Soulardarity ...... 6 2.2 Solar Resource Potential in Highland Park ...... 7
3. Problem Definition & Objectives ...... 9
4. Community Solar and Energy Democracy in Highland Park ...... 10 4.1 What does a Just & Effective Community Solar Project Look Like? ...... 11 4.2 Proposed Business Model: Community Power Purchase Agreement (PPA) ...... 12
5. Methods: Community Solar Calculator ...... 13 5.1 Inputs ...... 13 5.2 Outputs ...... 15
6. Results: Case Studies & Sensitivity Analysis ...... 15 6.1 Parker Village ...... 15 6.2 Labelle Towers ...... 16 6.3 Nandi’s Knowledge Cafe ...... 16 6.4 Calculator Outputs ...... 17 6.5 Sensitivity Analysis ...... 18
7. Policy Considerations for Community Solar ...... 20 7.1 Federal Policy ...... 20 7.1.1 Tax Incentives ...... 20 7.1.2. Federal (and, if applicable, state) Securities Regulation...... 21
Understanding the Potential for Community Solar in Highland Park 7.2. State Policy ...... 21 7.2.1. Renewable Portfolio Standard (RPS) and Renewable Energy Certificates (RECS) ...... 21 7.2.2. Net Metering ...... 22 7.2.3. Property Taxes ...... 22
8. Making Community Solar a Reality ...... 23 8.1 Setting project objectives ...... 23 8.2 Forming a Special Purpose Entity: ...... 24 8.3 Building relationships with potential partners...... 25 8.4 Getting Legal & Accounting Support ...... 26
9. Discussion and Conclusions ...... 26
Appendices ...... 27
References ...... 27
Understanding the Potential for Community Solar in Highland Park 4
1. Executive Summary
Urban, poverty-stricken, and disinvested communities are struggling to reliably and affordably secure the energy services they need. At the same time, the moral and economic case for distributed renewable energy technologies promises transformative change for how electricity is created and consumed. Together, these trends enable a future where communities exercise agency over the way their energy is produced and consumed. Soulardarity, a grassroots community organization centered in Highland Park, Michigan, is working to make this vision of energy democracy a reality. The Dow Sustainability Fellowship team partnered with Soulardarity to assess the feasibility of installing a community-owned and operated solar project in Highland Park.
Community solar projects—where community members co-invest in an array of solar panels, and each receive benefits as the solar project generates electricity—are taking off around the country as the price for solar continues to decline.i They’re proving to be a viable solution for expanding solar access to the estimated 50% of households who wouldn’t otherwise be able to install solar due to renters status, inappropriate roof material, or other factors.ii But there are substantial barriers to community solar in Highland Park. State policies disallow group net metering and discourage third parties from being able to operate their own solar projects.
We propose that Soulardarity considers a community power purchase agreement (community PPA). Rather than working directly with utility companies to manage a community solar program, a community group might buy solar panels, then partner with a host institution—like a church or a community center—and install the solar project onsite. Then the host institution pays the owner— in this case, the community group—for the energy from the solar panels. This way, the community institution gets cheaper and cleaner power, and the community group can raise money for futre projects. While community PPAs are a relatively new concept, the model has already seen success at Maryland’s University Park Solar Co-Op.
While a community PPA is logistically feasible, it must also be economically feasible in Highland Park. We created a Community Solar Calculator, which models the technical, economic, and financial details of a community solar project based on user inputs. Using the Community Solar Calculator, Soulardarity can model the costs of a project, the amount of roof space needed, and the economic returns for any potential solar project. Based on preliminary research in Highland Park,
Understanding the Potential for Community Solar in Highland Park we chose three community institutions as case studies for the calculator: Nandi’s Knowledge Cafe, Parker Village, and Labelle Towers.
Our case studies found that while results vary substantially based on the chosen financing model, installed cost, markdown to project host, and discount rate, community solar projects have the potential to be economically viable at low-cost financing. While launching an innovative, long-term partnership such as a community PPA requires careful legal and accounting consideration, our research indicates that the basic economics are sound: a community PPA in Highland Park will save a Highland Park institution money on their utility bills while funding Soulardarity’s mission.
2. Background
2.1 Highland Park Context
2.1.1 Highland Park Highland Park is a community in Southeast Michigan, surrounded by the City of Detroit. Its population peaked around 52,000 in the 1930’s with the early automotive industry, as both Ford and Chrysler were headquartered in the city. Since the 1930’s Highland Park’s population has declined. The population of Highland Park is now estimated at around 10,888 (2016 population estimate).iii In the late 1900’s Ford and Chrysler moved their headquarters instigating decades of economic decline in the community. According to The American Community Survey 2011-2015, 49.3% of the population lives below the poverty line, a number significantly above the national average of 14.7%.iv As seen in Figure 1, median income in Highland Park is $17,250 (the median property value is $36,000 with 36% of residents owning a home).v
Understanding the Potential for Community Solar in Highland Park 6
Figure 1: Median Income In Highland Park (city outlined in yellow)
According to The American Community Survey 2011-2015, 91.9% of the residents (10,203 +/- 274) identify as Black. 18.8% of the residents are between 5-18 years of age and 14.9% are between 45- 54 years of age.vi
2.1.2 About Our Client: Soulardarity Soulardarity’s mission is to build a brighter future in Highland Park with education, organizing, and people-powered clean energy. Soulardarity is a membership-based 501c3 non-profit working to install solar-powered streetlights, save money on energy bills, and work together with neighboring communities to build a just and equitable energy system for all.vii
Jackson Koeppel founded the organization in 2011 in response to DTE Energy’s repossession of
over 1,000 streetlightco- s from Highland Park. Soulardarity installed a pilot solar light in 2012, and has since worked with Highland Park on a proposal to erect 200 solar streetlights around the city. In the process, they’ve grown to over 120 members—a significant portion of Highland Park’s 10,888 residents. Their vision and purpose has expanded to not simply replacing streetlights but also to reducing energy burdens on their community.
Understanding the Potential for Community Solar in Highland Park
2.2 Solar Resource Potential in Highland Park Highland Park could pursue several types of renewable energy, but based on the interest of our client, Soulardarity, and scope of the project, we assumed that solar power would be employed. To confirm that Highland Park had sufficient solar resources, we conducted an initial solar energy assessment. We used several software programs to determine the total amount of solar energy possible through both rooftop panel installation and vacant lot conversion to ground solar panel systems. Google’s Project Sunroof estimates that 68% of Highland Park’s buildings are viable for rooftop solar panels, and that 83,000 MWh of AC electricity could be generated annually if every available rooftop had solar panels installed.viii Figure 2 and 3 depict Project Sunroof’s output for Highland Park specifically.
Figure 2: Google’s Project Sunroof rooftop solar potential for Highland Park, MIix
Understanding the Potential for Community Solar in Highland Park 8
Figure 3: Google Project Sunroof Electricity estimations for Highland Park, MIx
In addition to rooftop potential, we assumed that ground solar panel systems could be installed on vacant lots throughout Highland Park. The Motor City Mapping Highland Park Tool was used to find the total number of vacant lots available for solar power generation in Highland Park.xi As seen in Figure 4, vacant lots account for approximately 30% of all lots in Highland Park. To deliver a rough estimate, we assumed that 30% of total land area within Highland Park consisted of vacant lots. Using this method, an assumption of 20% panel efficiency and an average solar irradiation of 4.41 kWh/m2/day, we determined that the total electricity available from vacant lot solar panel systems could reach approximately 707,400 MWh/yr.
Figure 4: Output of Motor City Tool, with vacant lots in Highland Park highlighted.xii
Understanding the Potential for Community Solar in Highland Park
The total average annual energy demand in Highland Park for residential and commercial sectors is approximately 86,200 MWh, suggesting that if all viable rooftops in Highland Park had solar panels installed, then 96% of total residential and commercial energy demand could be met.xiii Vacant lot solar panel systems could supply almost ten times the energy that Highland Park’s residential and commercial sectors currently demand.
3. Problem Definition & Objectives
Low-income households tend to pay a higher portion of their income toward their utility bills. For the poorest households in Detroit, the percentage paid toward energy can reach over 15% of total income.xiv High energy burdens such as these can crowd out other payments, displace investments, or force households to choose between heating their home and other needs. Similar research has shown a discrepancy in this energy burden between white households and households of color.
As Soulardarity’s membership has grown, their mission has expanded to include alleviating community energy burden. Soulardarity members believe they are being mistreated by the utilities (DTE Energy) and are interested in becoming energy sovereign. They asked us to do two things, 1) get a better sense of the problem and potential need for solar energy to address financial burden and injustice in the community through a community survey, and 2) perform a feasibility study of bringing community solar to Highland Park. To do this, a Community Solar Calculator was developed to estimate solar capacity and rate of return on investment for specific sites. This will be discussed in greater detail in Section 5.
On July 9, 2017 Soulardarity volunteers, led by Intern Grace Brosnan, walked the neighborhoods of Highland Park to conduct a survey about the resident’s experiences with energy utilities (Appendix A: Survey Questions and Appendix B: Survey Results have been redacted from the public edition of this report). The purpose of the survey was to gain a better understanding of the need for community solar from both an economic and social justice perspective. Specifically, according to “Lights Out In The Cold” Environmental and Climate Justice Program NAACP, in Michiganxv:
• Notice of disconnections must be provided by phone or mailing. Phone notice must be attempted two times at least one day before the scheduled disconnection. Mailed notice must be sent at least five days before the scheduled disconnection.
Understanding the Potential for Community Solar in Highland Park 10
• November 1- March 31 there should be no disconnections for customers 65 years or older or for eligible low-income customers with entry into a payment plan where customer makes monthly payments equal to 7% of the annual bill. • Customers with a medical certification can postpone disconnection for not more than 21 days. Certification may be renewed up to a total postponement of 63 days in a 12-month period. A utility is not required to grant postponements totaling more than 126 days per household.
The survey used convenience sampling and included 61 Highland Park residents. Given this was not a random sample; we cannot assume the responses truly represent the community. Specifically during the survey process, interviewers knocked on doors in the community and found they could not enter some apartment buildings; this resulted in a sample that skewed toward homeowners.
With that in mind, nearly 40% of respondents did express trouble paying energy (electric or gas) bills. Several respondents also self-reported illegal shut-offs as outlined above (Soulardarity leadership is following up on these instances). The survey suggests, although not statistically significant, that people of color experience more energy burden. Lastly, the survey found that people are still very concerned about the limited streetlights in Highland Park.
4. Community Solar and Energy Democracy in Highland Park
The results of Soulardarity’s summer utility shutoff survey confirm what Highland Park residents and Soulardarity had already suspected: meeting energy needs is placing a heavy burden on the time, health, and budgets of Highland Park residents, and citizens have no say in how their community provides its energy. The removal of Highland Park’s streetlights can be seen as a direct manifestation of the disconnect between the assets and concerns of the Highland Park community and the way that energy is produced, distributed and spent. Through solar streetlighting, Soulardarity is forwarding its core values—community ownership and energy democracy, or the ability for community members to have a say in meeting their energy needs. Streetlighting alone, though, does not solve Highland Park residents’ energy burden. Soulardarity’s ambition is to create and provide community-owned, community-controlled, pollution-free energy for Highland Park.
Solar-powered electricity projects allow Soulardarity to meet that ambition. Because solar energy does not require any fuel, solar projects are completely self-reliant, and Soulardarity’s energy
Understanding the Potential for Community Solar in Highland Park
would truly be generated and used in Highland Park. With solar prices falling year after year, communities around the country and world are investing in solar energy.xvi And while solar projects have historically been inaccessible to households without an appropriate roof or disposable income, community solar projects are breaking down those barriers. Community solar projects are centralized solar projects where many community members can invest in and benefit from the benefits of solar energy. Especially in a community where years of disinvestment have eroded available housing stock, community solar projects unlock energy independence and democracy for Highland Park.
This report aims to provide a guide for Soulardarity and Highland Park regarding what kinds of projects currently exist and what is feasible in Highland Park. We will do that by establishing criteria for a just and effective project, proposing a model for a Soulardarity community solar project, evaluating its feasibility on technical, policy, and economic grounds, and finally providing a roadmap of how to make that project a reality. With this report, Highland Park will be better equipped than ever to pursue energy democracy.
4.1 What does a Just & Effective Community Solar Project Look Like? To better understand what kinds of solar projects will work for Highland Park, the following criteria were established.xvii A just, effective community solar project for Highland Park will:
• Contribute to energy democracy. Building community capacity and independence is core to the mission of Soulardarity. Community solar models that are administered by local utilities or rely heavily on corporate investment and ownership do not fulfill the primary goal of establishing energy democracy. • Be technically & economically feasible. Solar energy projects are inextricably linked to electricity markets, and building a community’s capacity to provide their own energy means ensuring that there are financial returns on community investments. • Be appropriate for Highland Park’s context. Michigan state energy policy does not allow any kind of remote net metering—which means customers can only benefit from a solar project if it is co-located on their property. The implications of Michigan’s net metering laws will be a major consideration.
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We conducted a survey of community solar business models and resources to determine which might work best to fulfill the criteria for Soulardarity. For more information on community solar business models and case studies, see Section 8: Making Community Solar a Reality.
4.2 Proposed Business Model: Community Power Purchase Agreement (PPA) Business models for community solar projects must define two terms: a) How the solar project generates value and b) How community members can invest. While many community solar projects are actively managed by utilities, Soulardarity’s goal of increasing energy democracy means pursuing a community-owned, managed, and administered program. Essentially, owning and managing the solar project can be viewed like a business: Soulardarity invests money into equipment, then sells the energy output to customers in Highland Park. Fortunately, this approach has precedents, like the University Park Solar Cooperative in University Park, Maryland.xviii
We recommend that Soulardarity members create a Special Purpose Entity, like a co-op, partnership, or LLC, to own and manage a solar project. And because remote net metering is not possible (and individually negotiating compensation for electricity from a utility is not likely to be successful for a single project), Soulardarity should partner with a Highland Park-based Project Host with the space and energy demand appropriate for a solar array. The Project Host would pay the Special Purpose Entity (a.k.a. Soulardarity) a flat rate for the electricity generated from the solar project, then either use it on-site or export it back to the utility through net metering. The negotiated agreement between the Special Purpose Entity and Project Host is often called a Power Purchase Agreement (often shortened to PPA), and this model will be referred to in this report as a Community PPA. A diagram tracing the flows of energy and economic value is shown below in Figure 5.
Understanding the Potential for Community Solar in Highland Park
Figure 5: Community Public-Private Partnership Model
For further discussion of the Community PPA business model, refer to "A Guidebook for Community Solar Programs in Michigan Communities" from the Great Lakes Renewable Energy Association and "A Guide to Community Solar: Utility, Private, and Non-profit Project Development" from the National Renewable Energy Laboratory."
5. Methods: Community Solar Calculator
In order to assess the technical and economic feasibility of a community PPA solar project in Highland Park, we created a Community Solar Calculator. The design, including input and output descriptions, and assumptions of the Community Solar Calculator are outlined in Appendix C.
5.1 Inputs Figure 6 and 7 are screenshots of the two input tabs of the Community Solar Calculator, built in Excel. The first tab (figure 6) includes the estimated project size (based on roof space or project capacity), building type, panel type and battery inclusion. The second tab (figure 7) includes advanced inputs such as the discount rate for the Net Present Value (NPV), other funding sources, current utility rates, the desired discount for the host and the approach to estimating upfront costs.
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Community Solar Control Panel
INPUTS Site Considerations Project Size Criteria: Square Footage *roof area or required project capacity Roof Area (ft^2) 14,456 Project Capacity (kW, AC) 25 Determined project capacity (kW, AC) 83.010 Desired Energy ( kWh/year) (optional) 0
Project Host Considerations Host Building Type Lodging *food service, education, religious, lodging, office Building space (ft^2) 14,456
Technical Requirements Level of Panel Standard *premium, standard, economy Battery? Yes *yes or no
Note: These calculations do not include calculations for financing or debt. Assumed up-front cash payment. Note: Projects over 20 kW capacity receive less credit when exported back onto the grid. Additional model may be needed to calculate actual project revenue.
Figure 6: First tab which includes basic inputs and project criteria Community Solar Control Panel ADVANCED INPUTS Project Finances Discount rate (incluidng inflation) 4% Grants or funding secured ($) $0.00 Project Takes ITC? Yes
Project Host Considerations Host utility service type Residential *Residential or commercial Utility rate $0.114
Partnership Inputs Discount % on retail for host (from DTE price) 3%
Installed Cost Estimation for Financial Modeling Bottom-up estimate based on NREL Q1 2017 (~$2/W) Average of sample quotes from EnergySage (~$3.30/W) X
**This calculator doesn't calculate the benefits from accelerated depreciation via MACRS. **This calculator doesn't model equity 'flips' or other techniques for capitalizing on the ITC and other tax incentives.
Figure 7: Second tab which includes advanced inputs
Understanding the Potential for Community Solar in Highland Park
5.2 Outputs Once the user enters data into the input fields, the calculator will display a 25-year cash flow in both accounting and discounted terms. The fourth tab (figure 8) will show the payback graph, energy output, and emissions avoidance.
Project details at a glance: Capacity: 124 kilowatts at peak power Capital Needs: $332,037 Project is partnering with financial entity for tax credits
Every Year, Soulardarity's Community Solar Project Will:
Produce 185,983 kilowatt-hours per year--enough to power 18 households year-round.
Avoid $26,014 in payments to utilities--keeping money in Highland Park.
Save Highland Park residents/companies $650 on their utility payments.
Generate $22,413 for Soulardarity to re-invest in their community.
Avoid 121.5 tons of carbon dioxide emissions from electricity.
Project Cash Flow at a Glance
Project Owner (Discounted at 4%) Project Host
$0 $12,000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ($50,000) $10,000
($100,000) $8,000
($150,000) $6,000 ($200,000) $4,000 NPV (DISCOUNTED $) NPV (DISCOUNTED $) ($250,000) $2,000 ($300,000) $0 ($350,000) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 PROJECT YEAR PROJECT YEAR
Figure 8: Fourth tab which includes an overview of project results
6. Results: Case Studies & Sensitivity Analysis
Our team used the Community Solar Calculator to assess three potential community solar sites in Highland Park: Parker Village (a community building), Labelle Towers (a senior living home), and Nandi Knowledge Cafe (a local gathering place and eatery). These sites were selected because of Soulardarity’s personal interest in these locations, existing partnerships, and/or the high energy demand of these locations and their ability to take advantage of the various tax incentives when installing a commercial size PV array and partnering with a non-profit organization.
6.1 Parker Village Parker Village is a community initiative spearheaded by one of the board members of Soulardarity. Parker Village is hoping to repurpose an abandoned space in Highland Park into a community
Understanding the Potential for Community Solar in Highland Park 16
center fully powered by renewables. The village will host businesses, offices and family homes. Parker Village is already a Soulardarity partner, and development of the community center and office space is currently underway.
Parker Village Input Assumptions: • One story high office space • Building square footage the same as the roof square footage • National average electricity demand (Michigan typically has higher electricity usages due to seasonal changes) • Standard panels • Battery included • 4% discount rate
6.2 Labelle Towers Labelle Towers is a 10-story apartment building located in Highland Park specifically designed for senior living. Due to its large square footage, it has a high energy demand. Labelle Towers is operated by a non-profit organization, so while the financial aspect will differ from the other two sites, we wanted to include a space that is used for lodging to determine how it affects the decisions of planning for community solar.
Labelle Towers Input Assumptions: • Modeled energy demand for one story of the complex • Building square footage the same as available roof square footage • Demand is only for organizational electricity use (tenant is responsible for utilities) • Standard panels • Battery included • 4% discount rate
6.3 Nandi’s Knowledge Cafe Nandi’s Knowledge Cafe is a local eatery and early Soulardarity partner. The energy demand of Nandi’s will not resemble the energy profile of either Parker Village or Labelle Towers. Nandi’s, while being the smallest location of the three, has a significant energy demand because they serve
Understanding the Potential for Community Solar in Highland Park
food. As a for-profit business Nandi’s Knowledge Cafe will be able to benefit from the tax incentives offered by the government for solar development.
Nandi’s Input Assumptions: • Available roof space assumed to be entire building roof, of which Nandi’s Knowledge Café represents only a portion • Standard panels • Battery included • 4% discount rate
6.4 Calculator Outputs The graph below shows the energy output of the array for each of the three case study locations. As seen in Figure 9, in each of the three cases, we maximize the use of the roof space, but it is unable to meet all the estimated demand of the locations.
PV Array Output vs Estimated Load
600
500
400
300
200 Electricity (MWh) 100
0 Labelle Towers Parker Village Nandi's
Total Energy Output Estimated Demand
Figure 9: The three case study locations of Labelle Towers, parker Village, and Nandi Knowledge café, and the estimated PV output and energy demand.
Figure 10 shows the capital cost of each system assuming that the location went with the standard modules, a battery storage system, and utilized their entire roof space. Capital costs include the solar panels, battery, inverter, balance of systems (BOS), installation, permitting and licensing.
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Up-Front Capital Costs (Year 0) $400.00 $350.00 $300.00 $250.00 $200.00 $150.00 $100.00 $50.00 Cost (Thousand of Dollars, $) $- Labelle Towers Parker Village Nandi's
Figure 10: The total cost of each case study for Labelle Towers, 134 kW, Parker Village, 91 kW, and Knowledge Cafe, 59 kW system including battery, inverter, installation, and BOS.
6.5 Sensitivity Analysis Conducting a feasibility study on a 25-year project requires making several assumptions about the future and each of these assumptions can greatly vary the Net Present Value (NPV) of the project and the financial feasibility. The first major consideration is whether the project should include a battery or not. Current (2017) battery technology is expensive and has a short life span (we assume every 8 years). While it does allow for energy storage and less reliance on the grid for backup, it results in a negative NPV for every project we modeled, as seen in Figure 11.
25 Year NPV (4% Discount Rate)
$20,000.00 $10,000.00 $0.00 $10,000.00 Labelle Parker Village Nandi's Towers $20,000.00 No Battery $30,000.00 Battery Included $40,000.00 $50,000.00 $60,000.00 $70,000.00 $80,000.00
Figure 11: Sensitivity analysis for the decision to include a battery
Understanding the Potential for Community Solar in Highland Park
When comparing long-term projects the final costs are compared in “todays dollar,” this is done by assuming a discount rate, or a rate at which the value of money will grow over time. The true value of money growth over time depends on several macro level factors that are difficult to predict. Figure 12 shows that if we use a discount rate of 1% (typically associated with inflation) every project has a positive NPV, where as a 7% discount rate (typically associated with for-profit investment portfolios) shows that every project would have a negative NPV. At a discount rate of 4% (the calculator’s default and a common value used for social investments) Parker Village has the highest NPV of the three sites.
25 Year NPV (No Battery)
$200,000.00
$150,000.00
$100,000.00 4% discount rate $50,000.00 1% discount rate 7% discount $0.00 Labelle Towers Parker Village Nandi's $50,000.00
$100,000.00
Figure 12:Sensitivity analysis for varying discount rates
The third variable we considered for the sensitivity analysis was the escalation factor, which is the rate at which we assume DTE will raise their utility rates over time. The calculator default value is 2.5%, which is the default rate used by NREL’s System Advisor Model.xix The faster and higher DTE’s utility rates climb the more economical community solar becomes. Figure 13 shows that if DTE’s escalation rate is closer to 1%, the NPV of each project could be negative while a higher escalation rate, closer to 3.5% could lead to a substantial increase in every project’s NPV.
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25 Year NPV (No Battery, 4% Discount Rate) $60,000.00
$40,000.00
$20,000.00 2.5% Escalation $0.00 1% Escalation Labelle Towers Parker Village Nandi's 3.5% Escalation $20,000.00
$40,000.00
$60,000.00
Figure 13: Sensitivity analysis for varying escalation rates
7. Policy Considerations for Community Solar
Solar projects are complex propositions that interact with financial and tax policy, clean energy incentives, rules on issuing securities, local zoning ordinances, and utility operations. As such, understanding the nature of these policies and how they pose barriers and opportunities to solar projects is critical to assessing the feasibility of community solar in Highland Park. This section provides an overview of the relevant policies at the federal, state, and utility level that will interact with the details of a community solar project, and offers guidelines on how to best take advantage of opportunities and avoid barriers. This section is not meant to be a comprehensive treatment, and any community solar project should regularly consult a lawyer and accountant to ensure that the project is set up appropriately.
7.1 Federal Policy
7.1.1 Tax Incentives Tax incentives are the largest incentive available to solar projects, adding up to over 30 percent of the project’s installed cost.xx The two major tax incentives are the Commercial Investment Tax Credit (ITC) and the Modified Accelerated Cost Recovery System (MACRS). The ITC allows investors to take up to 30% of the installed cost of a system off of their tax liability, and MACRS allows 5-year depreciation of the project for tax reasons.xxi
Understanding the Potential for Community Solar in Highland Park
These tax incentives are not refundable, which means that entities can only take advantage of them to reduce their tax burden. They’re also restricted to taxes on ‘passive’ income that doesn’t come from wages or salary.xxii To take full advantage of these opportunities, Soulardarity should partner with a financial institution or other partner with a high passive tax burden. Partnerships with financial investors take multiple forms, but usually involve the financial partner taking full or majority ownership of a project for the initial years of operation, then ‘selling back’ the project to the administrators after tax incentives have been capitalized. This process adds substantial complexity to the finances of the project, but can substantially decrease its total cost (usually by over 30%). Soulardarity should decide whether partnering with a financial institution for capitalizing on tax liability is in line with the goals of the solar project.
7.1.2. Federal (and, if applicable, state) Securities Regulation. Special purpose entities that sell interests or equity stakes in an asset (e.g. a solar project) technically qualify as securities, and as such there are policies that govern how and why securities can be sold.xxiii Exemptions to securities regulation are possible, and require a cap on the total amount of investors (usually 35) and their geographic location (the same state). It’s recommended that Soulardarity’s special purpose entity take advantage of this exemption to reduce the time, effort, and expertise required for project management.
7.2. State Policy
7.2.1. Renewable Portfolio Standard (RPS) and Renewable Energy Certificates (RECS) Michigan’s Renewable Portfolio Standard requires Michigan electricity to be made up of at least 15% renewable electricity by 2021.xxiv To track which energy sources are renewable, the state of Michigan certifies and issues Renewable Energy Certificates (RECs) to the owners of renewable energy generators. Then, distribution utilities are responsible for producing or purchasing enough RECs to meet the 15% RPS threshold. The result is a REC market where project owners sell their certificates of renewable energy to utility companies.xxv
Soulardarity’s community solar project would qualify for REC certification, and the project would generate one full REC per 1,000 kWh generated. Hypothetically, Soulardarity could sell their renewable energy credits to utilities to meet their renewable portfolio standard; However, market prices for RECs are very low due to the low RPS standard and the proliferation of wind power in Michigan. Most solar project owners do not sell their RECs; the cost of entering the REC market is
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greater than the value generated by selling the certificates.xxvi Changes to the state RPS policy, like increasing from 15% or including a carve-out specifically for solar energy, might increase the project’s REC value in the future.
7.2.2. Net Metering Net metering is a utility practice that allows property owners using distributed energy to ‘sell back’ the electricity they produce when energy produced on-site exceeds their demand. Net metering practices are mandated by state law, but implementation across the state varies by utility. Net metering is generally only available when utility customers consume more energy than they produce each year.xxvii
The state of Michigan and DTE allow for ‘true net metering,’ or paying customers for their energy at full retail value, for projects that are up to 20 kW in capacity. For projects with greater than 20 kW of capacity, ‘modified net metering’ applies. ‘Modified net metering’ reduces the value of energy when sold back to the grid by 40%. In terms of project economics, energy produced from a large solar project and used on-site still displaces a full retail-rate kilowatt-hour, but the decreased value applies when sold back to the grid.xxviii As a result, accurately determining the revenue of the project becomes more uncertain. Even sites with a large amount of demand may not require high power during the afternoon, when solar projects generate the most energy.
At 150 kW of capacity or greater, projects must pay ‘standby charges’ when they’re not generating electricity. Because generation timing is not controlled by the operator, standby charges make solar projects above the capacity cap prohibitively expensive.
7.2.3. Property Taxes As a valuable asset, installed solar properties typically increase property taxes for the property they’re installed on. Although many states have exemptions for on-site clean energy projects, Michigan’s exemption for on-site clean energy projects lapsed in the 1970s. In some cases, city-level tax policies may also implement an exemption, but there is some uncertainty about how property tax would be calculated when the project host and project owner are different entities.xxix In any case, property tax increases should be folded into financial calculations done for a prospective solar project.
Understanding the Potential for Community Solar in Highland Park
8. Making Community Solar a Reality
The initial portion of the research project assessed the feasibility of a community solar project in Highland Park, and presented a sketch of what a community solar model might look like for Soulardarity and Highland Park. One conclusion from the analysis quickly became clear: Solar projects present logistical, legal, and financial complexity, and the accessible partnership model outlined here only increases that complexity. NREL’s “Guide to Community Solar” book outlines a basic checklist of project development tasks for community solar projects, which is presented in Appendix D.
Soulardarity’s context in Highland Park, mission, and the proposed business structure make this project unique. University Park Solar Co-operative, an example of the community PPA we propose Soulardarity model after, took over three years to structure and launch. As Soulardarity staff move forward with a community solar installation, they should take the following steps over the next few years:
8.1 Setting project objectives Community solar projects are a long-term investments and lasting partnerships between Soulardarity staff, Soulardarity members, Highland Park community members, project hosts, and financial partners. In the process of crafting this partnership, Soulardarity staff will be presented with a vast array of options and considerations for how exactly the project will be implemented. In some cases, options and considerations may ask Soulardarity to make trade-offs between outcomes (e.g. Should the project save more money for the host or generate more money for Soulardarity?). Although planning, forethought, and good project design should prevent surprising events or circumstances along the project’s lifetime, Soulardarity staff may have to make difficult decisions along the life of the project.
Defining project objectives at the outset can provide clarity when choices present themselves, and they allow multiple staff members to coordinate on a single principle. If the goals are public, they might also present a consistent principle for project partners. Project development means juggling levels of risk and returns on investment alongside Soulardarity’s own mission objectives like enhancing energy democracy, ensuring accessibility, and raising Soulardarity funding.
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8.2 Forming a Special Purpose Entity: Soulardarity has multiple options when it comes to the development of a special purpose entity for the community solar project, each with their own strengths and weaknesses. NREL’s “A Guide to Community Solar” includes a concise explanation of the most common business arrangements as seen in Figure 11.xxx
Entity Type Liability for Owners Taxation Primary Advantages Primary Disadvantages General Personal liability Pass-through Ease of formation; Personal liability of Partnerships pass-through partners taxation Limited Personal liability for Pass-through Pass-through No liability shield for Partnerships general partners; taxation; limited general partner limited liability for liability for limited limited partners partners Limited Liability Limited Liabaility Usually pass- Pass-through Relatively new Companies through taxation; fewer structure; may be formalities to harder to get maintain the LLC financing structure than corporations Cooperatives Limited Liability Seprate tax entity Cooperative Inflexible Structure principles “S” Corporations Limited Liability Pass-through Liability shield; ease Limitations on Limited Liabaility of investment; ease number and of transfer of identity of members shares in larger, non-close corporations “C” Corporations Limited Liability Seprate tax entity Liability shield; ease Complexity; double of investment; ease taxation of transefer of shares in larger non-close corporations Non-Profit Entities Limited Liability Seprate tax Tax-exempt; tax No return for identity; tax exempt deduction for donors; business donors purpose are limited; no voting rights for donors Figure 11: NREL’s “A Guide to Community Solar”
Appendix D.1 and Appendix D.2 include a charter and formation document for a limited-liability corporation, identical to that used by University Park Solar Co-operative.
Understanding the Potential for Community Solar in Highland Park
8.3 Building relationships with potential partners. Soulardarity needs several partners to make the community PPA a reality. Bringing together a diverse set of partners helps to forward Soulardarity’s mission of uniting their community through energy provision, while expanding the total available pool of resources for the project. And because a large solar project requires substantial land, a large energy demand (to meet net metering rules), and a lot of up-front capital, Soulardarity should be intentional about seeking out partners who can further their mission and provide the necessary resources for the project. In particular, Soulardarity should identify project hosts and financial partners.xxxi Below are suggested criteria for evaluating potential project hosts:
• Investment in Highland Park and Complementary Missions: Part of Soulardarity’s mission is to drive down the costs of energy for the community. Although a community PPA should generate returns for the project investors (including Soulardarity), it only directly reduces energy costs for the project host. For this project to further Soulardarity and decrease energy burdens in Highland Park, the project host should be an open, community- serving institution. • Space for a solar project: Appropriate solar sites are easily accessible for maintenance, near existing electrical circuits, generally clean (not in risk of accumulating debris) and have uninterrupted access to sunlight. Even tall buildings around a potential solar site can have an impact on solar production. To reduce roof maintenance costs is done just before solar panels are installed and roofs should be inspected by an expert before any commitments are made. • Financial Stability: Solar energy projects are, by nature, long time-horizon partnerships. Initial estimates for this project put a simple payback period at over 15 years, and typical estimates of solar lifetime for modern solar panels place them at 25 years or more. Soulardarity should be confident that their partner is likely to continue to own and operate the property over the long haul, or at the very minimum have procedures in place for a transfer of building ownership. In some cases, potential financial liabilities and risks that might cause the entity to move or sell the property should be evaluated. For this reason, common solar partners include churches and civic buildings. Although energy payments should represent a discount for the project host compared to their hypothetical utility prices, regular payment should still be an expectation, especially if the Special Purpose Entity takes on debt to finance the project.
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8.4 Getting Legal & Accounting Support For many projects, setting up the legal and financial structures that will serve the project are the most costly and time-consuming portions of a community solar project.xxxii University Park Solar Co-operative, for instance, spent over two years developing their business plan before moving forward with the project. They relied on pro-bono work from the Maryland Intellectual Property Resource Center, alongside $12,000 for other legal and accounting expenses. Soulardarity should examine its options closely when it comes to setting up a community solar business and financial structure. Documents provided in Appendix D to this report can form the basis for financial & legal structures for Soulardarity.
9. Discussion and Conclusions
Across our case studies in Highland Park, the community solar calculator found that community solar projects could flourish and meet their goals of providing access to solar, reducing energy burdens, raising money for Highland Park, and increasing the Highland Park community’s autonomy when it comes to providing energy. We believe this is an incredible opportunity for the Highland Park community to achieve energy democracy, and we excitedly await the future of Highland Park’s electricity grid.
The Community Solar Calculator relies on a number of industry averages and assumptions to generate reasonably accurate technical and economic outputs. The detail provided here should allow users to further customize the calculator to meet their needs and the specifics of their developer and installation. Especially as solar equipment and ‘soft’ costs continue to drop, it’s critical to remember that the model represents 2017 industry averages and details should be updated as pertinent information becomes available. Nevertheless, the calculator provides a solid foundation for estimating the technical and economic feasibility for a solar project. While every case study we explored could be a financially viable option, there are many uncertain factors included in the calculator and the best option will depend on Soulardarity’s relationships and a formal analysis by solar developers.
Understanding the Potential for Community Solar in Highland Park
For Highland Park and Soulardarity, the major barriers left to community solar are 1) Crafting a business and policy framework for Soulardarity and Highland Park and 2) Securing low-cost financing that will not put a high burden on Soulardarity.
While these barriers are surmountable by Soulardarity, they absolutely dampen access to affordable, renewable energy for those who need it most. Soulardarity’s journey toward community solar demonstrates the viability of these projects to help people on the ground as well as the difficulty in making these projects a reality. In many states, legislation and policy have stepped in to increase access to community solar and allow residents greater autonomy in how they provide their own energy.xxxiii Our recommendation and hope is that the State of Michigan follow suit.
The way the world provides its electricity is changing. As the business and moral case for renewable energy shifts the fundamental nature of how we produce and consume energy, it’s up to us to ensure that the benefits of clean and affordable energy accrue to everyone. Community solar in Highland Park will help achieve that mission, and Soulardarity’s project might set an example for how communities facing high-energy burdens might join together, create something new, and become more free.
Appendices
Appendix A: Survey Design* Appendix B: Survey Results* Appendix C: Community Solar Calculator Design and Assumptions Appendix D: Resources* Appendix D.1: Generic Maryland Operating Agreement Appendix D.2: Generic Maryland Power Purchase Agreement Appendix D.3: Community PPA Checklist
*For intellectual property and privacy reasons, these appendices have been redacted from the public report.
References
i Fu, Ran, et al. U.S. Solar Photovoltaic System Cost Benchmark: Q1 2017 . 2017, U.S. Solar Photovoltaic System Cost Benchmark: Q1 2017 . ii Ibid iii Data Access and Dissemination Systems (DADS). “American FactFinder - Community Facts.”
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ii Ibid iii Data Access and Dissemination Systems (DADS). “American FactFinder - Community Facts.” Request Rejected, 5 Oct. 2010, factfinder.census.gov/faces/nav/jsf/pages/community_facts.xhtml?src=bkmk. iv “Highland Park, MI.” Data USA, 2016, datausa.io/profile/geo/highland-park-mi/#demographics. v Ibid vi Ibid vii “Soulardarity.” Soulardarity, 2016, www.soulardarity.com/. viii “Project Sunroof - Data Explorer | Highland Park.” Google, Google, www.google.com/get/sunroof/data-explorer/place/ChIJyQUcWerNJIgR913c7LWM_zs/. ix Ibid x Ibid xi “Motor City Mapping Highland Park.” Motor City Mapping Highland Park, highland- park.motorcitymapping.org/#t=overview&s=highland-park&f=all. xii Ibid xiii State and Local Energy Data, apps1.eere.energy.gov/sled/#/results/home?city=Highland%20Park&abv=MI§ion=electricity ¤tState=Michigan&lat=42.4055925&lng=-83.09686799999997. xiv 1Drebohl, A. & Ross, L. “Lifting the High Energy Burden in America’s Largest Cities: How Energy Efficiency Can Improve Low Income and Underserved Communities.” April 2016. American Council for an Energy-Efficiency Economy. xv Franklin, Marcus. LIGHTS OUT IN THE COLD: Reforming Utility Shut-Off Policies as If Human Rights Matter. 2017, LIGHTS OUT IN THE COLD: Reforming Utility Shut-Off Policies as If Human Rights Matter. xvi Ibid xvii “Energy Justice: A Conceptual Review.” Energy Research & Social Science, Elsevier, 29 Oct. 2015, www.sciencedirect.com/science/article/pii/S2214629615300669. xviii University park Solar, www.universityparksolar.com. xix “Financial Model Documentation.” Financial Model Documentation | System Advisor Model (SAM), sam.nrel.gov/financial. xx “Solar Investment Tax Credit (ITC).” SEIA, www.seia.org/initiatives/solar-investment-tax-credit- itc. xxi Ibid xxii “Investment Tax Credit for Solar Power.” EnergySage, www.energysage.com/solar/cost- benefit/solar-investment-tax-credit/. xxiii US Department of Energy, Coughlin, Jason, et al. A Guide to Community Solar. 2010, A Guide to Community Solar. https://www.nrel.gov/docs/fy11osti/49930.pdf xxiv Database of State Incentives for Renewables & Efficiency®.” DSIRE, www.dsireusa.org/. xxv Ibid xxvi SRECTrade, Inc. “Michigan.” SRECTrade | SREC Markets | Michigan | MI, www.srectrade.com/srec_markets/michigan. xxvii “Database of State Incentives for Renewables & Efficiency®.” DSIRE, www.dsireusa.org/. xxviii “Net Metering Program.” DTE Energy, www2.dteenergy.com/wps/portal/dte/residential/productsPrograms/details/generate%20my%2 0own%20power/net%20metering%20program/! xxix “Varnum Blogs.” Assessing the Taxability of Solar Energy Systems in Michigan | Tax Law | Varnum LLP, www.varnumlaw.com/blogs/varnum-etc/assessing-the-taxability-of-solar-energy- systems-in-michigan/.
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xxx US Department of Energy, Coughlin, Jason, et al. A Guide to Community Solar. 2010, A Guide to Community Solar. https://www.nrel.gov/docs/fy11osti/49930.pdf xxxi “Energy Justice: A Conceptual Review.” Energy Research & Social Science, Elsevier, 29 Oct. 2015, www.sciencedirect.com/science/article/pii/S2214629615300669. xxxii Ibid xxxiii “Beyond Rooftops: States Move to Encourage Community Solar.” The Pew Charitable Trusts, www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2017/08/21/beyond-rooftops- states-move-to-encourage-community-solar.
Understanding the Potential for Community Solar in Highland Park 10/18/2017 Qualtrics Survey Software Appendix A Opening
Surveyor Name
Introduction for Soulardarity Survey (bolded = essential to say)
Hello! I’m (first name) How are you doing? I’m a volunteer with the Highland Parkbased organization Soulardarity We’re doing a survey in HP about people’s experiences with electric and gas shutoffs Soulardarity works for energy democracy in HP Energy democracy is the idea that those most impacted by energy decisions should have the most say in those decision Soulardarity has put up 6 solar street lights in HP (but not the ones by the basketball court) HP has historically been at the will of outside sources, this survey and Soulardarity are opportunities for Highland Parkers to take control and push their city towards greater democracy and energy independence This survey is important because it will inform us about the impacts of shutoffs in HP It will help us organize for power in HP It will support us in advocating and working for energy democracy in HP Your information is essential in doing this work It’s completely confidential It will only take 10 minutes
Do you have time to take the survey right now? It’ll only take about 10 minutes and your responses will be confidential.
Yes No
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Energy Use
What is your household energy source?
Electricity Only Gas Only Both Gas and Electric
Electricity
Electricity Usage
Do you have trouble paying your electricity bills?
Yes No
Have you ever received an electricity shutoff notice?
Yes No
How many electricity shutoff notices have you received while living at this location?
0 4 8 12 16 20 24 28 32 36 40 Slide
Have you ever had your electricity shutoff?
Yes No
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How many times has your electricity been shutoff at this location?
0 2 4 6 8 10 12 14 16 18 20 Slide
Did you receive a notice(s) before the most recent electricity shutoff?
Yes No
During the most recent electricity shutoff, in what form(s) did you receive notices?
Mail In Person Email Phone Flyer Other
During the most recent electricity shutoff, how many days passed between the first notice and the shutoff date?
0 10 20 30 40 50 60 70 80 90 100 Slide
What time of year did the most recent electricity shutoff happen?
Nov 1st Mar 31st April 1st Oct 31st
How long did the most recent electricity shutoff last?
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During the most recent electricity shutoff, how many people in each age category where living in the house?
0 1 2 3 4 5 6 Age 03 yr
Age 412 yr
Age 65 or Over
User of electric
medical equipment
Did you use any other sources of power during the electricity shutoff?
Candle Wood stove Generator Batteries Other
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Gas
Gas Utility
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Do you have trouble paying your gas bills?
Yes No
Have you ever received a gas shutoff notice?
Yes No
How many gas shutoff notices have you received in this location?
0 4 8 12 16 20 24 28 32 36 40 Slide
Have you ever had your gas shutoff?
Yes No
How many times has your gas been shutoff at this location?
0 2 4 6 8 10 12 14 16 18 20 Slide
Did you receive a notice(s) before the most recent gas shutoff?
Yes No
During the most recent gas shutoff, in what form(s) did you receive notices?
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During the most recent gas shutoff, how long after the notice were you shutoff? (days)
0 10 20 30 40 50 60 70 80 90 100 Slide
What time of year did the most recent gas shutoff happen?
Nov 1st Mar 31st April 1st Oct 31st
How long did the most recent gas shutoff last?
less than 1 day 12 days 3 days 1 week 12 weeks 2 weeks to 1 Over a month month
During the most recent gas shutoff, how many people in each category where living in the house?
0 1 2 3 4 5 6 Age 03 yr
Age 412 yr
Age 65 or Over
User of electric
medical equipment
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Did you use any other sources of power during the gas shutoff?
Candle Wood stove Generator Electric heater Batteries Other
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Programs
Michigan Low Income Household Energy Assistance Program (LIHEAP) also referred to as THAW
Yes No Have you heard of this
program? Have you used this
program? Did you find the
program helpful?
Home Heating Credit
Yes No Have you heard of this
program? Have you used this
program?
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Yes No Did you find the
program helpful?
iHeal
Yes No Have you heard of this
program? Have you used this
program? Did you find the
program helpful?
Winter Protection Plan
Yes No Have you heard of this
program? Have you used this
program? Did you find the
program helpful?
Are there any other assistance programs that you've used?
What community issue is your highest priority?
Water Unemployment Housing Education https://login.qualtrics.com/ControlPanel/Ajax.php?action=GetSurveyPrintPreview 8/13 10/18/2017 Qualtrics Survey Software Utilities Drug use Wages Food Security Other
Demographics
Which best describes you?
I rent my home I own my home I am a residential landlord
What is your gender identity?
Male Female Other
What is your age?
0 10 20 30 40 50 60 70 80 90 100 Age
What is your racial identity/ethnicity?
White Black or African American American Indian or Alaska Native Asian Native Hawaiian or Pacific Islander https://login.qualtrics.com/ControlPanel/Ajax.php?action=GetSurveyPrintPreview 9/13 10/18/2017 Qualtrics Survey Software Other
What is your marital status?
Single Married Divorced Widowed Other
How many dependents do you have (under 18)?
0 1 2 3 4 5 6 7 8 9 10 Dependents
WTP
At Soulardarity, members are integral to our work. As a member, you can elect the board of directors, participate in committees to direct different aspects of our work, and steer the organization towards our mission of energy democracy in Highland Park. Your membership dues also sustain our operations and help us maintain autonomy and focus on our mission of energy democracy. Membership also gives you access to lowinterest financing for purchasing solar products through our PowerUP program.
Would you be willing to pay $10 per year for a Soulardarity membership?
Yes No
Would you be willing to pay $20 per year for a Soulardarity membership?
Yes No
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Would you be willing to pay $30 per year for a Soulardarity membership?
Yes No
Would you be willing to pay $40 per year for a Soulardarity membership?
Yes No
Would you be willing to pay $50 per year for a Soulardarity membership?
Yes No
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Contact Information
Would you like Soulardarity to contact you with more information regarding:
PowerUP (bulk buying of solar products) Membership (give sheet explaining membership) Educational Events Annual Meeting Solar streetlights in HP Your shutoff experience Other
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Contact Information
Name Email Phone Number Street Address
Closing Comments
Any other comments about this interview
Availability
Is there another convenient time we can contact you?
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https://login.qualtrics.com/ControlPanel/Ajax.php?action=GetSurveyPrintPreview 12/13 Appendix B: Community Survey July 2017
On July 9, 2017 Soulardarity volunteers, led by Intern Grace Brosnan walked the neighborhoods of Highland Park to conduct a survey about the resident’s experiences with energy utilities. The purpose of the survey was to get a better understanding of the need for community solar from both an economic and social justice perspective. Specifically, according “Lights Out In The Cold” Environmental and Climate Justice Program NAACP, in Michigan:
• Notice must be provided by phone or mailing. Phone notice must be attempted two times at least one day before the scheduled disconnection. Mailed notice must be sent at least five days before the scheduled disconnection.
• November 1- March 31 No disconnections for customers 65 years or older. No disconnections for eligible low-income customers with entry into a payment plan where customer makes monthly payments equal to 7% of the annual bill.
• Postponement of disconnection for not more that 21 days with medical certification. Certification may be renewed up to a total postponement of 63 days in a 12-month period. A utility is not required to grant postponements totaling more that 126 days per household.
The survey used convenience sampling and included 61 citizens. Given this was not a random sample, we cannot assume the responses truly represent the community but they do provide some insight into the utility burden. Specifically during the survey process, interviewers knocked on doors in the community and found they could not enter some apartment buildings, this resulted in a sample that skewed toward homeowners as seen in the demographic comparison.
The survey was designed in Qualtrics (see Appendix AX) and surveyors accessed the survey from their smart phones. The online survey allowed us to include skip-logic, for example if people only had electricity and no gas, they would only answer questions about electricity. This sped up the survey process but also resulted in varying number of respondents for each question. The survey was administered verbally, the 13 surveyors were trained in advance on how to ask the questions and use the mobile survey tool. Demographics At the end of the survey we asked a series of demographic questions to analyze differences among groups, identify potentially illegal activity and see how our voluntary sample compared to the true makeup of Highland Park.
1 Figure 1: 64% of our sample owned their home. In Highland Park, MI in 2015, 36% of housing units were owner-occupied. This means our data is biased towards homeowners in the community and is not representative of the entire community.i
2
Figure 2: We recorded the age and gender identity of the respondent. According to the 2011-2015 American Community Survey 5-Year Estimates, the median age in Highland Park is 41.7.ii
Figure 3: 84.5% of our sample identified as black with the next largest identifying as white, in 2015, 91.9% of Highland Park was black, with white making up the next largest segment.iii
3
Figure 4: Data on Marital Status in Highland Park is Unavailable, 58.8% of our sample respondents were single
4 Figure 5: Number of dependents (<18 years) in the household by illegal activity
Energy Use Data What is your household energy source? • Electricity Only: 67 (94%) • Gas Only: 1 (1.41%) • Both Gas and Electric: 3 (4.23%)
5 Figure 6: Most residents of Highland Park use gas and electric energy in their household
Electricity Do you have trouble paying your electricity bills? 28 (40%) responded “Yes”
Have you ever received and electricity shutoff notice? 31 (44%) responded “Yes”
How many electricity shutoff notices have you received while living at this location? 3 respondents received at least 1 notice, one responded reported receiving 10 notices (max).
Have you ever had your electricity shutoff? 15 (21%) responded “Yes”
6
Figure 7: Proportion of respondents who have experienced electricity shutoff by time of year
How many times has your electricity been shutoff at this location? Average 3.545
Did you receive a notice(s) before the most recent electricity shutoff? 10 responded “Yes,” 4 responded “No”
During the most recent electricity shutoff, in what form(s) did you receive notices? Mail, In person, email, phone, flyer, other • Mail: 9 • In person: 1 • Phone :1
7 During the most recent electricity shutoff, how many days passed between the first notice and the shutoff date? Average: 11.33, max: 30, min:0
What time of year did the most recent electricity shutoff happen? • Nov 1st- Mar 31st : 10- 71% • April 1st-Oct 31st : 4-19%
How long did the most recent electricity shutoff last? • Less then 1 day: 1 • 1-2 days: 5 • 3 days- 1 week: 3 • 1-2 weeks: 1 • 2 weeks to one month: 1 • Over a month: 3
During the most recent electricity shutoff, how many people in each age category where living in the house? • 0 to 3: 0.666 (average, nulls excluded) • 4 to 12: 1.066 (average, nulls excluded) • 65+: 0.6 (average, nulls excluded) • Persons with Medical needs: 0.533 (average, nulls excluded)
Did you use any other sources of power during the electricity shutoff? • Generator: 3 • Woodstove: 2 • Candle: 5 • Batteries: 1 • Other: 4 (write in: Flash lights and leaving)
Gas Do you have trouble paying your gas bills? 26 (38.8%) responded “Yes”
Have you ever received a gas shutoff notice? 27 (40.29%) responded “Yes”
How many gas shutoff notices have you received in this location? 4 (average of those who received notices)
Have you ever had your gas shutoff? 13 responded “Yes”
8
Figure 8: Proportion of respondents who have experienced gas utility shutoff by time of year of shutoff
How many times has your gas been shutoff at this location? 1.8 (average of those who has gas shutoffs)
Did you receive a notice(s) before the most recent gas shutoff? • Yes: 9 • No: 4
During the most recent gas shutoff, in what form(s) did you receive notices? • Mail: 5 • In Person: 1 • Phone: 2 9 • Email: 1
During the most recent gas shutoff, how long after the notice were you shutoff? (days) Average: 12.33, Max: 30, Min: 1
What time of year did the most recent gas shutoff happen? • Nov 1st - Mar 31st: 7 • April 1st - Oct 31st : 4
How long did the most recent gas shutoff last? • 1-2 days : 3 • 3 days- 1 week: 3 • 1-2 weeks: 1 • 2 weeks to 1 month: 2 • Over a month: 2
During the most recent gas shutoff, how many people in each category where living in the house? • 0 to 3: 1.5 (average, nulls excluded) • 4 to 12: 1.6 (average, nulls excluded) • 65+ 2: (average, nulls excluded) • medical: 1 (average, nulls excluded)
Did you use any other sources of power during the gas shutoff? • Candle 3 • Batteries 3 • Wood Stove 2 • Generator 1 • Other- fireplace 1
Assistance Programs Michigan Low Income Household Energy Assistance Program (LIHEAP) also referred to as THAW • Yes 55 (80.8%) respondents have heard of the program • 12 respondents have used the program • 9 respondents found it helpful
Home Heating Credit • Yes 49 (72.05%) respondents have heard of the program • 32 respondents have used the program • 26 respondents found it helpful iHeal • 1 respondent had heard of the program
Winter Protection Plan • Yes 41 (61.1%) respondents have heard of the program • 12 respondents have used the program • 9 respondents found it helpful
10 Are there any other assistance programs that you've used? (open response) • Shutoff protection programs • LSP through DTE • Rebate for new furnace. • Budgetwise • Senior program • Wayne Metro • United Way
Community Priorities What community issue is your highest priority? The responses to “other” are in the word cloud, street lights was the most popular.
Figure 9: High priority issues in the community by gender
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Figure 10: Word cloud made from the write in responses for "highest priority issue" i https://datausa.io/profile/geo/highland-park-mi/#housing ii https://factfinder.census.gov/faces/nav/jsf/pages/community_facts.xhtml?src=bkmk iii https://datausa.io/profile/geo/highland-park-mi/#category_age
12 C1
Appendix C: Community Solar Calculator Design and Assumptions
To create the calculator, we made assumptions regarding the infrastructure of the panel system itself, the solar resource in the area of Highland Park, the types of buildings being powered, and the project costs and credits. The following section will detail these assumptions as well as outline the way in which these aspects were incorporated into the calculator.
C.1 Solar Panel System We considered three components of a photovoltaic solar panel system: the array (composed of individual modules), the inverter, and the battery. The module is a planar structure that consists of a number of photovoltaic cells that convert light into electrical energy. Each module can then be compiled into an array. The total photovoltaic system includes the inverter and battery. An inverter converts the electrical energy from direct current to alternating current, which is the type of current needed for the electricity grid. Batteries can be integrated into solar panel systems to store electrical energy that is produced that exceeds the demand of the electricity.
C.1.1 Module Today there exist many manufacturers and models of solar panels or modules on the market, and the type of module that is appropriate for a project depends on project constraints such as budget and power requirements. In our calculator, users have the option to select one of three types of panels based on budget and efficiency constraints:i • Economy panels: Least costly but have the lowest ranking in several categories including performance, quality, durability, and warranties. • Standard panels: Dominate the market, and they have good power ratings, efficiencies, and performance characteristics. • Premium panels: Most efficient and help to maximize energy production, and have the best durability, quality, and warranty, but they are also the most expensive. Efficiency for each module classification was determined by averaging industry data reported by EnergySage for each module class. Refer to Table 1 below for the assumed efficiency of each module category.
Understanding the Potential for Community Solar in Highland Park, Appendix C C2
Table 1: Assumed efficiency for each module type in solar power calculator.
Module Type Efficiency
Economy 14.8%
Standard 16.0%
Premium 20.0%
Along with these efficiencies, we assumed panel dimensions measuring 77 inches in length and 39 inches in width, the industry average.ii
C.1.2 Inverter Similarly to modules, there are many manufacturers and models of inverters. We used industry averages were used to define inverter characteristics: inverter loading ratio (ILR), efficiency, and replacement year. ILR refers to the ratio of DC electricity to AC electricity. Refer to Table 2 below for the values used in the calculator.
Table 2: Values for inverter characteristics using industry averages.
Characteristic Value
Inverter Loading Ration (ILR) 1.15
Efficiency 0.92
Replacement Year 10
Solar aray diminsions are used to size the inverter (which indicates the ILR specific to the site). The inverter is typically undersized from the reported DC output to achieve maximum output from the inverter. Since the system site is meant to be a variable in the Community Solar Calculator, an industry average was used for the ILR instead of relying on the site load curve.iii, iv, v The efficiency and replacement year were also averaged from industry values for the same reason.xv,xvi The replacement year is an important consideration, because it affects total system cost and payback period. The inverter will need to be replaced several times during the project lifetime, which adds additional cost.
While our model assumes we will only use one inverter at a time, systems often utilize several smaller inverters. The benefit of having fewer modules connected to each small inverter to create the entire array which is that it allows for systems that are more resilient to power outages. A
Understanding the Potential for Community Solar in Highland Park, Appendix C
C3
microinverter can also be wired individually to each module. These methods result in higher costs, therefore we assumed that only one inverter would be used for a project funded primarily by a non- profit and lower-income community.
C.1.3 Battery The design of a battery system is highly dependent on the specific solar panel site. Generally, batteries are used in off-grid sites and can be used to offset electricity prices in areas with Time-of- Use (TOU) rates, neither of which are within the scope of this project (the local utility, DTE Energy, does not use TOU rates).vi Despite this, the inclusion of a battery is still attractive as it can be used in times of power outage as well as to store excess energy. The assumptions related to the battery are included below in Table 3. Lead-acid batteries are advantageous over other battery technologies because they are typically the cheapest option and are easily replaceable with over-the-shelf products.vii,viii Table 3: Battery system characteristics using industry averages
Characteristic Value
Type of Battery Lead-acid
Lifetimeix 9 years
Roundtrip Efficiencyx 82%
C.2 System Planning After determining the necessary characteristics of each component of the system, they must be integrated to create an optimal and effective system for the businesses of Highland Park. Panels can be electrically wired depending on whether a desired voltage (series) or current (parallel) is more important. Other components of a photovoltaic system were not modeled individually as they will not influence energy generation but simply affect the total installation cost which is referenced in sections below. However, the design factors important to the entire solar panel system are included below in Table 4. Most of these assumptions were made based on information provided in the book Renewable and Efficient Electric Power Systems, except for the shading derate factor, which was obtained from NREL’s solar calculator PVWatts.xi
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C4
Table 4:Assumptions for PV systems characteristics based on optimization for Highland Park
Assumption Variable Value
Collector Tilt 40˚
Axis Tracking No, fixed tilt
Ground Cover Ratio 0.42
Shading Derate Factor 0.975
Azimuth Angle 180˚
C.3 Solar Availability The first step to calculating the amount of power a solar panel system can generate is to determine the solar availability inherent to the system’s location based on latitude. Solar availability of a region refers to the amount of solar energy radiating from the surface of the sun to that area and includes beam and diffuse radiation. Beam radiation is the dominant source of solar radiation, and passes in a direct line from the sun to the panel. Diffuse radiation refers to the light that has been scattered by molecules and aerosols in the atmosphere. For this model, we used NREL’s solar energy and cost calculator, PVWatts to estimate solar availibility .xii Based on Highland Park’s latitude of 42.42°N, PVWatts reports hourly solar irradiation in W/m2. PVWatts defaults to the closest TMY2 (typical meteorological year) weather data, which for Highland Park, is data collected from Detroit, MI. The data was collected between 1961 to 1990. Solar irradiation is also influenced by the tilt of the array (assuming fixed tilt) as well as the azimuth angle of the array (cardinal direction that it is facing). As stated in the previous section, we assumed that the array was fixed at a 40° tilt and faced directly south (azimuth angle of 180°).
Based on these assumptions and averaged TMY2 data, we compiled the solar availability in W/m2 for Highland Park on an hourly basis for each day of the year and calculated the average monthly irradiation. Table 5 displays the specific average irradiance used in the calculator to determine potential power output (multiply the average irradiation by total panel area and total hours of sunlight per month).
Understanding the Potential for Community Solar in Highland Park, Appendix C
C5
Table 5: Irradiance and monthly output data for latitude 42.42 deg N, obtained from PVWatts.xiii
Month Average Irradiance (W/m2)
January 117
February 145
March 172
April 203
May 232
June 234
July 227
Ausgust 238
September 209
October 164
November 106
December 87
C.4 Estimated Building Load To determine the significance of the solar array output, it is important to compare output to a site’s estimated load. In the instance that the user does not know the building load, the user can input building characteristics such as building type/activity and dimensions, and the model will report an estimated building load. This estimation is based on electricity consumption data from the EIA, which is reported by principal building activityxiv. Table 6 below lists the rate of electricity used per square foot for a variety of building types. The model therefore reports what percentage of total monthly building load is satisfied through the solar panels. If the user does not input building dimensions, the average building size for that building type (as suggested by the EIA) is assumed.
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C6
Table 6: Building Type and rate of electricity per square foot
Building Type Rate of Electricity Used (kWh/ft^2)
Religious 5.3
Office 15.9
Lodging 15.3
Food Service 45.1
Education 10.9
While there are more options studied from EIA, Highland Park and Soulardarity’s potential partners are stemming mostly from these categories. To estimate the monthly building load, data was collected from EIA for monthly electricity consumption in the commercial sector.xv Using this data, a trend for monthly usage was calculated and used to model electricity demand given by the user or estimated through assumptions from EIA.
C.5 Energy Output by Area
After determining the solar availability in W/m2, the next step in calculating total power output of the system was to consider the system size, for which ground cover ratio is required. Ground cover ratio (GCR) is defined as the ratio of collector area to total ground area covered by the panel. GCR takes into account the fact that the tilt angle of the panel decreases the surface area capable of receiving sunlight. Figure 1 can be used to estimate the ground cover ratio for various solar panel configurations based on shading derate factor. Assuming a shading derate factor of 0.975 and a fixed 40 deg tilt collector configuration, we determined that the GCR for the proposed system in Highland Park would be 0.42. We then calculated the collector area (which is the physical area of the panel capable of collecting solar energy) using the equation below from the ground area (model input) and assumed GCR.
��������� ���� (��!) = ��������� ���� (��!)
To determine the hourly solar availability in kWh, we multiplied the insolation value in W/m2 by the collector area. The hourly array output for the system was then determined by multiplying the solar availability by the efficiency of the panel. As highlighted earlier, the user has three panel types to choose from, with efficiencies ranging from 14.8% to 20%. The higher the efficiency, the greater the power output from the array. We summed the hourly array output over the total days of each
Understanding the Potential for Community Solar in Highland Park, Appendix C
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month to determine the monthly array output. In order to obtain the annual array output in DC, the temperature derate needed to be accounted for. The temperature derate factor accounts for the fact that solar panels have optimal operating temperatures, and an increase in the ambient temperature will cause the panel to generate less electricity.xvi The Community Solar Calculator accounts for this effect by determining a temperature derate factor for each month, based on the average temperature of each month, provided by U.S. Climate Data.xvii We used the following equations to calculate the temperature derate factor assuming a standard temperature of 25℃, an average normal operating condition temperature (NOCT) of 45.6℃, and an average temperature coefficient of -0.34%/℃.
(���� − 20)℃ ���� ���� (℃) = ���. ����ℎ�� ���� (℃) + ∗ � 0.8
����. ������ = 1 + ���. ���� �����. (%/℃)×[���� ���� (℃) − 25℃]
To determine the adjusted monthly output we multiplied the monthly derate factor (which actually produced an increase in power generation for months September through May due to temperatures colder than the standard temperature (25℃)) by the respective monthly array output. These monthly adjusted output values could then be summed to determine the annual power output produced by the array in DC. Then using the ILR, the electricity produced in AC could be determined. The model will also report the required system size, reported in kW, which is useful for cost estimations.
Figure 1: Shading derate factor versus GCR for a variety of solar panel configurations.xviii
Understanding the Potential for Community Solar in Highland Park, Appendix C C8
C.6 Area Output by Energy Demand To determine the amount of additional system area required to meet a desired energy demand (input by user), the model simply followed the reverse process described above to calculate the energy produced from array area. Assumptions related to tilt angle, ground cover ratio, and efficiency were held constant between Energy Output by Area and Area Output by Energy Demand calculations. We determined the annual amount of additional energy required by subtracting the produced amount of energy (from the available ground area) from the desired energy. We then proportioned out this annual amount by month after dividing out the temperature derate factor, and then by hour within each month. To calculate the hourly required solar availability in kWh we divided the hourly required array output by the panel efficiency, and then collector area could be calculated by dividing the hourly required solar availability (in kWh) by the solar insolation data provided by PVWatts. In the output tab, the calculator reports the required additional ground area required, which was determined by dividing out the assumed GCR of 0.42 from the collector area.
C.7 Environmental Factors and Project Lifetime The Community Solar Calculator assumes that there will be no losses from shading or soiling of the panels, but it does account for partial shading of the project by overlapping panel shadows when the sun is very low in the sky. It also calculates efficiency impacts of ambient temperature. Given Michigan’s colder climate, panels are expected to work more efficiently than standard test conditions.
The calculator uses National Renewable Energy Lab (NREL) industry standards to estimate panel degradation over time and panel lifetime. A recent NREL survey of studies found a median 0.5% degradation rate among panels, which is used within the calculator.xix The NREL’s Annual Technology Baseline specifies solar PV project economic lifetimes (the time over which the initial capital investment is paid off) at 20 years and its technical lifetime (the time over which the project is reliably functional) at 30 years.xx
C.8 Financial Considerations The community PPA model represents a partnership between project hosts and project owners, where both expect to receive a financial benefit from the generation of electricity. To be feasible,
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the project must not only produce energy; it must also generate value for the project owner and project host.. A ‘Cash Flow’ tab within the calculator specifies annual costs and benifits for each entity over the lifetime of the project.
C.8.1 Time Value of Money and Net Present Value Whenever capital is invested in a project, there are opportunity costs, or the other benefits that capital could’ve produced if it were used elsewhere. To determine whether a project would be a wise investment, investors often compare the estimated benefits of a proposed project against the benefits of a place-holder investment with average returns. For social projects, analysts might assume that a successful project would return 4% of the amount investment every year.xxi They could use this 4% figure against any proposed investment to evaluate whether the investment is wise or not. These placeholder project return rates are called discount rates.xxii
Comparing against an average yearly return is particularly helpful when costs and benefits are sustained at different time scales—for example, a project with a high up-front cost and long, drawn- out benefits. By comparing the benefits and costs of a project across its entire lifetime against the performance of a placeholder project with an average return rate, we can calculate a net present value, which clarifies with a quick glance whether a project would produce more or less value than a placeholder project.
The Community Solar Calculator compares the proposed community solar project against a 4% discount rate, which is between the 3% social discount rate and 7% market discount rate suggested by EPA.xxiii The sections of the ‘Cash Flow’ tab labelled ‘Discounted’ use the 4% discount rate, compounded annually. The totals at the bottom of the ledger represent net present value for both the project host and owner. Because discount rates tend to discount values further in the future greater than values in the near future, discounted projects will take longer to break even and show less total benefits.
C.8.2 Host The calculator estimates the total annual electricity production over the project’s lifetime, and estimates a typical utility retail electricity rate by starting with DTE-reported retail rates and applying a 2.5% annual inflationary factor. Using the annual estimated production and the retail price, the calculator estimates total avoided payment to the utility. Then, using a user-specified markdown rate, the project host pays the project owner for the electricity based on total electricity
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production. The difference between avoided payment to the utility and payment to the project owner represents the host’s annual benefit from solar.
C.8.3 Owner The project owner is assumed to be an entity formed by several investors, including Soulardarity’s Special Purpose Intity and potentially its members. The project owner is responsible for paying the up-front and operations & maintenance (O&M) costs for the project, but they also receive payment from the project host over the lifetime of the project.
While solar production over time is easier to model, it is difficult to accurately predict the costs of equipment and installation because of the wide variance between regions and vendors and the influence of ‘soft’ costs like developer overhead and installation labor. To account for that uncertainty, the calculator offers multiple options for estimating solar costs. The first is bottom-up cost based on the NREL’s 2017 first-quarter solar pricing benchmark.xxiv This benchmark includes individual estimates for cost of the solar panel system (modules, inverter, battery), installation, and operation and maintenance (O&M). Module options for the NREL model include ‘economy,’ ‘midrange,’ and ‘premium’ standards, which have different respective costs and energy conversion efficiencies. The ’soft’ costs refer to expenses that incurred during the installation and life of a solar panel system that aren’t directly associated with equipment. According to the NREL, depending on the size of the system, extra costs have a range of $1.29/kW (for 500-1000 kW systems) to $1.58/kW (for systems less than 100 kW in size).xxv Table 7 below summarizes the assumed costs for each of the components described above.
Table 7: Cost for solar panel system components
Variable Cost
Modulexxvi 0.32-0.44 ($/W)
Inverterxxvii 0.1 ($/W)
Battery (lifespan of 9 years)xxviii 147 ($/kWh)
Operation and Maintenancexxix 15 ($/kW)
Extra Costs (installation, EPC overhead, etc.)xxx 1.29-1.58 ($/kW)
The second approach to estimating costs is a composite based on a number of sample quotes from the EnergySage solar marketplace for Highland Park’s zipcode (48203). EnergySage offers a
Understanding the Potential for Community Solar in Highland Park, Appendix C
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simulation of what actual installed cost quotes from local solar developers might be, based on previous quotes by actual solar developers. An initial Highland Park query got quotes at around $3.30 per installed Watt of capacity. Additional versions of the Community Solar Calculator could include additinal options for pricing, including user-input pricing.
The total installed cost for each of these components is determined by multiplying the price per capacity($/Watt) by the specified system size. The owner is responsible for all upfront payment related to purchasing the panel components discussed above as well as installation, which all occur in “year zero,” indicating panel operation has not started. Total cost to the owner in “year zero” is therefore equal to the capital cost less the Federal Solar Investment Tax Credit (ITC), which here was assumed to be equal to 30% of the total upfront cost. In the first year of operation, O&M costs begin as well as payments from the host, and so total annual cash flow for the first year is payment from the host less the cost of O&M. This continues for every year after, except after every nine years of operation, it is assumed a new battery must be purchased, which reduces the net cash flow for those years. The 25 year cashflow is then discounted into today's dollars. The calculator shows in which year the owner will break even.
References
i “Selecting the Best Solar Panels.” EnergySage, www.energysage.com/solar/buyers-guide/types-of-solar- panels/. ii “Common Sizes of Solar Panels.” Brightstar Solar, 3 Apr. 2017, brightstarsolar.net/common-sizes-of-solar- panels/. iii “SolarPro Magazine.” Optimal PV-to-Inverter Sizing Ratio: Page 3 of 3 | SolarPro Magazine, solarprofessional.com/articles/design-installation/optimal-pv-to-inverter-sizing- ratio/page/0/2#.WgtfOltSyCg. iv Fu, Ran, and Donald Chung . U.S. Solar Photovoltaic System Cost Benchmark: Q1 2016. 2016, U.S. Solar Photovoltaic System Cost Benchmark: Q1 2016. v Ibid vi Commercial-Scale Battery Energy Storage (+ Solar PV) Primer. 2016, Commercial-Scale Battery Energy Storage (+ Solar PV) Primer. vii Albright, Greg, and Jake Edie. A Comparison of Lead Acid to Lithium-Ion in Stationary Storage Applications. 2012, A Comparison of Lead Acid to Lithium-Ion in Stationary Storage Applications. viii Battery Storage Technology Improvements and Cost Reductions to 2030: A Deep Dive . 2017, Battery Storage Technology Improvements and Cost Reductions to 2030: A Deep Dive . ix Commercial-Scale Battery Energy Storage (+ Solar PV) Primer. 2016, Commercial-Scale Battery Energy Storage (+ Solar PV) Primer. x Masters, Gilbert M. Renewable and Efficient Electric Power Systems, 2nd Edition. John Wiley & Sons, 2013. xi Ibid
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xii “PVWatts.” PVWatts Calculator, pvwatts.nrel.gov/index.php. xiii Ibid xiv Table C13. Total Electricity Consumption and Expenditures, 2012. 2016, Table C13. Total Electricity Consumption and Expenditures, 2012. xv “U.S. Energy Information Administration - EIA - Independent Statistics and Analysis.” Monthly Energy Review - Energy Information Administration, www.eia.gov/totalenergy/data/monthly/#consumption. xvi “The Effect of Temperature on Solar Panel Performance.” Solar Calculator Solar Panel Temperature Comments, solarcalculator.com.au/solar-panel-temperature/. xvii Data, US Climate. “Temperature - Precipitation - Sunshine - Snowfall.” Climate Detroit - Michigan and Weather Averages Detroit, www.usclimatedata.com/climate/detroit/michigan/united-states/usmi0229. xviii Masters, Gilbert M. Renewable and Efficient Electric Power Systems, 2nd Edition. John Wiley & Sons, 2013. xix Jordan, Dirk C, and Sarah R Kurtz. Photovoltaic Degradation Rates — An Analytical Review. 2012, Photovoltaic Degradation Rates — An Analytical Review. xx “Annual Technology Baseline 2017.” 2017 ATB, atb.nrel.gov/electricity/2017/index.html?t=sr. xxi Discounting Future Benefits and Costs. 2010, Discounting Future Benefits and Costs. xxii Ibid xxiii Ibid xxiv Fu, Ran, et al. U.S. Solar Photovoltaic System Cost Benchmark: Q1 2017 . 2017, U.S. Solar Photovoltaic System Cost Benchmark: Q1 2017 . xxv Ibid xxvi Technology Roadmap Solar Photovoltaic Energy. Technology Roadmap Solar Photovoltaic Energy. xxvii Fu, Ran, et al. U.S. Solar Photovoltaic System Cost Benchmark: Q1 2017 . 2017, U.S. Solar Photovoltaic System Cost Benchmark: Q1 2017 . xxviii Battery Storage Technology Improvements and Cost Reductions to 2030: A Deep Dive . 2017, Battery Storage Technology Improvements and Cost Reductions to 2030: A Deep Dive . xxix Fu, Ran, et al. U.S. Solar Photovoltaic System Cost Benchmark: Q1 2017 . 2017, U.S. Solar Photovoltaic System Cost Benchmark: Q1 2017 . xxx Ibid
Understanding the Potential for Community Solar in Highland Park, Appendix C
Appendix D
______Community Solar LLC Operating Agreement
This Operating Agreement (this "Agreement"), dated as of ______, 2013, of ______Community Solar LLC, a Maryland limited liability company (the "Company"), is made and entered into by and among the parties listed on Exhibit B attached to this Agreement.
RECITALS
A. The parties hereto have agreed to organize and operate a limited liability company in accordance with the terms of, and subject to the conditions set forth in, this Agreement in order to fund a solar electric generating system and to demonstrate that a community effort can make a contribution to reducing carbon emissions, increasing options for renewable energy sources, and capturing financial incentives for the benefit of all.
B. In accordance with subscription agreements between the parties hereto and the Company, the parties hereto have agreed to make certain investments in the Company pursuant and subject to the terms and conditions set forth therein.
C. The parties hereto desire to enter into this Agreement to regulate the affairs of the Company, the conduct of its business and the relations of the Members with respect thereto.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows:
Article 1 Defined Terms
Capitalized terms used in this Agreement shall, unless the context otherwise requires, have the meanings set forth in Exhibit A attached hereto.
Article 2 Formation and Name; Office; Purpose; Term
2.1 Organization. The parties hereto have formed the Company as a limited liability company pursuant to the Act and, for that purpose, caused the Articles of Organization to be filed with SDAT.
2.2 Name of the Company. The name of the Company shall be "______Community Solar LLC." The Company may do business under that name and under any other name or names upon which the Members agree. If the Company does business under a name other than that set forth in its Articles of Organization, then the Company shall file a trade name certificate as required by Applicable Law.
2.3 Purpose. The Company is organized to organize, develop, install, construct, own, operate, manage and sell community based solar projects and to do any and all things necessary, convenient, or incidental to that purpose.
2.4 Powers. Subject to all of the terms, agreements, conditions and limitations contained in this Agreement, the Company shall have all of the powers provided for in the Act, including all power and authority to enter into and perform contracts of any kind, and borrow money and issue evidences of indebtedness, whether or not secured by a mortgage, deed of trust, pledge or other lien.
2.5 Principal Office. The principal office of the Company in the State of Maryland shall be located at ______, ______, Maryland ______, or at any other place within the State of Maryland as the Members may from time to time designate in accordance with the Act. The Company may also maintain offices and places of business at such other place or places within or outside the State of Maryland as the Members deem advisable.
2.6 Resident Agent. The name and address of the Company’s resident agent in the State of Maryland shall be ______, ______, ______, Maryland ______. The Members may from time to time change the Company's registered agent in accordance with the Act.
2.7 Members. The name, present mailing address, taxpayer identification number, Capital Contribution and Percentage Interest of each Member are set forth in Exhibit B. The Management Committee shall update Exhibit B from time to time as necessary to reflect changes to the information therein. An amendment or revision to Exhibit B made in accordance with this Agreement shall not be deemed an amendment to this Agreement. Any reference in this Agreement to Exhibit B shall be deemed a reference to Exhibit B as amended and in effect from time to time
Article 3 Capital; Capital Accounts
3.1 Initial Capital Contributions. The Members shall each make a Capital Contribution to the Company of cash in the amount of at least ______Dollars ($______.00).
3.2 No Other Capital Contributions Required. No Member shall be required to contribute any additional capital to the Company, and except as set forth in the Act, no Member shall have any personal liability for any obligations of the Company.
3.3 No Interest on Capital Contributions. Interest Holders shall not be paid interest on their Capital Contributions.
3.4 Return of Capital Contributions. Except as otherwise provided in this Agreement, no Interest Holder shall have the right to receive the return of any Capital Contribution.
- 2 - 3.5 Form of Return of Capital. If an Interest Holder is entitled to receive a return of a Capital Contribution, the Company may distribute cash, notes, property, or a combination thereof to the Interest Holder in return of the Capital Contribution.
3.6 Capital Accounts. A separate Capital Account shall be maintained for each Interest Holder.
3.7 Loans. Any Member may, at any time, make or cause a loan to be made to the Company in any amount and on those terms upon which the Company and the Member agree.
3.8 Avoidance of Publicly-Traded Partnership Status.
3.8.1 To permit the Company to qualify for the benefit of a "safe harbor" under Code Section 7704, notwithstanding anything to the contrary in this Agreement, no Transfer of all or any portion of a Member's Interest shall be permitted or recognized by the Company (within the meaning of Regulation Section 1.7704-1(d)), and the Company shall not issue any Interest if and to the extent that the Transfer or issuance would cause the Company to have more than one hundred (100) partners (within the meaning of Regulation Section 1.7704-1(h), including the look-through rule in Regulation Section 1.7704-1(h)(3)).
3.8.2 Notwithstanding anything to the contrary in this Agreement, no Interest may be Transferred, and the Company may not issue any Interest, unless (i) the Transfer or issuance, as the case may be, shall not affect the Company’s existence or qualification as a limited liability company under the Act, (ii) the Transfer or issuance, as the case may be, shall not cause the Company to be classified as other than a partnership for United States federal income tax purposes, (iii) the Transfer or issuance, as the case may be, shall not result in a termination of the Company under Code Section 708, unless the Members determine that a termination will not have a material adverse impact on the Members and (iv) the Transfer or issuance, as the case may be, shall not cause the application of the tax-exempt use property rules of Code Sections 168(g)(1)(B) and 168(h) to the Company or the Members.
Article 4 Distributions
4.1 Distributions of Cash Flow. Cash Flow for each taxable year of the Company shall be distributed to the Interest Holders in proportion to their Percentage Interests no later than seventy-five (75) days after the end of the taxable year. All distributions shall be made to the Persons shown on the records of the Company to have been Interest Holders as of the last day of the taxable year for which the distribution is to be made.
4.2 Timing of Distributions. Subject to Section 4.1, the timing and amount of all distributions shall be determined by the Management Committee.
4.3 Amounts Withheld. All amounts withheld by the Company pursuant to the Code or any provision of Applicable Law with respect to any payment, distribution or allocation to any Interest Holder shall be remitted to the appropriate Governmental Authority, treated as amounts distributed to that Interest Holder pursuant to this Article 4 for all purposes under this Agreement and shall accordingly reduce by a corresponding amount distributions the Interest Holder would
- 3 - otherwise receive pursuant to this Article 4 or Article 8. Each Interest Holder agrees to furnish the Company with such certifications and forms as shall reasonably be requested by the Company to assist it in determining the extent of, and in fulfilling its withholding obligations.
4.4 Distributions in Kind. If any assets of the Company are distributed in kind to the Interest Holders, those assets shall be valued on the basis of their fair market value, and any Interest Holder entitled to any interest in those assets shall receive that interest as a tenant-in- common with all other Interest Holders so entitled. Unless the Members otherwise agree, the fair market value of the assets shall be determined by an independent appraiser who shall be selected by the Members.
4.5 Distributions upon Liquidation. Distributions made in conjunction with the final liquidation of the Company shall be applied or distributed as provided in Article 8.
Article 5 Allocations of Profits and Losses
5.1 Book Allocations. Unless otherwise provided in this Agreement, an allocation to a Member of a share of Profits or Losses and receipts from grants shall be treated as an allocation of the same share of each item of income, gain, grant, loss or deduction that is taken into account in computing Profits or Losses. After giving effect to the special allocations set forth in Section 5.2 and Section 5.3 and subject to Section 5.4 and Section 5.5, Profits, Losses and receipts from grants for any Allocation Year shall be allocated as follows:
(a) All items of Loss shall be allocated as follows:
(1) First, to the Members in the same manner and proportions as Profits and receipts from grants were previously allocated under Section 5.1(b)(2) to the extent of the aggregate Profits allocated pursuant to Section 5.1(b)(2) for all periods over the aggregate Losses allocated pursuant to this Section 5.1(a)(1) for all prior periods; and
(2) Second, to the Members in proportion to their Percentage Interests.
(b) All items of Profit and receipts from grants shall be allocated as follows:
(1) First, to the Members in the same manner and proportions as Losses were previously allocated under Section 5.1(a)(2) to the extent of the aggregate Losses allocated pursuant to Section 5.1(a)(2) for all periods over the aggregate Profits and receipts from grants allocated pursuant to this Section 5.1(b)(1) for all prior periods; and
(2) Second, to the Members in proportion to their Percentage Interests.
5.2 Special Allocations. The following special allocations shall be made in the following order:
(a) Company Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding any other provision of this Article 5, if there is a net decrease in Company Minimum Gain during any Allocation Year, each Member shall be
- 4 - allocated items of Company income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Member's share of the net decrease in Company Minimum Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 5.2(a) is intended to comply with the minimum gain chargeback requirement in Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
(b) Member Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Article 5, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Allocation Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be allocated items of Company income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 5.2(b) is intended to comply with the minimum gain chargeback requirement in Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(c) Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Regulations Section 1.704- 1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5), or Section 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of the Member as quickly as possible, provided that an allocation pursuant to this Section 5.2(c) shall be made only if and to the extent that the Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article 5 have been tentatively made as if this Section 5.2(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Member has a deficit Capital Account at the end of any Allocation Year that is in excess of the sum of the amount such Member is expressly obligated to restore pursuant to this Agreement and the amount such Member is deemed to be obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or either of the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), such Member shall be allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 5.2(d) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Article 5 have been made as if Section 5.2(c) and this Section 5.2(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Allocation Year shall be allocated to the Members in proportion to their respective Percentage Interests.
- 5 - (f) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for any Allocation Year shall be allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1).
(g) Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company asset, pursuant to Code Section 734(b) or Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of such Member's interest in the Company, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be allocated to the Members in accordance with their interests in the Company in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
5.3 Curative Allocations. The allocations set forth in Sections 5.2 and 5.4 (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss, or deduction. Therefore, notwithstanding any other provision of this Article 5 (other than the Regulatory Allocations), the Management Committee shall make (or cause to be made) such offsetting special allocations of Company income, gain, loss, or deduction in a manner so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Section 5.1.
5.4 Loss Limitation. Losses allocated pursuant to Section 5.1 shall not exceed the maximum amount of Losses that can be allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any Allocation Year. In the event some but not all of the Members would have Adjusted Capital Account Deficits as a consequence of an allocation of Losses pursuant to Section 5.1, the limitation set forth in this Section 5.4 shall be applied on a Member by Member basis and Losses not allocable to any Member as a result of such limitation shall be allocated to the other Members in accordance with the positive balances in such Members’ Capital Accounts so as to allocate the maximum permissible Losses to each Member under Regulations Section 1.704-1(b)(2)(ii)(d).
5.5 Other Allocation Rules.
5.5.1 For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Management Committee using any permissible method under Code Section 706 and the Regulations thereunder.
5.5.2 The Members are aware of the income tax consequences of the allocations made by this Article 5 and Article 8.
- 6 - 5.5.3 Solely for purposes of determining a Member's proportionate share of the "excess nonrecourse liabilities" of the Company within the meaning of Regulations Section 1.752-3(a)(3), the Members' interests in Company profits are in proportion to their Percentage Interests.
5.6 Tax Allocations; Code Section 704(c).
5.6.1 Except as otherwise provided in this Section 5.6, each item of income, gain, loss and deduction of the Company for federal, state, local and foreign tax purposes shall be allocated among the Members in the same manner as such items are allocated for book purposes under this Article 5 and Article 8. Any tax credits of the Company shall be allocated to the Members in proportion to their Percentage Interests.
5.6.2 In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Gross Asset Value (computed in accordance with the definition of Gross Asset Value) using the method described under Treasury Regulation Section 1.704-3(b).
5.6.3 In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraph (ii) of the definition of Gross Asset Value, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder using the allocation method described under Treasury Regulation Section 1.704-3(b).
5.6.4 Except as otherwise provided in Section 5.6.2 and 5.6.3 above, any elections or other decisions relating to the allocations described in this Section 5.6 shall be made by the Tax Matters Partner in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 5.6 are solely for purposes of federal, state, local, and foreign taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement.
5.6.5 To the extent the Code and the Regulations or other Applicable Law require allocations for tax purposes that differ from the foregoing allocations, the Tax Matters Partner, in its reasonable discretion, may determine the manner in which such tax allocations shall be made so as to comply more fully with the Code and such Regulations or other Applicable Law and, at the same time, preserve the economic relationships among the Members as otherwise set forth in this Agreement.
5.7 Tax Status; Tax Elections; Tax Matters Partner.
- 7 - 5.7.1 No election shall be made by the Company or any Member to have the Company excluded from the application of Subchapter K, Chapter 1 of Subtitle A of the Code or from any similar provisions of any other Applicable Law.
5.7.2 At the first meeting of the Members, the Members shall appoint one of the Members to be "Tax Matters Partner" of the Company under the Code and in any similar capacity under Applicable Law. If such Person ceases to be a Member, the Members shall promptly appoint a new Tax Matters Partner. The Tax Matters Partner shall cause the Company’s accountants to prepare all federal, state and local tax returns of the Company for each year for which such returns are required to be filed and shall cause such returns to be timely filed. To the extent not otherwise provided in this Agreement, the Tax Matters Partner shall have the authority to make all tax elections and other tax decisions on behalf of the Company; provided that the Tax Matters Partner shall follow the instruction of each Member with respect to the tax treatment of such Member’s distributive share of any cancellation of indebtedness income in case the Company makes an election under Code Section 108(i), in accordance with Revenue Procedure 2009-37 and any similar guidance issued by the Internal Revenue Service. The Tax Matters Partner shall have the right to extend the statute of limitations for assessment of tax deficiencies against the Members with respect to adjustments to the Company's federal, state, local, or foreign tax returns; and (ii) to the extent provided in Code Sections 6221 through 6234 and similar provisions of other Applicable Law, represent the Company and the Members before taxing authorities or courts of competent jurisdiction in tax matters affecting the Company or the Members in their capacities as members, and file any tax returns and execute any agreements or other documents relating to or affecting such tax matters, including agreements or other documents that bind the Members with respect to such tax matters or otherwise affect the rights of the Company and the Members and shall provide timely notice of any such action to the Members. The Tax Matters Partner is further authorized and required to represent the Company in connection with all examinations of the Company's affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith. The Members agree to cooperate with the Tax Matters Partner and to do or refrain from doing any or all things reasonably required by the Tax Matters Partner to conduct such proceedings. Any reasonable direct out-of-pocket expense incurred by the Tax Matters Partner in carrying out its obligations hereunder shall be allocated to and charged to the Company as an expense of the Company for which the Tax Matters Partner shall be reimbursed.
5.7.3 Each Member agrees that if it (i) treats, on its tax returns, any item of income, gain, loss, deduction, credit or expense relating to its Membership Interest in the Company in a manner inconsistent with the treatment of such item by the Company as reflected on the Company’s Internal Revenue Service Form 1065, the Internal Revenue Service Form 1065 (Schedule K-1) issued to such Member, or other information statement furnished by the Company to such Member for use in preparing such Member’s tax returns or (ii) files any claim for refund relating to any such item based on, or that would result in, such inconsistent treatment, it shall notify the Tax Matters Partner of such action within ninety (90) days after the filing of such relevant returns or refunds.
5.7.4 If so requested by any Member in a written notice to the Company (which notice may be delivered at any time prior to the filing of the U.S. federal income tax return for
- 8 - the last taxable year in which such Member is a Member of the Company), the Tax Matters Partner shall cause the Company to make an election under Section 754 of the Code.
5.7.5 The provisions of this Section 5.7 regarding tax matters shall survive the termination of this Agreement and the Transfer or termination of any Member’s Interest in the Company.
Article 6 Management: Rights, Powers, and Duties
6.1 Management.
6.1.1 The Company shall be managed by the Members as group, who shall have the full, and complete discretion, power, and authority, subject to the other provisions of this Agreement and the requirements of Applicable Law, to manage, control, administer, and operate the business and affairs of the Company for the purposes herein stated and to make all decisions concerning its business and affairs.
6.1.2 The provisions contained in this Section 6.1 supersede any authority granted to individual Members pursuant to Section 4A-401 of the Act. Any Member who takes any action or binds the Company without authorization by the Members or the Management Committee, as applicable, shall be solely responsible for any loss or expense incurred as a result of the unauthorized action and shall indemnify and hold the Company harmless with respect to the loss or expense.
6.2 Meetings of and Voting by Members
6.2.1 Annual meetings of the Members shall be held on such date, at such time and at such place as may be designated by the Management Committee, except that the first annual meeting of the Members shall be held at ______p.m. on ______, _____, at the Company’s principal office. At each annual meeting, the Members shall elect a Management Committee and may transact such other proper business as may come before the meeting.
6.2.2 Special meetings of the Members may be called at any time in the interval between annual meetings, by any Member. Special meetings of the Members shall be held at the Company’s principal office or at any other reasonable place in ______, Maryland, designated by the Member calling the meeting. Not less than ten (10) nor more than ninety (90) days before each meeting, the Member calling the meeting shall give written notice of the meeting to each Member. The notice shall state the time, place, and purpose of the meeting. Notwithstanding the foregoing provisions, each Member waives notice if before or after the meeting the Member signs a waiver of the notice which is filed with the records of Members’ meetings, or is present at the meeting in person or by proxy unless such attendance is solely for the express purpose of objecting, at the beginning of such meeting, to the transaction of any business because the meeting is not lawfully called or convened.
6.2.3 At a meeting of Members, the presence in person or by proxy of Members holding not less than one third of the total number of Members constitutes a quorum. A Member may vote either in person or by written proxy signed by the Member or by the Member’s duly
- 9 - authorized attorney in fact. Membership Rights in multiple names have one vote and only one vote and any one or more of the owners of such Membership Rights shall be deemed one person for the purposes of a quorum.
6.2.4 The affirmative vote of a majority of Members in attendance in person or by proxy shall be required to approve any matter coming before the Members at any meeting.
6.2.5 In lieu of holding a meeting, the Members may vote or otherwise take action by a written instrument indicating the consent of a simple majority of the Members.
6.2.6 If any vote is required on any matter under this Agreement, and there are neither sufficient votes to approve nor disapprove of the matter, then a Member may require that the matter be submitted to arbitration by three arbitrators in Baltimore County, Maryland, in accordance with the rules of the American Arbitration Association.
6.3 Personal Services. No Member shall be required to perform services for the Company solely by virtue of being a Member. Unless approved by the Members, no Member shall be entitled to compensation for services performed for the Company. However, upon substantiation of the amount and purpose thereof, the Members shall be entitled to reimbursement for expenses reasonably incurred in connection with the activities of the Company.
6.4 Duties of Members.
6.4.1 A Member shall not be liable, responsible, or accountable in damages or otherwise to the Company or to any other Member for any action taken or any failure conferred on the Member by this Agreement or by Applicable Law, unless the action taken or omission was made fraudulently or in bad faith or unless the action or omission constituted gross negligence.
6.4.2 Except as otherwise expressly provided in Section 6.4.3, nothing in this Agreement shall be deemed to restrict in any way the rights of any Member to conduct any other business or activity whatsoever, and no Member shall be accountable to the Company or to any other Member with respect to that business or activity even if the business or activity competes with the Company’s business. The organization of the Company shall be without prejudice to the Members’ respective rights (or the rights of their respective Affiliates) to maintain, expand, or diversify such other interests and activities and to receive and enjoy profits or compensation therefrom. Each Member waives any rights the Member might otherwise have to share or participate in such other interests or activities of any other Member or the Member’s Affiliates.
6.4.3 Each Member understands and acknowledges that the conduct of the Company’s business may involve business dealings and undertakings with Members and their Affiliates. In any of those cases, those dealings and undertakings shall be at arm’s length and on commercially reasonable terms.
6.5 Management Committee.
- 10 - 6.5.1 Delegation to Management Committee. Day-to-day operation of the business of the Company shall be delegated to a management committee made up of Members elected as Representatives by the Members in accordance with Section 6.5.2 (the "Management Committee"); provided, that the Management Committee shall carry out such day-to-day operations in a manner consistent with (a) any and all other Member-approved budgets, and (b) otherwise in accordance with the terms of this Agreement; and provided, further, that the Members shall oversee and manage the performance by the Management Committee and shall ultimately direct any powers which are to be exercised by the Management Committee; and provided, also, that if no Management Committee shall have been elected by the Members, then the Members shall manage the operations and business of the Company.
6.5.2 Number. The Management Committee shall consist of seven (7) of the Members (each, a "Representative"). At the first meeting of the Members and at each annual meeting thereafter, the Members shall elect Representatives to hold office until the next annual meeting or until their successors are elected and qualify, or until they sooner die, resign or are removed. At each annual meeting of Members, at which a quorum is present, the persons receiving a plurality of the votes cast shall be the Representatives.
6.5.3 Resignation; Removal; Vacancies. A Representative may resign as such by delivering written notice to that effect to the Members at least thirty (30) days prior to the effective date of such resignation. A Representative may be removed at any time and for any reason by the Members. In the event a vacancy on the Management Committee occurs as a result of the death, disability, resignation, removal or otherwise of a Representative, a meeting of the Members shall be held to elect a replacement and the person receiving a plurality of the votes cast at such meeting shall be the replacement Representative.
6.5.4 Chair. The chairperson of the Management Committee will be one of the appointed Representatives and will serve for a term of one (1) year and until his or her successor is appointed or until his or her earlier death, incapacity, resignation or removal. The chair shall be elected by the Management Committee, shall preside at all meetings of the Management Committee and shall have the same voting rights as any other Representative.
6.5.5 Quorum and Manner of Acting. Unless otherwise provided by Applicable Law, the presence of a majority of the Representatives then in office shall constitute a quorum for the transaction of business and the vote of a majority of the Representatives present at any meeting at which a quorum is present shall be the act of the Management Committee, except as may be otherwise specifically provided by Applicable Law or by the Articles of Organization. The Management Committee may hold meetings, both regular and special, at such place or places within or outside ______, Maryland as the Management Committee may from time to time determine.
6.5.6 Action by Written Consent. Any action may be taken without a meeting and without a vote if a consent in writing, setting forth the action so taken, shall be signed by all of the Representatives. Any action taken by the written consent of the Representatives shall have the same force and effect as if taken by the Representatives at a meeting.
- 11 - 6.5.7 Telephonic Meetings. Representatives may participate in any meeting of the Management Committee by means of a conference telephone or similar communication equipment by which all Representatives participating in the meeting can hear and speak to each other at the same time. Such participation shall constitute presence in person at the meeting.
6.5.8 Proxy. Any Representative may execute a written proxy in favor of any other Representative permitting such other Representative to vote at the Management Committee on behalf of such first Representative. In the event that a Representative is represented by proxy at any meeting of the Management Committee, such Representative shall be deemed to be present and voting in person for purposes of this Agreement.
6.5.9 Compensation of Representatives. Representatives shall not be entitled to compensation or remuneration. However, upon substantiation of the amount and purpose thereof, Representatives shall be entitled to reimbursement for expenses reasonably incurred in connection with the activities of the Company. The Representatives shall not be employees of the Company or entitled to receive any other compensation from the Company.
6.6 Matters Requiring Members Approval. Without limiting the generality of Section 6.5.1, decisions in connection with all of the following matters shall be determined by the Members pursuant to Section 6.2:
(a) amending, modifying or restating the Articles of Organization or this Agreement;
(b) selling, exchanging, leasing or otherwise transferring any assets of the Company except as set forth in a budget approved by the Members;
(c) admission of any new Member to the Company;
(d) entering into transactions with any Member or such Member’s Affiliate;
(e) participating in any mergers, consolidations, or other similar business combination;
(f) dissolving or winding up the Company;
(g) filing a voluntary bankruptcy petition on behalf of the Company;
(h) approving budgets;
(i) expenditures by the Company in excess of the amounts set forth in a budget approved by the Members;
(j) incurring indebtedness on behalf of the Company, including Member loans pursuant to Section 3.7 and financings, refinancings or creating Liens on any Company Assets;
- 12 - (k) entering into or terminating agreements with legal, tax, financial advisors, auditors, and insurance agents;
(l) investing or lending any funds, other than liquid short-term (not more than 180 days) investments of working capital or reserves using such financial institutions and instruments as have been approved by the Members and in amounts not to exceed $25,000;
(m) electing and removing Representatives;
(n) commencing or settling any litigation, arbitration or similar proceeding;
(o) establishing, increasing or decreasing any reserves;
(p) hiring or terminating any employee of the Company;
(q) entering into, amending or terminating Contracts;
(r) entering into a new business or market, changing the scope or nature of the existing business or the creation of any subsidiaries;
(s) agreeing to any confession of judgment against the Company;
(t) accepting or rejecting an Offer;
(u) any other matter that this Agreement provides is subject to the approval of the Members.
6.7 Liability and Indemnification.
6.7.1 Limitation on Liability. No Member or Representative shall be liable, responsible, or accountable, in damages or otherwise, to any other Member or to the Company for any act performed by the Member or Representative with respect to Company matters, except for fraud, gross negligence, or an intentional breach of this Agreement.
6.7.2 Indemnification. The Company shall indemnify, defend and hold harmless the Members and the Representatives and the heirs, executors, successors and assigns of each thereof (collectively, the “Indemnified Parties”) to the full extent permitted by Applicable Law from and against any and all losses, claims, demands, costs, damages, liabilities, joint and several, reasonable expenses of any nature (including reasonable attorneys’ fees and disbursements), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which such Indemnified Party may be involved, or threatened to be involved, as a party or otherwise, relating to acts or omissions of such Indemnified Party except for fraud, gross negligence, or an intentional breach of this Agreement.
6.7.2.1 The indemnification obligations contained in Section 6.7.2 will survive any dissolution of the Company until its affairs have been fully wound up and all of its properties and assets distributed in accordance with this Agreement.
- 13 - 6.7.2.2 If the Company is obligated hereunder to indemnify any Indemnified Party from any claim, suit, action or proceeding brought by any third party (a “Third Party Claim”), the Indemnified Party shall give notice as promptly as is reasonably practicable to the Indemnified Party of such Third Party Claim; provided that the failure of the Indemnified Party to give notice shall not relieve the Company of its obligations under this Section 6.7.2, except to the extent (if any) that the Company shall have been materially prejudiced thereby. The Company will have the right to control the defense and settlement of such Third Party Claim with counsel reasonably acceptable to the Indemnified Party, provided that (i) such Indemnified Party may retain counsel at its expense to assist in the defense and settlement of such Third Party Claim, and (ii) no settlement of any Third Party Claim will contain terms or provisions requiring the Indemnified Party to take any action or perform any undertaking, or prohibit or restrain the Indemnified Party from taking any action, without the written consent of the Indemnified Party.
6.7.2.3 Without the prior written consent of the Company, the Indemnified Party shall not accept any settlement or compromise of any claim, suit, action or proceeding of the nature referred to in 6.7.2.2 above.
6.7.2.4 Expenses incurred by an Indemnified Party in defending any claim, demand, action, suit or proceeding subject to this Section 6.7.2 shall be advanced by the Company prior to the final disposition of such claim, demand, action, suit, or proceeding upon receipt by the Company of a written commitment by or on behalf of such Indemnified Party to repay such amount if it shall be determined that such Indemnified Party is not entitled to be indemnified as authorized in this Section 6.7.2.
6.7.2.5 Notwithstanding the foregoing provisions, this Section 6.7.2 shall be enforced only to the maximum extent permitted by Applicable Law and no Indemnified Party shall be indemnified from any liability for fraud, gross negligence, or an intentional breach of this Agreement.
6.7.2.6 The provisions of this Section 6.7.2 are for the benefit of the Indemnified Parties only and shall not be deemed to create any rights for the benefit of any other Person.
6.7.2.7 In no event may an Indemnified Party subject the Members to personal liability by reason of the indemnification provisions of this Agreement.
Article 7 Transfer of Interests and Withdrawals of Members
7.1 Transfers.
7.1.1 No Person may Transfer all or any portion of or any interest or rights in such Person’s Membership Rights or Interest unless all of the following conditions ("Conditions of Transfer") are satisfied:
- 14 - (a) the Transfer will not require registration of Interests or Membership Rights under any federal or state securities laws;
(b) the Transfer will not result in the termination of the Company pursuant to Code Section 708;
(c) the Transfer will not result in the Company being subject to the Investment Company Act of 1940, as amended or any additional federal or State securities laws or regulations;
(d) the transferor or the transferee delivers the following information to the Company: (i) the transferee’s taxpayer identification number, and (ii) the transferee’s initial tax basis in the Transferred Interest;
(e) the Transfer is permitted in accordance with Section 3.8;
(f) the transferor complies with the provisions set forth in Section 7.1.3; and
(g) the transferee delivers to the Company a written agreement to be bound by the terms of this Article 7.
7.1.2 Each Member hereby acknowledges the reasonableness of the prohibition contained in this Section 7.1 in view of the purposes of the Company and the relationship of the Members. The Transfer of any Membership Rights or Interests in violation of the restrictions contained in this Section 7.1 shall be deemed invalid, null and void, and of no force or effect. Any Person to whom Membership Rights are attempted to be transferred in violation of this Section shall not be entitled to vote on matters coming before the Members, be elected as a Representative or otherwise participate in the management of the Company, act as an agent of the Company, receive distributions from the Company, or have any other rights in or with respect to the Membership Rights.
7.1.3 Right of First Refusal.
7.1.3.1 If a Member (individually, a "Transferor") receives a bona fide written offer that the Member desires to accept (the "Transferee Offer") from any other Person (a "Transferee") to purchase all or any portion of or any interest or rights in the Transferor’s Membership Rights (the "Transferor Interest"), then, prior to any Transfer of the Transferor Interest, the Transferor shall give the Company written notice (the "Transfer Notice") containing each of the following:
(a) the Transferee’s identify;
(b) a true and complete copy of the Transferee Offer; and
(c) the Transferor’s offer (the "Offer") to sell the Transferor Interest to the Company for a price equal to that contained in the Transferee Offer (or the US dollar equivalent if such price is not in US
- 15 - dollars) (the "Transfer Purchase Price") and on the terms and conditions set forth in the Transferee Offer.
7.1.3.2 The Offer shall be and remain irrevocable for a period (the "Offer Period") ending at 11:59 P.M., local time at the Company’s principal office, on the sixtieth (60th) day following the date the Transfer Notice is given to the Company. At any time during the Offer Period, the Company may accept the Offer by giving written notice to the Transferor of its acceptance (the "Offeree Notice"). The Transferor shall not be deemed a Member for the purpose of the vote on whether the Company shall accept the Offer. If the Company accepts the Offer, the Offeree Notice shall fix a closing date (the "Transfer Closing Date") for the purchase, which shall not be earlier than thirty (30) or more than ninety (90) days after the expiration of the Offer Period.
7.1.3.3 If the Company accepts the Offer, the Transfer Purchase Price shall be paid in immediately available funds on the Transfer Closing Date unless the Company elects prior to or on the Transfer Closing Date to pay the Transfer Purchase Price on an installment basis, in which event the Company shall evidence the obligation to pay the Transfer Purchase Price by executing and delivering a promissory note to the Transferor. The terms of such promissory note shall be for no more than five (5) equal installments to be paid annually, with simple interest computed at the Prime Rate as of the date the promissory note is signed.
7.1.3.4 If the Company rejects the Offer or fails to accept the Offer within the time and in the manner specified in Section 7.1.3.2, then the Transferor shall be entitled, for a period of thirty (30) days after the expiration of the Offer Period (the "Free Transfer Period"), to Transfer the Transferor Interest to the Transferee, for the same or greater price and on the same terms and conditions as set forth in the Transfer Notice. The Transfer shall be subject to the Conditions of Transfer (other than 7.1.1(f)).
7.1.3.5 Any Transfer by the Transferor after the last day of the Free Transfer Period or without strict compliance with the terms, provisions, and conditions of this Section and the other terms, provisions, and conditions of this Agreement shall be null and void and of no force or effect.
7.1.4 Admission of Transferee as Member. If the Conditions of Transfer are satisfied, then the transferee shall be admitted as a Member and shall be entitled to exercise the rights of a Member after the consent of a majority of Members, other than the Member whose Interest is being transferred.
7.2 Voluntary Withdrawal. No Member shall have the right or power to Voluntarily Withdraw from the Company.
7.3 Involuntary Withdrawal. Immediately upon the occurrence of an Involuntary Withdrawal, the successor of the withdrawn Member shall thereupon become an Interest Holder but shall not become a Member. The successor Interest Holder shall have all and only the rights of an Interest Holder. The withdrawn Member shall not be entitled to receive the fair value of the withdrawn Member's Membership Rights as of the date of Involuntary Withdrawal under Section 4A-606.1 of the Act.
- 16 - Article 8 Dissolution, Liquidation, and Termination of the Company
8.1 Limitations. The Company may be dissolved, liquidated, and terminated only pursuant to the provisions of this Article 8 and the Members hereby irrevocably waive any and all other rights they may have to cause a dissolution of the Company or a sale or partition of any or all of the Company Assets.
8.2 Exclusive Causes. Notwithstanding the Act, the following and only the following events shall cause the Company to be dissolved, liquidated, and terminated:
(a) the unanimous consent of the Members;
(b) entry of a decree of judicial dissolution of the Company under Section 4A- 903 of the Act; and
(c) the sale of all or substantially all of the Company Assets.
The bankruptcy or dissolution of a Member, or the occurrence of any other event that terminates the continued membership of a Member in the Company, shall not cause a dissolution of the Company.
8.3 Effect of Dissolution. The dissolution of the Company shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company shall not terminate until it has been wound up and its assets have been distributed as provided in Section 8.5. Notwithstanding the dissolution of the Company, prior to the termination of the Company, the business of the Company and the affairs of the Members, as such, shall continue to be governed by this Agreement.
8.4 Deficit Capital Accounts. Each Member shall look solely to the Company Assets for all distributions with respect to the Company, its Capital Contribution thereto, its Capital Account and its share of Profits, Losses or grants, and shall have no recourse therefore (upon dissolution or otherwise) against any other Member. If any Member has a deficit balance in its Capital Account, such Member shall have no obligation to make any contribution to the capital of the Company with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purpose whatsoever.
8.5 Liquidation. Upon dissolution of the Company, the Management Committee (or, in the event there are no remaining members of the Management Committee, any Person designated by the Members) shall act as "Liquidator" of the Company. The Liquidator shall liquidate the assets of the Company, and after allocating (pursuant to Article 5) all income, gain, loss, deductions, and credits resulting therefrom, shall apply and distribute the proceeds thereof and all other Company Assets, including available cash, as follows:
(a) First, to the payment of the obligations of the Company, to the expenses of liquidation, and to the setting up of any reserves for contingencies which the Liquidator may consider necessary.
- 17 - (b) Thereafter, the then remaining Company Assets, including cash and cash equivalents, shall be distributed to the Members in proportion to the positive balances in the Members’ respective Capital Accounts, determined after taking into account all Capital Account adjustments for the Company Allocation Year during which such liquidation occurs (other than the distributions made pursuant to this Section 8.5(b)), by the end of the Allocation Year in which such liquidation occurs or, if later, within 90 days after the date of the liquidation.
8.6 Compliance with Certain Requirements of Regulations. In the event the Company is "liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made in accordance compliance with Section 8.5. In the discretion of the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Members pursuant to this Article 8 may be distributed to a trust established for the benefit of the Members for the purposes of liquidating Company assets, collecting amounts owed to the Company, and paying any contingent or unforeseen liabilities or obligations of the Company. The assets of any such trust shall be distributed to the Members from time to time, in the reasonable discretion of the Liquidator, in the same proportions as the amount distributed to such trust by the Company would otherwise have been distributed to the Members pursuant to Section 8.5.
8.7 Deemed Contribution and Distribution. In the event the Company is "liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no event of dissolution has occurred, the assets shall not be liquidated, the Company's debts and other liabilities shall not be paid or discharged, and the Company's affairs shall not be wound up. Instead, solely for tax purposes, the Company shall be deemed to have contributed all assets and liabilities to a new limited liability company in exchange for an interest in such new limited liability company and, immediately thereafter, the Company will be deemed to liquidate by distributing interests in the new limited liability company to the Members.
8.8 Character of Liquidating Distributions. All payments made in liquidation of the Membership Interest of a Member in the Company shall be made in exchange for the interest of such Member in property pursuant to Code Section 736(b)(1), including the interest of such Member in Company goodwill.
8.9 Filing of Articles of Cancellation. If the Company is dissolved, the Liquidator shall file Articles of Cancellation with SDAT.
Article 9 Books, Records, Accounting, and Tax Elections
9.1 Bank Accounts. All funds of the Company shall be deposited in a bank account or accounts opened in the Company’s name. The Management Committee shall determine the institution or institutions at which the accounts will be opened and maintained, the types of accounts, and the Persons who will have authority with respect to the accounts and the funds therein.
9.2 Books and Records. The Management Committee shall keep or cause to be kept complete and accurate books and records of the Company and supporting documentation of the transactions with respect to the conduct of the Company’s business. The books and records shall
- 18 - be maintained in accordance with sound accounting principles and practices and shall be available at the Company’s principal office for examination by any Member or the Member’s duly authorized representative at any and all reasonable times during normal business hours.
9.3 Annual Accounting Period. The annual accounting period of the Company shall be its taxable year. The Company’s taxable year shall be selected by the Members, subject to the requirements and limitations of the Code.
9.4 Reports. Within seventy-five (75) days after the end of each taxable year of the Company, the Management Committee shall cause to be sent to each Person who was a Member at any time during the taxable year then ended a complete accounting of the affairs of the Company for the taxable year then ended. In addition, within seventy-five (75) days after the end of each taxable year of the Company, the Management Committee shall cause to be sent to each Person who was an Interest Holder at any time during the taxable year then ended, that tax information concerning the Company which is necessary for preparing the Interest Holder’s income tax returns for that year. At the request of any Member, and at the Member’s expense, the Management Committee shall cause an audit of the Company’s books and records to be prepared by independent accountants for the period requested by the Member.
Article 10 General Provisions
10.1 Further Assurances. Each Member shall execute all such certificates and other documents and shall do all such filing, recording, publishing, and take such other acts as the Members deem appropriate to comply with the requirements of Applicable Law for the formation and operation of the Company and to comply with any laws, rules, and regulations relating to the acquisition, operation, or holding of the property of the Company.
10.2 Notifications. Any notice, demand, consent, election, offer, approval, request, or other communication (collectively, a "notice") required or permitted under this Agreement must be in writing and either delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested. A notice must be addressed to an Interest Holder at the Interest Holder’s last known address on the records of the Company. A notice to the Company must be addressed to the Company’s principal office. A notice delivered personally will be deemed given only when acknowledged in writing by the person to whom it is delivered. A notice that is sent by mail will be deemed given three (3) business days after it is mailed. Any party may designate, by notice to all of the others, substitute addresses or addressees for notices; and, thereafter, notices are to be directed to those substitute addresses or addressees.
10.3 Governing Law. This Agreement shall be construed and interpreted in accordance with the internal law of the State of Maryland, excluding its conflict of laws rules
10.4 Jurisdiction and Venue. Any suit involving any dispute or matter arising under this Agreement may only be brought in the United States District Court for the District of Maryland or any Maryland State Court having jurisdiction over the subject matter of the dispute or matter. All Members hereby consent to the exercise of personal jurisdiction by any such court with respect to any such proceeding.
- 19 - 10.5 WAIVER OF RIGHT TO JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, AND AS SEPARATELY BARGAINED-FOR CONSIDERATION, THE COMPANY AND EACH INTEREST HOLDER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATING TO THIS AGREEMENT.
10.6 Specific Performance. The parties recognize that irreparable injury will result from a breach of any provision of this Agreement and that money damages will be inadequate to fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of the provisions of this Agreement, any party who may be injured (in addition to any other remedies which may be available to that party) shall be entitled to one or more preliminary or permanent orders (i) restraining and enjoining any act which would constitute a breach or (ii) compelling the performance of any obligation which, if not performed, would constitute a breach.
10.7 Complete Agreement. This Agreement, including its Exhibits, and the subscription agreements referenced in the recitals hereto, constitute the complete and exclusive statement of the agreement among the Members with respect to the subject matter hereof, and supersede all prior written and oral statements, including any prior representation, statement, condition, or warranty, with respect to such subject matter.
10.8 Headings and Construction. No rule of construction will be applied to the disadvantage of a party because that party was responsible for the preparation of this Agreement or any part hereof. The Article and Section headings in this Agreement are for convenient reference only, and will be given no substantive or interpretive effect. With respect to all terms used in this Agreement, words used in the singular include the plural and words used in the plural include the singular. The word “including” means “including, without limitation,” and the words “herein”, “hereby”, “hereto” and “hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (i) to Articles, Sections and Exhibits mean the Articles and Sections of and the Exhibits attached to this Agreement; (ii) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time, to the extent provided by the provisions thereof and by this Agreement; and (iii) to a statute or a regulation mean such statute or regulation as amended from time to time.
10.9 Binding Provisions. This Agreement is binding upon, and inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors, and permitted assigns.
10.10 Separability of Provisions. Each provision of this Agreement shall be considered separable; and if, for any reason, any provision or provisions herein are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Agreement which are valid.
10.11 Counterparts. This Agreement may be executed simultaneously in two or more counterparts each of which shall be deemed an original, and all of which, when taken together,
- 20 - constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart.
10.12 No Third Party Beneficiaries. It is expressly understood that the provisions of this Agreement do not impart enforceable rights in anyone who is not a party or a successor or permitted assign of a party hereto.
- 21 - IN WITNESS WHEREOF, the parties have executed, or caused this Agreement to be executed, under seal, as of the date set forth hereinabove.
WITNESS: MEMBERS:
______Name: Name:
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______Name: Name:
______Name: Name:
______Name: Name:
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______Name: Name:
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______Name: Name:
- 22 -
______Name: Name:
______Name: Name:
______Name: Name:
______Name: Name:
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- 23 - ______Community Solar LLC Operating Agreement Exhibit A Defined Terms
"Act" means the Maryland Limited Liability Company Act, as amended from time to time.
"Adjusted Capital Account Deficit" means, with respect to any Interest Holder, the deficit balance, if any, in the Interest Holder’s Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments:
(i) deficit shall be decreased by the amounts which the Interest Holder is deemed obligated to restore pursuant to Regulation Sections 1.704-2(g)(1) and (i)(5) (i.e., the Interest Holder’s share of Minimum Gain and Member Minimum Gain); and
(ii) the deficit shall be increased by the items described in Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), and (6).
" Affiliate" means, with respect to a specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Person specified. For purposes of this Agreement, the term "control" (including its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise).
"Agreement" means the Operating Agreement of the Company, as amended from time to time.
"Allocation Year" means (i) the period commencing on the date of this Agreement and ending on December 31, 20__, (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31, (iii) any portion of the periods described in clause (i) or (ii) for which the Company is required to allocate Profits, Losses, and other items of Company income, gain, loss, deduction, or credit pursuant to Article 5 or 8, or (iv) for the final Allocation Year, the period commencing on the day after the end of the previous Allocation Year and ending on the date of liquidation of the Company.
"Applicable Law" means any statute, law, ordinance, executive order, rule, or regulation (including a regulation that has been formally promulgated in a rule making proceeding but, pending final adoption, is in proposed or temporary form having force of law); guideline, or notice having force of law; or approval, permit, license, franchise, judgment, order, decree, injunction, or writ of any Governmental Authority applicable to a specified Person or specified property, as in effect from time to time.
- 24 - "Articles of Organization" means the Articles of Organization of the Company prepared, executed and filed with SDAT on ______, ______, as amended by Articles of Amendment executed and filed with SDAT on ______, ______.
"Capital Account" means, with respect to any Member, the Capital Account maintained for such Member in accordance with Regulations Section 1.704-1(b)(2)(iv), which includes, among other things, the following rules:
(i) To each Member's Capital Account there shall be credited (A) such Member's Capital Contribution, (B) such Member's distributive share of Profits allocated pursuant to Section 5.1 and any items in the nature of income or gain that are specially allocated to such Member pursuant to Section 5.2 or Section 5.3, and (C) the amount of any Company liabilities assumed by such Member or that are secured by any property distributed to such Member;
(ii) To each Member's Capital Account there shall be debited (A) the amount of money and the Gross Asset Value of any property distributed to such Member pursuant to any provision of this Agreement, (B) such Member's distributive share of Losses allocated pursuant to Section 5.1 and any items in the nature of expenses or losses that are specially allocated to such Member pursuant to Section 5.2 or Section 5.3, and (C) the amount of any liabilities of such Member assumed by the Company or that are secured by any property contributed by such Member to the Company;
(iii) In the event Membership Interests (or any portions thereof) are transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Membership Interests (or portions thereof); and
(iv) In determining the amount of any liability for purposes of subparagraphs (i) and (ii) above there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Members Committee shall determine that it is prudent to modify the manner in which the Capital Accounts are maintained, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities that are secured by contributed or distributed property or that are assumed by the Company or any Members), the Members Committee may make such modification, provided that it is not likely to have a material effect on the amounts distributed to any Person pursuant to Article 8 upon the liquidation of the Company. The Management Committee also shall (a) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of capital reflected on the Company's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704- 1(b)(2)(iv)(q) and (b) make any appropriate modifications if unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b).
- 25 - "Capital Contribution" means the total amount of cash and the fair market value of any other assets contributed (or deemed contributed under Regulation Section 1.704-1(b)(2)(iv)(d)) to the Company by a Member, net of liabilities assumed or to which the assets are subject.
"Cash Flow" means all cash funds derived from operations of the Company (including interest received on reserves), without reduction for any noncash charges, but less cash funds used to pay current operating expenses and to pay or establish reasonable reserves for future expenses, debt payments, capital improvements, and replacements as determined by the Members. Cash Flow shall be increased by the reduction of any reserve previously established.
“Company Assets” means all direct and indirect interests in real and personal property owned by the Company from time to time, and shall include both tangible and intangible property (including cash).
"Company Minimum Gain" has the same meaning as the term "partnership minimum gain" in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
"Conditions of Transfer" has the meaning set forth in Section 7.1 of the Agreement.
"Contract" means any agreement, contract, understanding, lease, sublease, easement, license, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding, including any responses to request for proposals, applications for permits, approvals and licenses, any binding or non-binding letter of intent, memorandum of understanding or letter of intent and any and all change orders and amendments to the foregoing.
"Member" means each Person signing this Agreement as a Member and each Person who subsequently is admitted as a Member.
"Code" means the Internal Revenue Code of 1986, as amended, or any corresponding provision of any succeeding law.
"Company" means the limited liability company organized in accordance with the Agreement.
"Depreciation" means, for each Allocation Year, an amount equal to the federal income tax depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Allocation Year, except that (i) with respect to any asset the Gross Asset Value of which differs from its adjusted tax basis for federal income tax purposes, which difference is being eliminated by use of the "remedial method" pursuant to Regulations Section 1.704-3(d), Depreciation for such year shall be the amount of book basis recovered for such Allocation Year under the rules prescribed by Regulations Section 1.704-3(d)(2), and (ii) with respect to any other asset the Gross Asset Value of which differs from its adjusted basis for federal income tax purposes at the beginning of such Allocation Year, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Allocation Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Allocation Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the
- 26 - Members Committee. Any such calculation of Depreciation shall be in accordance with and as allowed under the Company’s FERC tariff rate.
"Free Transfer Period" has the meaning set forth in Section 7.1 of the Agreement.
"Governmental Authority" means any national, state, District of Columbia or local government, any political subdivision thereof or any other governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body, agency, department, bureau, commission or entity, or any arbitrator with authority to bind a party at law.
"Gross Asset Value" means with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows:
(i) The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values (taking Code Section 7701(g) into account), as determined by the Management Committee, as of the following times: (A) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (B) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; (C) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and (D) at such other times described in Regulations Section 1.704-1(b)(2)(iv)(f)(5); provided that an adjustment described in clauses (A), (B), and (D) of this paragraph shall be made only if the Management Committee reasonably determines that such adjustment is necessary to reflect the relative economic interests of the Members in the Company;
(ii) The Gross Asset Value of any item of Company assets distributed to any Member shall be adjusted to equal the gross fair market value of such asset on the date of distribution as determined by the Management Committee; and
(iii) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to (A) Regulations Section 1.704-1(b)(2)(iv)(m) and (B) subparagraph (vi) of the definition of "Profits" and "Losses" or Section 5.2(g); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv) to the extent that an adjustment pursuant to subparagraph (ii) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraph (i), (ii), or (iv), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Profits and Losses.
"Interest" means a Person’s share of the Profits, Losses and receipts from grants of, and the right to receive distributions from, the Company.
- 27 - "Interest Holder" means any Person who holds an Interest, whether as a Member or as an unadmitted assignee of a Member.
"Involuntary Withdrawal" means, with respect to any Member, the occurrence of any of the events set forth in Act Section 4A-606(3) through (9).
“Lien” means any lien, mortgage, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any lien or security interest).
"Management Committee" has the meanings set forth in Section 6.5 of the Agreement.
"Member Minimum Gain" has the meaning set forth in Regulation Section 1.704-2(i) for "partner nonrecourse debt minimum gain."
"Member Nonrecourse Debt" has the same meaning as the term "partner nonrecourse debt" in Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).
"Member Nonrecourse Deductions" has the same meaning as the term "partner nonrecourse deductions" in Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).
"Membership Rights" means all of the rights of a Member in the Company, including a Member’s: (i) Interest, (ii) right to inspect the Company’s books and records, and (iii) right to participate in the management of and vote on matters coming before the Company.
"Minimum Gain" has the meaning set forth in Regulation Section 1.704-2(d). Minimum Gain shall be computed separately for each Interest Holder in a manner consistent with the Regulations under Code Section 704(b).
"Offer" has the meaning set forth in Section 7.1 of the Agreement.
"Offer Period" has the meaning set forth in Section 7.1 of the Agreement.
"Offeree Notice" has the meaning set forth in Section 7.1 of the Agreement.
"Percentage Interest" means, with respect to each Member, the percentage set forth opposite such Member’s name on Exhibit B, as such percentage interest may be adjusted in accordance with the terms hereof from time to time.
"Person" means and includes an individual, corporation, partnership, association, limited liability company, trust, estate, or other entity.
- 28 - "Profit" and "Loss" means, for each taxable year of the Company (or other period for which Profit or Loss must be computed), the Company’s taxable income or loss determined in accordance with Code Section 703(a), with the following adjustments:
(iv) all items of income, gain, loss, deduction, or credit required to be stated separately pursuant to Code Section 703(a)(1) shall be included in computing taxable income or loss;
(v) any tax-exempt income of the Company, not otherwise taken into account in computing Profit or Loss, shall be included in computing taxable income or loss;
(vi) any expenditures of the Company described in Code Section 705(a)(2)(B) (or treated as such pursuant to Regulation Section 1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing Profit or Loss, shall be subtracted from taxable income or loss;
(vii) gain or loss resulting from any taxable disposition of Company property shall be computed by reference to the adjusted book value of the property disposed of, notwithstanding the fact that the adjusted book value differs from the adjusted basis of the property for federal income tax purposes;
(viii) in lieu of the depreciation, amortization, or cost recovery deductions allowable in computing taxable income or loss, there shall be taken into account the depreciation computed based upon the adjusted book value of the asset; and
(ix) notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 5.3 of the Agreement shall not be taken into account in computing Profit or Loss.
"Regulation" means the income tax regulations, including any temporary regulations, from time to time promulgated under the Code.
"Regulatory Allocations" has the meaning set forth in Section 5.3 of the Agreement.
"Representative" has the meaning set forth in Section 6.5 of the Agreement
"SDAT" means the State Department of Assessments and Taxation of Maryland.
"Tax Matters Partner" means the Member designated as Tax Matters Partner pursuant to this Agreement.
"Transfer" means, when used as a noun, any voluntary sale, hypothecation, pledge, assignment, attachment, or other transfer, and, when used as a verb, means voluntarily to sell, hypothecate, pledge, assign, or otherwise transfer.
"Transfer Closing Date" has the meaning set forth in Section 7.1 of the Agreement.
"Transfer Notice" has the meaning set forth in Section 7.1 of the Agreement.
- 29 - "Transfer Purchase Price" has the meaning set forth in Section 7.1 of the Agreement.
"Transferee" has the meaning set forth in Section 7.1 of the Agreement.
"Transferee Offer" has the meaning set forth in Section 7.1 of the Agreement.
"Transferor" has the meaning set forth in Section 7.1 of the Agreement.
"Transferor Interest" has the meaning set forth in Section 7.1 of the Agreement.
"Voluntary Withdrawal" means a Member’s dissociation with the Company by means other than a Transfer or an Involuntary Withdrawal.
- 30 - ______Community Solar LLC Operating Agreement Exhibit B List of Members and Capital
Name Address Taxpayer I.D. Capital Percentage Contribution Interest
- 31 -
POWER PURCHASE AGREEMENT
between
______COMMUNITY SOLAR LLC
and
HOST Site
Dated as of ______, 20__
TABLE OF CONTENTS
PAGE
ARTICLE 1 - DEFINITIONS AND RULES OF INTERPRETATION ...... 4 1.1 Rules of Construction ...... 4 1.2 Definitions...... 5
ARTICLE 2 - TERM AND TERMINATION ...... 8 2.1 Term...... 8 2.2 Initial Period...... 8 2.3 Operations Period...... 8
ARTICLE 3 - FACILITY & OWNERSHIP ...... 8 3.1 Commercial Operation Date ...... 8 3.2 Facility Description ...... 8 3.3 Legal Ownership...... 8
ARTICLE 4 – CONSTRUCTION, ACCESS & OPERATION ...... 8 4.1 Contracting ...... 8 4.2 Permitting...... 9 4.3 Seller & Installer Access...... 9 4.4 Time of Work...... 9 4.5 Security...... 9 4.6 Site Modification...... 9 4.7 Emergency Repairs...... 9 4.8 Maintenance Shutdowns...... 9 4.9 Site Condition Shutdowns...... 9 4.10 Host Shutdown...... 9
ARTICLE 5 – PURCHASE & SALE OF ELECTRICITY ...... 10 5.1 Electricity Purchase...... 10 5.2 Net Metering...... 10 5.3 Supplemental Energy...... 10
ARTICLE 6 – ELECTRICITY PURCHASE PRICE ...... 10 6.1 Rate Schedule...... 10
ARTICLE 7 - BILLING AND PAYMENT ...... 10 7.1 Billing Invoices ...... 10 7.2 Payments ...... 10 7.3 Account Information ...... 11 7.4 Records; Auditing...... 11
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ARTICLE 8 – SUPPLEMENTAL POWER, NET METERING, SRECS ...... 11 8.1 Excess Needs...... 11 8.2 Incentives...... 11 8.3 SRECS...... 11 8.4 Capacity...... 11 8.5 Required Information...... 12
ARTICLE 9 - DONATION OPTION...... ERROR! BOOKMARK NOT DEFINED. 9.1 Donation of Facility to host by Seller ...... 12
ARTICLE 10 - CLOSURE OF PREMISES ...... 12
ARTICLE 11 - SALE OF SITE, ...... ERROR! BOOKMARK NOT DEFINED. 11.1 Sale of Site...... Error! Bookmark not defined.
ARTICLE 12 – DECOMMISSIONING & REMOVAL ...... 12
ARTICLE 13 – PERMITS & APPROVALS ...... 12 13.1 Consents & Approvals...... 12 13.2 Government Approvals...... 12 13.3 Host Consents...... 12
ARTICLE 14 – TAXES ...... 12 14.1 Facility Tax Liabilities...... 12 14.2 Facility Tax Assets...... 12 14.3 Taxes on Electricity...... 13 14.4 Ad Valorem & Property Taxes...... 13
ARTICLE 15 – INSURANCE ...... 13 15.1 Insurance Requirements...... 13
ARTICLE 16 – INDEMNIFICATION ...... 13
ARTICLE 17 – LIMITATION ON DAMAGES...... 13
ARTICLE 18 – DISPUTE RESOLUTION ...... 14 18.1 Dispute Negotiation...... 14 18.2 Non-Binding Mediation...... 14 18.3 Arbitration...... 14
ARTICLE 19 – REPRESENTATIONS AND WARRANTIES ...... 14 19.1 Mutual Representations and Warranties...... 14
ARTICLE 20 - DELIVERY AND METERING ...... 15 20.1 Delivery...... 15 20.2 Title and Risk of Loss ...... 15 20.3 Metering ...... 15 20.4 Annual Testing...... 15 2
20.5 Additional Testing...... 16
ARTICLE 21 - DEFAULT AND REMEDIES ...... 16 21.1 Events of Default...... 16 21.2 Damages and Termination ...... 16 21.3 Waiver and Exclusion of Other Damages...... 16 21.4 Duty to Mitigate ...... 17
ARTICLE 22 – FORCE MAJEURE ...... 17 22.1 Definition of Force Majeure...... 17
ARTICLE 23 – NOTICES ...... 17
ARTICLE 24 – MISCELLANEOUS ...... 18 24.1 Change of Law ...... 18 24.2 Continuing Effect...... 18 24.3 Governing Law...... 18 24.4 Assignment...... 18 24.5 Waiver ...... 18 24.6 Relationship of the Parties ...... 18 24.7 Severability ...... 18 24.8 Complete Agreement; Amendments ...... 19 24.9 Headings ...... 19 24.10 Counterparts ...... 19
Exhibits.
This Agreement includes the following Exhibits, which are specifically incorporated herein and made a part of this Agreement.
Exhibit A Solar Energy rates applicable in each contract year Exhibit B Description of the Site, Premises and the Facility Exhibit C Insurance Policy Exhibit D Contract between Solar installer and ______LLC w/invoice Exhibit E Operating Agreement of ______LLC Exhibit F Operations and Maintenance Service Plan
3
SOLAR POWER PURCHASE AGREEMENT
PREAMBLE:
We, the ______Community Solar LLC and the Host Site, do hereby enter into this solar power purchase agreement in order to further the development of solar electric energy generating capacity in our community and to demonstrate the financial practicality and systems feasibility of a model through which private citizens and private organizations, even on a small scale, may join to this end.
This Solar Power Purchase Agreement (this “Agreement”) is made and entered into as of this ______day of ______, 2013 (the “Effective Date”) between ______Community Solar LLC (“Seller”), a Maryland limited liability company, and the - (“Host”), a for- profit incorporated under the laws of the State of Maryland(each a “Party” and together, the “Parties”).
WITNESSETH:
WHEREAS, Host desires that Seller install, maintain and operate a solar electric generating facility with an aggregate nameplate capacity of approximately ___ kilowatt (kW) – DC, 10.0 kW – AC, and with an estimated annual output of ______kilowatt hours (the “Facility”) on the roof of the Host’s property located at ______MD, (the “Site”) and sell electric energy produced by the Facility and utilized by the Host; and
WHEREAS, Seller desires to sell, and Host desires to purchase, the solar energy from the Facility (as more particularly defined herein) for the Site, consisting of Metered monthly production of energy from the Facility pursuant to the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual promises set forth below, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1 - DEFINITIONS AND RULES OF INTERPRETATION
1.1 Rules of Construction. The capitalized terms listed in this Article 1 shall have the meanings set forth herein whenever the terms appear in this Agreement, whether in the singular or the plural or in the present or past tense. In addition, the following rules of interpretation shall apply:
(A) The masculine shall include the feminine and neuter.
(B) The words “hereof”, “herein”, and “hereunder” and words of similar import shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
(C) References to “Articles,” “Sections,” or “Exhibits” shall be to articles, sections, or exhibits of this Agreement.
4
(D) The Exhibits attached hereto are incorporated in and are intended to be a part of this Agreement; provided, that in the event of a conflict between the terms of any Exhibit and the terms of this Agreement, the terms of this Agreement shall take precedence.
(E) This Agreement was negotiated and prepared by both Parties with the advice and participation of counsel for Host. The Parties have agreed to the wording of this Agreement and none of the provisions hereof shall be construed against one Party on the ground that such Party is the author of this Agreement or any part hereof.
(F) The Parties shall act reasonably and in accordance with the principles of good faith and fair dealing in the performance of this Agreement.
(G) Use of the words “include” or “including” or similar words shall be interpreted as “include without limitation” or “including, without limitation”.
(H) References to any statute, code or statutory provision are to be construed as a reference to the same as it may have been, or may from time to time be, amended, modified or reenacted, and include references to all bylaws, instruments, orders and regulations for the time being made thereunder or deriving validity therefrom unless the context otherwise requires.
(I) In the event of a conflict, a mathematical formula describing a concept or defining a term shall prevail over words describing a concept or defining a term.
(J) References to any amount of money shall mean a reference to the amount in United States Dollars.
1.2 Definitions. The following terms shall have the meanings set forth herein:
“Agreement” means this Power Purchase Agreement between Seller and Host, including the Exhibits attached hereto.
“Business Day” means any calendar day that is not a Saturday, Sunday. A Business Day shall open at 8:00 a.m. Prevailing Time and close at 5:00 p.m. Prevailing Time.
“Commercial Operation Date” means, with respect to the Facility, the date on which (a) the Facility is capable of producing and delivering Solar Energy to the Delivery Point; and (b) Seller has obtained all necessary Permits required in order for the Facility to deliver Solar Energy to the Delivery Point.
“Commercial Operation Year” means, with respect to the Facility, any consecutive twelve (12) Month period during the Term of this Agreement, commencing with the first Day of the Month following the Commercial Operation Date of such Facility, and each anniversary of such date thereafter.
“Day” means a period of twenty-four (24) consecutive hours beginning at 00:00 hours Prevailing Time on any calendar day and ending at 24:00 hours Prevailing Time on the same calendar day.
5
“Delivery Point” means, with respect to the Facility, the Meter, as further specified by Seller prior to the Commercial Operation Date.
“Dispute” shall have the meaning set forth in Section 18.1.
“Effective Date” shall have the meaning set forth in the Preamble.
“Environmental Attributes” means any and all current or future credits, benefits, emissions reductions, environmental air quality credits, emissions reduction credits, renewable energy credits, offsets and allowances, attributable to the Solar Facility, or otherwise attributable to the generation, purchase, sale or use of Solar Energy from or by the Solar Facility during the Term, howsoever entitled or named, resulting from the avoidance, reduction, displacement or offset of the emission of any gas, chemical or other substance, including without limitation any of the same arising out of legislation or regulation concerned with oxides of nitrogen, sulfur or carbon, with particulate matter, soot or mercury, or implementing the United Nations Framework Convention on Climate Change (UNFCCC) or the Kyoto Protocol to the UNFCCC or crediting “early action” emissions reduction, or laws or regulations involving or administered by the Clean Air Markets Division of the United States Environmental Protection Agency, or any state or federal entity given jurisdiction over a program involving transferability of Environmental Attributes, and any rights to such Environmental Attributes, including the Maryland Public Utility Commission.
“Event of Default” shall have the meaning set forth in Section 21.1.
“Excess Production Volume” shall have the meaning set forth in Section 5.2.
“Expected Commercial Operation Date” has the meaning set forth in Section 3.1.
“Facility” shall have the meaning set forth in the Preamble.
“Fair Market Value” shall have the meaning set forth in Section 9.1.
“Force Majeure” shall have the meaning set forth in Section 22.1.
“Governmental Authority” means any federal, state, local or municipal governmental body; any governmental, quasi-governmental, regulatory or administrative agency, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, policy, regulatory or taxing authority or power; or any court or governmental tribunal; provided, however, that “Governmental Authority” shall not in any event include any Party.
“Host” shall have the meaning set forth in Preamble
“Host Energy Needs” shall have the meaning set forth in Section 5.1.
“Initial Period” shall have the meaning set forth in Section 3.1.
“Installer” shall have the meaning set forth in Section 4.3.
6
“Installed Capacity” means, the aggregate nameplate capacity of all installed Solar Panels of the Facility expressed in kilowatts (peak “Invoice” shall have the meaning set forth in Section 7.1.
“kWh” shall mean a kilowatt-hour, or the delivery of one-thousand watts of energy over one hour.
“Material Adverse Effect” means any event, occurrence, change or effect of whatever nature (or events, occurrences, changes or effects, taken together) that (i) is, or is reasonably likely to be, materially adverse to the present or future business, operations, assets, liabilities, properties, results of operations or condition (financial or otherwise) of the Project or, including the design, development, construction or operation of the Facility as currently contemplated, or (ii) prevents or materially impairs or delays, or is reasonably likely to prevent or materially impair or delay, either Party’s ability to perform its obligations under this Agreement or to consummate the transactions contemplated hereby or thereby.
“Meter” shall mean the meter installed by Seller that measures the Solar Energy produced by the Facility as well as the energy consumed by the Host, and which meets the requirements of Article 20.
“Month” means a calendar month commencing at 00:00 Prevailing Time on the first Day of such month and ending at 24:00 Prevailing Time on the last Day of such month.
“Net Metering Payment” shall have the meaning set forth in Section 5.3.
“Operations Period” shall have the meaning set forth in Section 2.3
“Party” or “Parties” shall have the meaning set forth in the Preamble and includes any permitted assignee of a Party.
“Parties’ Representatives” shall have the meaning set forth in Section 18.1.
“Permits” means all material permits, consents, licenses, approvals, or authorizations from any Governmental Authority, required to own, construct, operate or maintain the Solar Facility, make available Solar Energy at the Delivery Point, and otherwise sell and transfer Solar Energy to Host.
“Prevailing Time” means Eastern Standard Time or Eastern Daylight Savings Time.
“Purchase Price” shall have the meaning set forth in Section 6.1.
“Seller” shall have the meaning set forth in the Preamble.
“Site” shall have the meaning set forth in the Preamble.
“Solar Energy” means the instantaneous electrical energy output (in kWh), intermittent and variable within the hour, made available from the Facility after the Commercial Operation Date at the Delivery Point, as measured by the Meter installed at the Delivery Point.
7
“Solar Panels” means those photovoltaic solar electric generating devices powered by the sun and related equipment necessary for the production of electric energy that are included in the Facility.
“SRECs” shall have the meaning set forth in Section 8.3.
“Term” means the period of time during which this Agreement shall remain in full force and effect, and which is further described in Article 2.
ARTICLE 2 - TERM AND TERMINATION
2.1 Term. The term of this Agreement shall consist of an initial period and an operations period, both as defined below (the “Term”).
2.2 Initial Period. The Initial Period shall begin on the Effective Date and end on the Commercial Operation Date (the “Initial Period”). During the Initial Period Seller shall confirm the feasibility of the Facility. Seller may terminate this Agreement during the Initial Period, but upon such termination shall remove all structures that is has installed and shall restore the roof to its full integrity at its full sole expense.
2.3 Operations Period. The Operations Period shall began on the Commercial Operations Date and shall end (TO BE DETERMINED) years after the Commercial Operations Date, unless terminated before such date pursuant to this Agreement (the “Operations Period”).
ARTICLE 3- FACILITY & OWNERSHIP
3.1 Commercial Operation Date. The expected commercial operation date of the Facility is ______(date), 20__ (year) the “Expected Commercial Operation Date”). Seller shall notify Host in writing when Commercial Operation has been achieved and declared for the Facility by Seller. If Seller fails to fully install the Facility by the Expected Commercial Operation Date, then Host shall have the right to terminate this Agreement, Seller shall remove the Facility, and Host shall be relieved of all obligations related to this Agreement.
3.2 Facility Description. The Facility shall be a solar electric generating facility with an Installed Capacity estimated to be approximately _____ kilowatt (kW) to be located on the roof of Host of the Site. Exhibit B to this Agreement provides a general description of the Facility, including a good faith estimate of the approximate amount of Solar Energy that the Facility is expected to produce. The Parties acknowledge and agree that Exhibit B may be updated by Seller prior to the Commercial Operation Date.
3.3 Legal Ownership. Seller will be the legal and beneficial owner of the Facility at all times. Seller will pledge the facility as collateral security in connection with any construction finances or permanent financing.
ARTICLE 4– CONSTRUCTION, ACCESS & OPERATION
4.1 Contracting. Seller shall use licensed North American Board of Certified Electric Professionals (NABCEP) certified contractors to oversee the work of installing, 8
operating, and maintaining the Facility. Seller will advise Host of the contractors being hired. Host shall have no contractual relationship with the contractors.
4.2 Permitting. Seller shall obtain all Permits for the Facility and shall design, install, operate, and maintain the Facility so as to keep it in good condition and repair, in compliance with law and with the generally accepted practices of the electric industry, in general, and the solar generation industry, in particular. Such work shall be at Seller’s sole expense.
4.3 Seller & Installer Access. Host shall grant Seller and its designees, including Seller’s installation contractor (to be determined) (the “Installer”), access to the Premises by lease or license for the purposes of designing, installing, operating, and maintaining the facility.
4.4 Time of Work. Except for emergency situations, Seller shall perform all work between the hours of 7:00 am and 7:00 pm, Monday through Saturday, in a manner that minimizes interference with Host.
4.5 Security. Host will provide security for the Facility as part of its normal security procedures for the Site and will advise Seller immediately upon observing any damage to the Facility.
4.6 Site Modification. Host will agree not to modify the Site in such a way as to interfere with the construction, operation or maintenance of, or solar access of, the Facility.
4.7 Emergency Repairs. Seller will be permitted to shut down the Facility at any time in order to perform emergency repairs.
4.8 Maintenance Shutdowns. Seller shall give Host five (5) day notice of maintenance shutdowns. Seller shall not have any obligation to reimburse Host for costs of purchasing electricity which would have been produced by the Facility but for such a maintenance shutdown. Seller shall not schedule maintenance shutdowns during peak periods of electric generation and periods when peak energy and demand prices are charged by Host’s backup electric service provider.
4.9 Site Condition Shutdowns. In addition to the right of Seller to shut down the Facility for emergencies or maintenance, Seller may shutdown the Facility if Seller reasonably believes Site conditions or activities of persons on the Site, which are not under the control of Seller, whether or not under the control of Host, may interfere with the safe operation of the Facility. Seller shall give Host notice of the shutdown immediately upon becoming aware of the potential for such conditions or activities.
4.10 Host Shutdown. Host from time to time may request Seller to temporarily stop operation of the Facility for reasons related to Host’s activities in maintaining and improving the Site. To the extent that this period of time is greater than seven (7) days in any one calendar year, Host shall pay Seller the following for any and all days in excess of this seven (7) day period:
9
(A) Payments that Host would have made to Seller for electric energy that would have been produced during the period of the shutdown based upon estimates provided by PV Watts as per Exhibit B;
(B) Revenues from Environmental Attributes that Seller would have received with respect to electric energy that would have been produced during the period of the shutdown; as calculated in accordance with Seller’s long-term SREC Purchase and Sale Agreement if such an agreement exists, or if no such agreement exists, the value of the SRECs during such a period as verified by a third party SREC broker.
ARTICLE 5 – PURCHASE & SALE OF ELECTRICITY
5.1 Electricity Purchase. During the Operations Period, Host shall buy from Seller all of the Solar Energy produced by the Facility. Seller shall not guarantee that any particular amount of electric energy will be produced by the Facility for any hourly, daily, monthly, annual or other period.
5.2 Net Metering. To the extent that Net Metering is available, Host will participate in the local utilities, state, or regional net metering program. If Host is provided with a payment pursuant to net metering (a “Net Metering Payment”) by the local utility, it shall provide Seller with payment equal to the Net Metering Payment within ten (10) Business Days of receipt of such Net Metering Payment.
5.3 Supplemental Energy. During periods when the Facility is unable to meet the Host Energy Needs, Host will purchase electricity from the local electric utility or another electric service provider as stated in Section 8.
ARTICLE 6– ELECTRICITY PURCHASE PRICE
6.1 Rate Schedule. Host shall pay Seller for each kilowatt-hour of Solar Energy purchased from Seller pursuant to this Agreement (the “Purchase Price”). The Purchase Price is set annually each December at one cent per kWh below the full rate charged by ______, the local electric utility company, as set out in Exhibit A, for grid-supplied electricity to Host.
ARTICLE 7- BILLING AND PAYMENT
7.1 Billing Invoices. The billing period shall be monthly. No later than ten (10) Business Days after the end of each Month, Seller shall provide to Host an invoice equal to the amount of Solar Energy actually delivered to the Delivery Point by Seller to Host multiplied by the Purchase Price during the Monthly billing period (the “Invoice”). Seller shall transmit each invoice by fax, first class mail or as otherwise mutually agreed by the Parties in writing. Each invoice shall include sufficient detail to allow Host to verify such invoice.
7.2 Payments. Payments due under this Agreement shall be due and payable thirty (30) Days after receipt of the Invoice. 10
7.3 Account Information. Payment from Host to Seller shall be made by direct deposit to the following account:
______Community Solar LLC ______Bank Account Number: Routing Number: or by check to: ______Community Solar LLC
℅ treasurer Address
7.4 Records; Auditing.
(A) Each Party shall maintain complete and accurate records in accordance with generally accepted accounting standards and as may be necessary for the purpose of ascertaining the accuracy of all relevant data, estimates or statements of charges submitted hereunder.
ARTICLE 8 – SUPPLEMENTAL POWER, INCENTIVES, SRECS
8.1 Excess Needs. Host shall be responsible for obtaining all of its requirements for electric energy in excess of the amounts produced by the Facility and shall pay for such service pursuant to contracts with or applicable tariffs of the local electric utility or other electric service provider. Seller shall have no obligation to obtain or pay for such supplemental or back-up electricity.
8.2 Incentives. Seller shall receive all payments available under any state solar incentive program and any other federal, state or local programs applicable to renewable energy sources.
8.3 SRECS. Seller shall be the owner of any solar renewable energy certificates (“SRECs”) or other environmental attributes which may arise as a result of the operation of the Facility.
8.4 Capacity. Seller shall be entitled to receive any payments for electric capacity or ancillary services which may become available to the Facility, or any other similar payments in connection with the ownership of generation capacity. 11
8.5 Required Information. Upon reasonable request, Host shall provide Seller with information required for preparing documents necessary for Seller to receive the foregoing.
ARTICLE 9
9.1 Purchase Option. At the end of the operation year when the Seller has broken even on the initial investment the Seller will donate the facility to the Host site. From this date forward all electricity produced by the facility will be used by the Host at no cost. All operations and maintenance of the facility will become the responsibility of the Host.
ARTICLE 10 - CLOSURE OF PREMISES
In the event the Premises are closed as a result of an event not related to Force Majeure, Host shall nevertheless continue to pay Seller for all electricity produced by the Facility.
ARTICLE 11– DECOMMISSIONING & REMOVAL
If, at the end of the Operations Period, Host does not exercise its option to receive the donated Facility and the Parties do not agree to any extension of the Agreement, then Seller, at its sole expense, shall decommission and remove the Facility from the Site. Seller shall not be obligated, however, to remove any support structures for the Facility which are affixed to Host’s structures or any below grade structures, including foundations and conduits, or any roads.
ARTICLE 12 – PERMITS & APPROVALS
12.1 Consents & Approvals. Seller shall be responsible for obtaining, and paying for, any and all consents or approvals from the local electric utility which are necessary for the construction, commissioning, and operation of the Facility.
12.2 Government Approvals. Seller shall also pay for and obtain all approvals from governmental entities necessary for the construction and operation of the Facility, including but not limited to land use permits, building permits, and demolition and waste disposal permits.
12.3 Host Consents. Host shall pay for and obtain all consents required for it to execute this Agreement and perform its obligations under this Agreement from its lenders, tenants and any other persons with an interest in the Site. These consents shall include estoppel certificates which recognize the rights of Seller under this Agreement.
ARTICLE 13 – TAXES
13.1 Facility Tax Liabilities. Seller shall be responsible for all income taxes associated with payments from Host to Seller pursuant to this Agreement.
13.2 Facility Tax Assets. Seller, as owner of the Facility, shall be entitled to all tax benefits under federal and state income tax laws with respect to the Facility.
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13.3 Taxes on Electricity. Host shall be responsible for all taxes, fees, and charges, including sales, use and gross receipts taxes, imposed or authorized by any Governmental Authority on the sale of electric energy by Seller to Host, provided however, that Seller shall be responsible for paying any and all taxes associated with energy sold from the Facility through net metering.
13.4 Ad Valorem & Property Taxes. Host shall be responsible for all ad valorem personal property or real property taxes levied against the Site and its improvements and personal property located at the Site, except that Seller shall be responsible for ad valorem personal property or real property taxes levied against the Facility.
ARTICLE 14 – INSURANCE
14.1 Insurance Requirements. The insurance requirements for the Facility are set forth in Exhibit C to this Agreement. The Parties shall cooperate to ensure that both Parties meet any insurance requirements specified by, the utility interconnect agreement, or by other requirements set forth in Maryland or by local rules or regulations. Host shall insure the Facility by adding its value to existing building coverage. Seller shall be responsible for all costs and expenses associated with insurance for the Facility, including any additional premium rate increases that might be incurred by Host due solely to a claim made because of damages to the Facility.
ARTICLE 15 – INDEMNIFICATION
Each party shall indemnify, defend and hold harmless the other party from and against any claims arising from or out of any event, circumstances, active incident first occurring or existing on such Party’s side of the Delivery Point. Each party shall indemnify, defend and hold harmless the other party against any governmental charges for which such party is responsible. Seller warrants that it shall deliver to Host energy free and clear of all liens, security interests, claims and encumbrances or any interests therein or thereto by any person arising prior to the Delivery Point.
ARTICLE 16 – LIMITATION ON DAMAGES
EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT THERE IS NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ANY AND ALL IMPLIED WARRANTIES ARE DISCLAIMED. LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES ONLY, SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED UNLESS EXPRESSLY HEREIN PROVIDED. NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE. UNLESS EXPRESSLY HEREIN PROVIDED, AND SUBJECT TO THE PROVISIONS OF SECTION 16 (INDEMNIFICATION), IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES
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BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE
ARTICLE 17 – DISPUTE RESOLUTION
17.1 Dispute Negotiation. In the event of any dispute arising under this Agreement (a “Dispute”), within ten (10) Days following the delivered date of a written request by either Party, (1) each Party shall appoint a representative (individually, a “Party Representative”, together, the “Parties’ Representatives”), and (2) the Parties’ Representatives shall meet, negotiate and attempt in good faith to resolve the Dispute quickly, informally and inexpensively.
17.2 Non-Binding Mediation. In the event the Parties’ Representatives cannot resolve the Dispute within thirty (30) Days after commencement of negotiations pursuant to Section 18.1, the Parties shall submit to non-binding mediation.
17.3 Arbitration. In the event that the Parties are unable to resolve their dispute through non-binding mediation pursuant to Section 18.2 within thirty (30) Days following the initiation of such mediation, either Party may seek binding arbitration.
ARTICLE 18 – REPRESENTATIONS AND WARRANTIES
18.1 Mutual Representations and Warranties. Beginning on the Execution Date (Initial Period), each Party represents and warrants to the other Party that:
(A) It is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation;
(B) The execution, delivery and performance of this Agreement is within its powers, have been duly authorized by all necessary action and do not violate any of the terms and conditions in its governing documents, any contracts to which it is a party or any law, rule, regulation, order or the like applicable to it;
(C) This Agreement and each other document executed and delivered in accordance with this Agreement constitutes its legally valid and binding obligation enforceable against it in accordance with its terms;
(D) It is not bankrupt and there are no proceedings pending or being contemplated by it or, to its knowledge, threatened against it which would result in it being or becoming bankrupt;
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(E) There is not pending or, to its knowledge, threatened against it or any of its affiliates any legal proceedings that could materially adversely affect its ability to perform its obligations under this Agreement;
(F) It is acting for its own account, has made its own independent decision to enter into this Agreement and as to whether this Agreement is appropriate or proper for it based upon its own judgment, is not relying upon the advice or recommendations of the other Party in so doing, and is capable of assessing the merits of, and understands and accepts, the terms, conditions and risks of this Agreement.
(G) It shall continue to be duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation;
(H) It shall maintain (or obtain from time to time as required, including through renewal, as applicable) all regulatory authorizations necessary for it to legally perform its obligations under this Agreement; and
(I) It shall perform its obligations under this Agreement in a manner that does not violate any of the terms and conditions in its governing documents, any contracts to which it is a party or any law, rule, regulation, order or the like applicable to it.
ARTICLE 19 - DELIVERY AND METERING
19.1 Delivery. The electric energy from the Facility shall be delivered from Seller to Host at the Delivery Point, as set forth in Exhibit B and otherwise in compliance with all requirements of the local electric utility.
19.2 Title and Risk of Loss. As between the Parties, Seller shall be deemed to be in control of the Solar Energy up to and until the Delivery Point, and Host shall be deemed to be in control of such Solar Energy at and after the Delivery Points.
19.3 Metering.
(A) Seller shall install, own, operate and maintain all metering and data processing equipment capable of the measurement, recordation and transmission of information regarding both the Solar Energy generated by the Solar Facility and the energy utilized by the Host (collectively, the “Meter”).
(B) Seller shall install a meter capable of remote monitoring via the internet and shall provide Host with remote online access to the Meter via a dedicated website.
19.4 Testing at Request of Host. The output of the Facility shall be measured by the Meter. Seller shall test the Meter in accordance with industry standards. In the event of a discrepancy between actual Meter readings and accurate readings, billing adjustments shall be 15
made retroactively to the date of and the previous testing date of the meter (not to exceed 180 days).
19.5 Additional Testing. Host shall pay for any independent testing of the meter(s) in excess of such minimum testing schedule that Host deems necessary. But if any meter test shows the meter to be in error by more than 2%, (1) Seller shall pay for the cost of the test and (2) billing adjustments shall be made retroactively to the date of and the previous testing date of the meter (not to exceed 180 days).
ARTICLE 20- DEFAULT AND REMEDIES
20.1 Events of Default.
(A) Any of the following shall constitute an Event of Default (“Event of Default”) on the part of either Party upon its occurrence and no cure period shall be applicable:
(1) Either Party’s actual fraud or willful misconduct in connection with this Agreement;
(2) Either Party’s assignment of this Agreement or assignment of any of its rights hereunder for the benefit of creditors; and
(3) Either Party’s filing of a petition in voluntary bankruptcy or insolvency or for reorganization or arrangement under the bankruptcy laws of the United States or under any insolvency act of any state, or Seller voluntarily taking advantage of any such law or act by answer or otherwise.
(4) The failure of either Party to comply with any material obligation under this Agreement which would have a Material Adverse Effect on the other Party
(B) If any representation or warranty made by either Party in this Agreement proves to have been false or misleading in any material respect when made or ceases to remain true during the Term if such cessation would reasonably be expected to have a Material Adverse Effect on the other Party, it shall constitute an Event of Default unless cured within thirty (30) Days after the date of written notice.
(C) The filing of an involuntary case in bankruptcy or any proceeding under any other insolvency law against either Party as debtor that could materially impact the other Party’s ability to perform its obligations hereunder shall constitute an Event of Default; provided, however, that such a Party does not obtain a stay or dismissal of the filing within one hundred eighty (180) Days.
20.2 Damages and Termination. Upon the occurrence of an Event of Default that occurs at any time during the Term, the non-defaulting Party shall have the right to pursue all available legal or equitable remedies available to it, including the right to collect damages.
20.3 Waiver and Exclusion of Other Damages.
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(A) THE PARTIES CONFIRM THAT THE EXPRESS REMEDIES AND MEASURES OF DAMAGES PROVIDED IN THIS AGREEMENT SATISFY THE ESSENTIAL PURPOSES HEREOF. IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY HEREIN PROVIDED, THE OBLIGOR’S LIABILITY SHALL BE LIMITED TO DIRECT, ACTUAL DAMAGES ONLY.
20.4 Duty to Mitigate. Each Party agrees that it has a duty to mitigate damages and covenants that it shall use reasonable efforts to minimize any damages it may incur as a result of the other Party’s performance or non-performance of this Agreement.
ARTICLE 21 – FORCE MAJEURE
21.1 Definition of Force Majeure. An event of Force Majeure means any act of God, labor disturbance, act of the public enemy, war, insurrection, riot, fire, storm or flood, explosion, any curtailment, order, regulation or restriction imposed by a court or governmental military or lawfully established civilian authorities, or any other cause beyond a Party’s control. A Force Majeure event does not include an act of negligence or intentional wrongdoing. Neither the Host nor Seller shall be considered in default as to any obligation under the PPA if prevented from fulfilling the obligation due to an event of Force Majeure.
ARTICLE 22– NOTICES
Notices shall, unless otherwise specified herein, be in writing and may be delivered by hand delivery, United States mail, overnight courier service, facsimile or electronic messaging (e- mail). Whenever this Agreement requires or Permits delivery of a “notice” or requires a Party to “notify”), the Party with such right or obligation shall provide a written communication in the manner specified below. A notice sent by facsimile transmission or email will be recognized and shall be deemed received on the day on which such notice was transmitted if received before 5 p.m. Eastern prevailing time (and if received after 5 p.m., on the next day) and a notice by overnight mail or courier shall be deemed to have been received two (2) days after it was sent or such earlier time as is confirmed by the receiving Party unless it confirms a prior oral communication, in which case any such notice shall be deemed received on the day sent. A Party may change its addresses by providing notice of same in accordance with this provision. All written notices shall be directed as follows:
To Seller:
______Community Solar LLC Address
To Host: ______St. ______MD _____
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ARTICLE 23 – MISCELLANEOUS
23.1 Change of Law. Any provision declared or rendered unlawful by any applicable court of law or regulatory agency or deemed unlawful because of a statutory change will not otherwise affect the remaining lawful obligations that arise under this Agreement; and provided, further, that if such an event occurs, the Parties shall use their best efforts to reform this Agreement in order to give effect to the original intention of the Parties.
23.2 Continuing Effect. Notwithstanding anything to the contrary in this Agreement, applicable provisions of this Agreement, including all indemnity rights, audit rights and confidentiality obligations, shall continue in effect after termination of this Agreement, including early termination, to the extent necessary to enforce or complete the duties, obligations or responsibilities of the Parties arising prior to such termination and, as applicable, to provide for final billings and adjustments related to the period prior to such termination, repayment of any money due or owing to either Party pursuant to this Agreement, repayment of principal and interest associated with security funds, if any, and the indemnifications specified in this Agreement.
23.3 Governing Law. This Agreement and the rights and duties of the parties hereunder shall be governed by and construed, enforced and performed in accordance with the laws of the State of Maryland.
23.4 Assignment. Neither Party shall assign this Agreement or its rights hereunder without the prior written consent of the other Party, which consent shall not be unreasonably withheld; provided, however, either Party may, without the consent of the other Party.
23.5 Waiver. The failure of either Party to enforce or insist upon compliance with or strict performance of any of the terms or conditions of this Agreement, or to take advantage of any of its rights thereunder, shall not constitute a waiver or relinquishment of any such terms, conditions, or rights, but the same shall be and remain at all times in full force and effect.
23.6 Relationship of the Parties. This Agreement shall not be interpreted to create an association, joint venture, or partnership between the Parties nor to impose any partnership obligation or liability upon either Party. Neither Party shall have any right, power, or authority to enter into any agreement or undertaking for, or act on behalf of, or to act as an agent or representative of, the other Party.
23.7 Severability. In the event any of the terms, covenants, or conditions of this Agreement, its Exhibits, or the application of any such terms, covenants, or conditions, shall be held invalid, illegal, or unenforceable by any Governmental Authority, all other terms, covenants, and conditions of the Agreement and their application not adversely affected thereby shall remain in force and effect; provided, however, that Host and Seller shall negotiate in good faith to attempt to implement an equitable adjustment in the provisions of this Agreement with a view toward effecting the purposes of this Agreement by replacing the provision that is held invalid, illegal, or unenforceable with a valid provision the economic effect of which comes as close as possible to that of the provision that has been found to be invalid, illegal or unenforceable.
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23.8 Complete Agreement; Amendments. The terms and provisions contained in this Agreement constitute the entire agreement between Host and Seller with respect to the Solar Facility and shall supersede all previous communications, representations, or agreements, either verbal or written, between Host and Seller with respect to the sale of Solar Energy from the Solar Facility. This Agreement may be amended, changed, modified, or altered, provided that such amendment, change, modification, or alteration shall be in writing and signed by both Parties hereto and the Financing Party, if any.
23.9 Headings. Captions and headings used in this Agreement are for ease of reference only and do not constitute a part of this Agreement.
23.10 Counterparts. This Agreement may be executed in any number of counterparts, including in facsimile and electronic formats (including portable document format (.pdf)), each of which is an original and all of which constitute one and the same instrument.
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IN WITNESS WHEREOF, each Party has caused this Agreement to be duly executed by its authorized representatives as of the date of last signature provided below.
______
Name:______Name: ______
Date: Date:
Title: President Title: Treasurer
______Community Solar LLC ______Community Solar LLC
______
Date: Date:
Title: President Title: ______
______Host site ______Host site
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EXHIBIT A PPA ELECTRICITY RATES
Electric energy rates effective in each Commercial Operation Year between ______Community Solar LLC and ______,Host site. The Operation Period is for ____ years. Rates to be determined based on the current rate paid the electric power provider.
EXHIBIT B DESCRIPTION OF PV SITE, PREMISES, AND THE PV SYSTEM SPECIFICATION (“PV WATTS”)
ATTACHED TO PPA
EXHIBIT C INSURANCE POLICY
ATTACHED TO PPA
EXHIBIT D CONTRACT BETWEEN THE SOLAR INSTALLER AND ______LLC W/INVOICE
ATTACHED TO PPA
EXHIBIT E OPERATING AGREEMENT OF ______LLC
ATTACHED TO PPA
EXHIBIT F OPERATIONS AND MAINTENANCE SERVICE PLAN
______Community Solar LLC
______, the solar installer. offers an annual Operations and Maintenance plan after the first year of operation. The O & M consists of preventive maintenance and troubleshooting for the purpose of providing services that would otherwise not be covered under warranty. The individuals conducting O & M shall conform to all site safety regulations, including wearing of personal protective equipment and ability to shut off the array safely as needed.
Operations and Maintenance consists of the following (every 12 months):
• A visual inspection of all the mechanical, electrical, and PV components. • All open air wire (USE-2) and Multi Contact “MC” connectors at the array are visually inspected for excessive drooping, abrasion, disconnection or any other hazard.
• The PV modules are inspected for damage and soiling. Excessive soiling is removed by using a mild water based detergent (i.e. dishwashing liquid) by hand or an alternate non- high pressure method that complies with the panel warranty. • The inverter cooling system is inspected and cleaned per manufacturers’ recommended procedure. Filters are inspected and replaced according to schedule. • All electrical screw type fittings located at Combiner Boxes, and Inverters. Disconnects and other electrical components are checked for proper torque and are marked with a permanent marking device. • Check fuse continuity for each DC circuit in each combiner box. Replace defective fuses accordingly. • Any potential problems and damage are identified and brought to the attention of the Host site and ______Solar LLC for review. • ______, the solar installer, will complete and provide a “Work Completion” certificate after the work is complete. Upon successful completion of the O&M actions and “Acceptance” of all of the work, the responsible manager will countersign the Work Completion certificate.
O&M Service Plan Fee: $______per year
DIRECT TESTIMONY OF JACKSON KOEPPEL
EXHIBIT 2
“COMMUNITY SOLAR PROGRAM DESIGN MODELS”
SMART ELECTRIC POWER ALLIANCE
Community Solar Program Design Models
2018 WWW.SEPAPOWER.ORG
HISTORY SURVEY PARTNER
In 2015, SEPA developed the Community Solar Program Design Models report which The Program Administrator Survey Findings section of the report provided an overview of the community solar market, findings from a survey of program was developed in collaboration with the Coalition for Community administrators, and our initial program design decision tree. Now, in 2018, we have updated Solar Access (CCSA). CCSA is a national coalition of businesses and this report with new data on the community solar market, and lessons learned over the non-profits working to expand consumer choice and access to past two years. clean, local, affordable energy to all Americans through opening, protecting, and serving markets for community solar. “COMMUNITY SOLAR” DEFINITION
In this report, SEPA defines a community solar program, also known as shared solar, as a voluntary business model where multiple subscribers pay for a share of a specified offsite solar project and receive credit on their electricity bill for their portion of power produced.
“PROGRAM ADMINISTRATOR” DEFINITION AUTHORS
Many programs are developed by multiple organizations who share development Dan Chwastyk, Manager SEPA responsibilities. For simplicity, SEPA defines the program administrator as the primary Jared Leader, Associate SEPA organization responsible for managing customer subscriptions. Some portions of this Jeff Cramer, Executive Director CCSA report split the community solar market into programs administered by the utility and those Mason Rolph, Intern CCSA administered by third-party providers.
© Smart Electric Power Alliance, 2018. All rights reserved. This material may not be published, reproduced, broadcast, rewritten, or redistributed without permission. All organizations shall perform their own due diligence and not make decisions based on this report.
SEPA | 2018 COMMUNITY SOLAR UPDATE 1 WWW.SEPAPOWER.ORG
ACKNOWLEDGEMENTS
The authors would like to thank the U.S. Department of Energy (DOE) Solar Energy Technologies Office team for funding the research and development of this report. The work was funded by Solar Market Pathways grant DE-EE0006909. For more information on the DOE’s work supporting solar power visit: https://energy.gov/eere/solar/solar-energy-technologies-office
We relied on SEPA’s Community Solar Working Group for direction and data for this report. The following individuals for their time and feedback on the report: • Adam Capage, 3Degrees • Angie Rodriguez, El Paso Electric Company • Becky Campbell, FirstSolar • Daisy Chung, Smart Electric Power Alliance • Elizabeth Bennett, Duke Energy • Erika Myers, Smart Electric Power Alliance • Franny Yuhas, TurningPoint Energy • Jenny Heeter, National Renewable Energy Laboratory • Jill Cliburn, Cliburn Energy • This report was prepared as an account of work sponsored by an agency of the Joe Barra, Portland General Electric United States Government. Neither the United States Government nor any agency • John Sterling, FirstSolar thereof, nor any of their employees, makes any warranty, express or implied, or • Laree St. Onge, Trico Electric Cooperative assumes any legal liability or responsibility for the accuracy, completeness, or • Odette Mucha, U.S. Department of Energy usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to • Ryan Matley, Xcel Energy any specific commercial product, process, or service by trade name, trademark, • Shubha Jaishankar, U.S. Department of Energy manufacturer, or otherwise does not necessarily constitute or imply its endorsement, • Ted Davidovich, Smart Electric Power Alliance recommendation, or favoring by the United States Government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States Government or any agency thereof.
SEPA | 2018 COMMUNITY SOLAR UPDATE 2 COMMUNITY SOLAR PROGRAM DESIGN MODELS
TABLE OF CONTENTS
Community Solar Overview………………………………………………………………………………………………………………………………………………. 4 Program Administrator Survey Findings………………………………………………………………………………………………………………………….. 11 Program Design Decision Tree…………………………………………………………………………………………………………………………………………. 20
TABLE OF FIGURES
Figure 1. Program Map……………………………………………………………………………………………………………………………………………………… 5 Figure 2. Cumulative Community Solar Capacity…………………………………………………………………………………………………………….. 6 Figure 3. Total Installed Solar Capacity in the U.S. 2017…………………………………………………………………………………………………. 7 Figure 4. Program Capacity Tree Map by Administrator and Utility Service Territory……………………………………………………. 8 Figure 5. Service Territories with the Largest Amount of Community Solar………………………………………………………………….. 8 Figure 6. Third-Party Administered Capacity…………………………………………………………………………………………………………………… 9 Figure 7. Utility-Administered Capacity……………………………………………………………………………………………………………………………. 9 Figure 8. Program Subscription Rates…………………………………………………………………………………………………………………………….. 12 Figure 9. Customer Participation by Program Size…………………………………………………………………………………………………………. 13 Figure 10. Customer Participation by Administrator……………………………………………………………………………………………………… 13 Figure 11. Interest in Community Solar………………………………………………………………………………………………………………………….. 14 Figure 12. Prior Consideration of Rooftop Solar…………………………………………………………………………………………………………….. 14 Figure 13. Bill % Captured by Community Solar……………………………………………………………………………………………………………… 14 Figure 14. Median Administrative Costs by Program Size ($/W)…………………………………………………………………………………….. 15 Figure 15. Median Administrative Costs by Administrator ($/W)……………………………………………………………………………………. 15 Figure 16. Utilities Receiving Development Support……………………………………………………………………………………………………….. 16 Figure 17. Programs with LMI Subscribers (% LMI)…………………………………………………………………………………………………………. 17
SEPA | 2018 COMMUNITY SOLAR UPDATE 3 WWW.SEPAPOWER.ORG
COMMUNITY SOLAR OVERVIEW
SEPA has researched and catalogued community solar programs since 2010. Over this period, we have collected an extensive database on every launched program and publicly announced program. The database includes information on each program’s size, launch year, and customer value proposition, among other fields. This section provides an overview of the information collected in the database.
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FIGURE 1. PROGRAM MAP CULTIVATING NEW MARKETS
Community solar programs are proliferating across the entire U.S. In our 2015 report, SEPA announced there were 68 utilities in 23 states that had programs in their service territories. At the time of publishing this report, 228 utilities in 36 states had an active program. Many other utilities across the country have announced plans to develop new programs. There is even a planned program in Alaska; Chugach Electric Association located in Anchorage approved a community solar project in October 2017.
Community solar programs are developed in states with and without shared solar policies, though many of the most active states have some form of state policy. The specific language in each of these policies varies dramatically, particularly concerning scale, bill credit rate, and ability of third-party ownership. But the foundation for each is the enablement of bill crediting for customers participating in community solar programs. Currently, 17 states plus the District of Columbia have enacted shared solar policies. According to the Coalition for Community Solar Access (CCSA), proposed legislation has been introduced in at least nine states STATE WITH ENABLING POLICY across the country to open or expand existing community solar STATE WITHOUT ENABLING POLICY programs in the last year. UTILITY WITH COMMUNITY SOLAR IN ITS SERVICE TERRITORY
Source: SEPA Community Solar Database. Data up to date as of December 31, 2017
SEPA | 2018 COMMUNITY SOLAR UPDATE 5 WWW.SEPAPOWER.ORG
FIGURE 2. CUMULATIVE COMMUNITY SOLAR CAPACITY STEADY GROWTH OF INSTALLED CAPACITY
The total installed capacity of community solar programs has expanded to 734 800 megawatts (MW), with approximately 387 MW of that being installed in 2017. This corresponds with a year-over-year growth in capacity last year of 112%. For a comparison, the total solar market in the U.S. has grown at an average annual rate of 68% over the last 10 years.1 600 ~33% is administered In the short term, SEPA expects this growth to continue. Declining solar costs, increasing by a utility customer awareness of the business model, and the opening of new state markets by policy, will all contribute. Whether this growth continues in the long term after state 400 renewable portfolio standards are met and the standard utility supply has a greater share of renewable generation, or after the most environmentally conscientious
customers have already subscribed, is undetermined. (MW) Megawatts ~67% is 200 administered A majority of the total installed capacity is being administered by a third-party community by a third-party solar provider. These organizations are responsible for 495 MW, or approximately 67% of the total installed capacity. Utilities administer the remaining 239 MW of installed capacity (see page 1 of this report for how we define the program administrator). 0 Interestingly, the administrator split has flipped from 2015, when approximately 60% of 2013 & 2014 2015 2016 2017 capacity was administered by a utility and 40% by a third party. Prior
1 Solar Energy Industries Association Solar Industry Data accessed 1/9/2018, https:// Source: SEPA Community Solar Database. Data up to www.seia.org/solar-industry-data date as of December 31, 2017
SEPA | 2018 COMMUNITY SOLAR UPDATE 6 WWW.SEPAPOWER.ORG
FIGURE 3. TOTAL INSTALLED SOLAR CAPACITY IN THE U.S. 2017 STILL AN EMERGING MARKET
Despite its continued growth, community solar is still a relatively small part of the solar marketplace. The National Renewable Energy Laboratory (NREL) reported that there were 47.5 gigawatts (GW) of total installed solar in the U.S. in all markets through the third quarter of 2017. 2 Utility-scale solar and rooftop solar made up the lion’s share of this capacity. Community solar was responsible for just over 1% of this installed solar capacity.
While community solar capacity is significantly less than rooftop and utility-scale solar, much of the potential market has yet to be addressed. As noted, community solar programs are currently available in 228 utilities’ service territories. As there are a total of approximately 3,100 utilities across the U.S., customers in nearly 90% of utility service territories do not have the opportunity to subscribe to a program. Additionally, 33 states have not yet enacted a shared solar policy — and of the 17 states with an existing policy, many are considering ways to broaden their existing programs.
In 2016, the Shelton Group and SEPA released a study that suggested the total potential community solar market was 6.5 million households.3 At this point, less than 300,000 have subscriptions. For the potential to be realized, much greater availability of programs is needed. 2 National Renewable Energy Laboratory, Q3/Q4 2017 Solar Industry Update COMMUNITY 3 Smart Electric Power Alliance, The Shelton Group, “What the Community Solar Customer Wants”, 2016. link: Note: Each square represents ~150 MW-dc of solar capacity https://sepapower.org/resource/what-the-community-solar-customer-wants/ SOLAR Source: SEPA Community Solar Database. Data up to date as of December 31, 2017; Total installed capacity estimated based on Q3 data from NREL report SEPA | 2018 COMMUNITY SOLAR UPDATE 7 WWW.SEPAPOWER.ORG
PROGRAMS COME IN A WIDE RANGE OF SIZES FIGURE 5. SERVICE TERRITORIES WITH THE LARGEST 4 In terms of the number of community solar programs, cooperative utilities have been AMOUNT OF COMMUNITY SOLAR trailblazers. At present, 160 cooperative utilities have a program in their territory. This far exceeds the total in investor-owned utilities (31 programs) and public power utilities (37 programs) combined. Most programs are small. Only 30% of programs have a total generating capacity greater than 1 MW. In fact, the largest community solar program, that in Xcel Energy’s ▪ Investor-Owned Utility Minnesota territory (246 MW), is larger than the combined total of more than 100 of the 1. Xcel (MN) 246 MW smallest programs. But the average program size is steadily growing. In 2015, only 20% of 2. National Grid / Eversource (MA) 159 MW programs had an operating capacity of 1 MW or greater. Additionally, the median program size 3. Xcel (CO) 48 MW has increased from 120 kilowatts (kW) in 2015 to 200 kW now. ▪ Cooperative5 FIGURE 4. PROGRAM CAPACITY TREE MAP BY 1. Green Power EMC (NC) 20 MW 2. Valley Electric Association (NV) 18 MW ADMINISTRATOR AND UTILITY SERVICE TERRITORY 3. East Kentucky Power Cooperative (KY) 9 MW
UTILITY-ADMINISTERED THIRD-PARTY ADMINISTERED 495 MW ▪ Public Power INVESTOR-OWNED UTILITY 1. City of Tallahassee Utility (FL) 20 MW COOPERATIVE 2. Salt River Project (AZ) 20 MW i PUBLIC POWER 3. Lincoln Electric System (NE) 5 MW 239 MW NOTE: EACH RECTANGLE REPRESENTS ONE PROGRAM. Source: SEPA Community Solar Database. Data up to date as of December THE RELATIVE SIZE OF THAT 31, 2017 RECTANGLE EQUALS THE 4Includes both utility-administered and third-party administered programs RELATIVE CAPACITY OF THE 5 PROGRAM. Includes generation and transmission (G&T) utilities that serve cooperative distribution utilities.
SEPA | 2018 COMMUNITY SOLAR UPDATE Source: SEPA Community Solar Database. 8 WWW.SEPAPOWER.ORG
STATE POLICY OFTEN (BUT NOT ALWAYS) IMPELS GROWTH
The two maps below show the capacity of community solar broken down by administrator. As depicted, many states with enabling policy have seen large third-party developments. Though there are several that have drawn limited to no third-party interest, either because the policy is recent (IL & NC) or the policy specifics are a deterrent (CA & NH). Third-party administered programs are found in 14 states, including five states that do not have enabling policy. But a vast majority of third-party administered program capacity is located in only three states — Colorado, Minnesota, and Massachusetts. The reasoning for this concentration is fairly straightforward: There are significant financial incentives available to subscribers in these states. Utility-administered programs are found in more states overall (33), including states with and without enabling policy. The program capacity of utility-administered programs by state is more uniformly spread.
FIGURE 6. THIRD-PARTY ADMINISTERED CAPACITY FIGURE 7. UTILITY-ADMINISTERED CAPACITY
MEGAWATTS 100+ 75-99.9 50-74.9 25-49.9 1-24.9 <1 0
Source: SEPA Community Solar Database. Source: SEPA Community Solar Database.
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INNOVATIVE PROGRAMS ARE LEVERAGING OTHER DISTRIBUTED ENERGY RESOURCES
Many would suggest the primary benefit of community solar is that it provides access to solar ownership to customers who otherwise couldn’t, or wouldn’t want to put panels on their property. But this is certainly not its only benefit. Community solar reduces dependence on foreign fuels, helps the environment, as well as provides local economic development, job training opportunities, and access to solar for low-to-moderate income customers. Additionally, some utilities are starting to explore how community solar can aid grid reliability and other ancillary services. A few examples of these “next generation” community solar programs are below.
COMMUNITY SOLAR + STORAGE COMMUNITY SOLAR + TOU RATES
Austin Energy, a public power utility in Texas, is siting a 1.5-MW/3-MW- Oklahoma Gas & Electric’s community solar program requires subscribers to be hour LG Chem battery at the substation next to their 2.5-MW concurrently subscribed to a time-of-use tariff. Subscribers earn a solar credit for community solar facility. The storage will be utility owned, thus it does the solar energy that is aligned with the applicable time-differentiated energy not add any cost to the community solar subscription. charge of the subscriber’s metered energy.
COMMUNITY SOLAR TIME-VARYING CREDITS COMMUNITY SOLAR + DEMAND MANAGEMENT
The Hawaii Public Utilities Commission directed Hawaii Electric Company Meeker Cooperative Light and Power Association's member solar program provides and Kauai Island Utility Cooperative to develop community-based an option for subscribers to get a $400 discount on their community solar purchase renewable energy program tariffs that include a time-varying bill credit if they also join the Peak Shave Water program which comes with a free 50-gallon value. This is designed to incentivize power production during peak grid water heater to provide beneficial demand management for the Litchfield, MN- demand. Subscribers will earn at least 20% more for power dispatched based utility. during peak periods as compared to off-peak periods.
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PROGRAM ADMINISTRATOR SURVEY FINDINGS
In November of 2017 SEPA and the Coalition for Community Solar Access surveyed utilities and developers to learn more about their experiences leading community solar programs. The survey was structured to learn more about some of the harder to find data, such as subscription rates and program costs.
A total of 56 entities, 30 utilities and 26 third-party community solar developers, provided data. These organizations represent over 444 MW of community solar generating capacity, which is 60% of the total community solar market. Select findings from the data are presented in the following pages.
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THERE ARE NO GUARANTEES OF FULL SUBSCRIPTION
The average program had 83% of its capacity subscribed. But a simple average can be misleading. Individual programs are different – they are different in scale, are launched in different years, exist in different electricity markets, contain different economic propositions – and these differences may affect subscription rates.
We analyzed subscription rates in five different sets of programs. The greatest difference was found when comparing programs with different financial benefits for the subscribers. It is not surprising that programs promising immediate bill savings almost universally garner a full subscription. Programs that provide either a hedge against potential rate hikes or payback the upfront payment after a set period experienced lower subscription rates. The marketing budget also seemingly had an effect on the subscription rate, with programs spending above 5 cents per Watt (cents/W) of capacity experiencing higher subscription rates than those spending less. The program's capacity, administrator, and launch year may have a less telling effect on subscription rates. A caveat is that the sample sizes for many of the comparison sets are quite small. Thus, these findings should be considered illustrative instead of absolute. More data collection will be needed to confirm any correlations between program design and subscription rates.
FIGURE 8. PROGRAM SUBSCRIPTION RATES
Before 2016 2016 or Later
Source: SEPA Research, 2018
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FIGURE 9. CUSTOMER PARTICIPATION BY PROGRAM SIZE WHO IS PARTICIPATING IN COMMUNITY SOLAR? ≥1 MW In most community solar programs, a mix of residential and small commercial customers participate. There are a few programs, such as Austin Energy’s, where only residential customers can participate. And only one, Xcel’s Solar*Connect program in Wisconsin, where only commercial customers can participate. <1 MW
SEPA discovered that the size of the program is correlated to the split of residential and commercial subscribers. In programs with under 1 MW of total capacity, a vast majority of subscribers, 91%, were residential customers. However, in larger programs with more than 1 MW of total capacity, only 34% of subscribers were residential customers, with the majority, 66%, being commercial customers. The reason for this significant FIGURE 10. CUSTOMER PARTICIPATION BY ADMINISTRATOR discrepancy isn’t perfectly clear, but many small programs are located in service territories of rural cooperatives, who have a greater percentage of residential meters than the rest of the industry.
Who the program administrator is for the program can also provide a hint as to the makeup of residential and commercial customer participation. In the survey, it was found that third-party administrators subscribed a majority of capacity (68%) to commercial customers while utility administrators subscribed a majority of capacity (52%) to residential customers.
Source: SEPA Research, 2018 SEPA | 2018 COMMUNITY SOLAR UPDATE 13 WWW.SEPAPOWER.ORG
CUSTOMER INTEREST IS HIGH
Through the support of the Solar Market Pathways grant, SEPA conducted multiple technical assistance projects across the country. Of interest to this report, SEPA created end-consumer online surveys for six separate utilities: three public power utilities, two investor-owned utilities, and one cooperative utility. Consistent across each customer base was the desire to learn more about community solar offerings, with four of the utilities experiencing 90% or more of respondents signaling interest in a program. Importantly, solar as a product was not unfamiliar to many of these consumers, with over 20% and up to 50% having considered rooftop solar options already at five of the six utilities. And, broadly speaking, customers do not appear interested in trivial participation; rather, 50-100% of the annual bill being covered by community solar was a popular response across each survey. These utility-specific surveys bolster the results found in the national survey conducted by SEPA and The Shelton Group, which estimated a national market potential of 6.5 million or more U.S. households.6
FIGURE 11. INTEREST IN FIGURE 12. PRIOR CONSIDERATION FIGURE 13. BILL % CAPTURED BY COMMUNITY SOLAR CONCEPT7 OF ROOFTOP SOLAR COMMUNITY SOLAR
100% 100% 100% 75% 75% 75% 50% 50% 50% 25% 25% 25% 0% 0% 0% IOU #1 IOU #2 Public Public Public Co-op #1 IOU #1 IOU #2 Public Public Public Co-op #1 IOU #1 IOU #2 Public Public Public Co-op #1 Power #1 Power #2 Power #3 Power #1 Power #2 Power #3 Power #1 Power #2 Power #3 Very Interested (6-7) Somewhat Interested (4-5) Not Considered Considered Adopted 100% 50+% 25+% < 25% No Preference
Source: SEPA Research, 2018 Source: SEPA Research, 2018 Source: SEPA Research, 2018
6Smart Electric Power Alliance, The Shelton Group 2016 What the Community Solar Customer Wants, link: https://sepapower.org/resource/what-the-community-solar-customer-wants/ ⁷Some surveys used a seven point scale while others used five qualitative phrases (Very Interested, etc.). Participants were asked about the concept of sharing ownership of an offsite solar facility without any pricing information.
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FIGURE 14. MEDIAN FIRST YEAR ADMINISTRATIVE WHAT ARE THE ADDITIONAL COSTS COSTS BY PROGRAM SIZE ($/W) OF A PROGRAM?
SEPA includes considering both the cost of customer acquisition and customer billing and crediting as administrative costs. These are effectively the additional ≥1 MW costs to make a standard solar project a community solar one. In general, community solar administrative costs experience economies of scale. The median program with a capacity above 1 MW had just 9 cents/W in administrative costs as <1 MW compared to 12 cents/W for the median program with a capacity below 1 MW.
The program administrator also seemed to affect the costs. While third-party administered programs spend more on customer acquisition, utility-administered Source: SEPA Research, 2018 programs spend more on billing. Billing costs for utility-administered community solar programs were 4 cents/W more on average than those administered by third parties. Marketing, or customer acquisition, costs for third-party administered FIGURE 15. MEDIAN FIRST YEAR ADMINISTRATIVE community solar programs were on average higher than those administered by COSTS BY ADMINISTRATOR ($/W)⁸ utilities. Of those surveyed, third-party administered programs spent 2 cents/W more on average on marketing costs than utility-administered programs.
Third-Party
⁸For third-party administered programs, billing costs do not include those incurred by utility
SEPA | 2018 COMMUNITY SOLAR UPDATE Source: SEPA Research, 2018 15 WWW.SEPAPOWER.ORG
FIGURE 16. UTILITIES RECEIVING UTILITIES BUILD INDUSTRY DEVELOPMENT SUPPORT RELATIONSHIPS
Even when a utility administers its own community solar program, it rarely develops the entire program on its own. There is a burgeoning industry centered around supporting utilities in implementing their programs. 56% received support 33% received support constructing the solar Of all the utilities participating in our survey, 56% had another firm acquiring customers construct the generation facility. In most of these cases the utility relied on facility a developer for engineering, procurement, and construction. But in a few instances the utility entered a power purchase agreement (PPA) on behalf of subscribers for the energy produced from a third-party owned facility.
Many utilities looked for support administering their programs. Customer 26% received 11% received support acquisition support was the second most common service, with 33% of financing support billing subscribers surveyed utilities receiving support from a third-party. And 30% of utilities received support designing their program, while 26% got financing support. Only 11% of the utilities received support billing subscribers.
30% received research or Source: SEPA Research, 2018 program design support
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FIGURE 17. PROGRAMS WITH LMI SUBSCRIBERS (% LMI) ACCESSING LOW-INCOME COMMUNITIES
44% OF A key benefit of community solar vs. rooftop solar is that it is more accessible to low- to moderate-income (LMI) customers, since subscribers do not need to own their roof or have a high credit score to participate. But the PROGRAMS reality is that LMI customers are comparatively price conscious, so expanding the participation of the LMI HAD LMI community will require a subscription price that is equal or below the prevailing cost of electricity. As solar power SUBSCRIBERS is still a premium-priced product in many geographies, this is often a challenge, but one that is starting to be addressed. Of those surveyed, 44% of program administrators indicated they had some level of LMI participation in their program, most often through one of three paths (below). Source: Smart Electric Power Alliance Program Administer Survey Data, 2018 BY SUBSIDIZING LMI PARTICIPATION BY LEVERAGING EXTERNAL FUNDING BY CREATIVELY STRUCTURING THE CUSTOMER OFFER The New York Public Utilities Commission has Grand Valley Power partnered with GRID Alternatives in approved a pilot program (case number 16-E-0622) Colorado to build a dedicated LMI project. Equipment In Rocky Mountain Power’s Subscriber Solar program in where Consolidated Edison will directly provide and time were donated, erasing a majority of the initial Utah, subscribers receive a bill credit for actual community solar to customers through the project cost. LMI subscribers who participate get solar production. When production is greater than company’s low-income bill assistance program. power and a reduced electric bill. The subscribers are consumption, The excess kilowatt-hours (kWh) get selected by lottery and change every 2 years. rolled over to the next month. The initial phase of the program will generate 3MW, which is anticipated to save between 800 to 1,600 Poudre Valley Rural Electric Association used a grant At the end of the year, all remaining excess production participants $5 per month. If the cost of the from the Colorado Energy Office and financing from is valued at the avoided cost of energy and donated to program exceeds the generation value DOE to reduce project costs. This allowed them to Rocky Mountain Power’s LMI bill assistance program. consolidated Edison will recover the shortfall from develop a project with 700 kW allocated to LMI all ratepayers through a bill adjustment subscribers. LMI subscribers receive a 30% upfront mechanism. discount and a 4-year term to guarantee savings and SEPA | 2018 COMMUNITY SOLAR UPDATE provide customer flexibility. 17 WWW.SEPAPOWER.ORG
BIG CHALLENGES REMAIN
Administrators can encounter all sorts of road blocks when attempting to implement a program. For utility administrators, the biggest challenge is signing up the initial customers. Though surveys have shown that most individuals are interested in the idea of community solar, translating that interest into paying customers can take significant effort. When asked to list their biggest challenge, over half of utilities suggested it was related to customer acquisition. Third-party administrators overwhelmingly indicated that working to meet complex and diverse policy requirements is their major challenge. Even beyond these primary hurdles lie many additional challenges. Utilities also cited challenges finding full-service vendors, selecting and securing a site, avoiding passing costs to other ratepayers, and utilizing the federal tax credit. Third- party administrators also cited working with complexity in policy, adjusting to uncertainty in program regulations and caps, acquiring financing, educating customers, marketing, and ongoing administration of the programs once live.
WHAT ADMINISTRATORS STATE AS THEIR BIGGEST CHALLENGE
• “Converting interested signups to paying and committed participants” • “Finding cost-effective marketing tactics to promote the program” • “Subscribing all of Phase I before construction” • “Finding a full-service vendor for our customers” • “Determining a subscription model that would meet potential • “Modifying the program to compete with the quickly changing solar market” participants’ wants and needs” • “Expanding the program quickly enough to accommodate all interested • “Finding subscribers willing to actually put money into purchasing shares” customers” • “Finding members to participate” • “Explaining that solar energy bill credits vary from month-to-month depending • “Selecting and securing a site” on weather conditions” • “Making the price attractive and utilizing the 30% federal tax credit” • Reducing the number of cancellations due to customers’ unwillingness to wait • “Cost recovery for utility” for long-term savings potential”
Source: Smart Electric Power Alliance Program Administer Survey Data, 2018
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UTILITY FOOD FOR THOUGHT
For utilities considering developing a program, your peers have some words of wisdom. Most encouraged others to push forward, but advised that carefully listening to your customers is the key to success. Keeping in communication, being fair, and being flexible with your customers are things all utilities should want to do. Bringing these best practices to the core of your business will also help bring success to your community program. Using customer participation as an indication of success, the difference between interested customers and committed customers tends to be the financial cost. Keeping the customer engaged and the share prices at a reasonable cost are the two most shared strategies for success.
UTILITIES’ SUGGESTIONS (CUSTOMER UTILITIES’ SUGGESTIONS (FINANCE) UTILITIES’ SUGGESTIONS (STRATEGY) ENGAGEMENT) • “Pre-sell shares” • “Payback is key to success” • “Have a thorough understanding of why you want • “Talk to your customers about what they want” • “Only do it if it makes financial sense for to start the program” • “Have all of your community solar phase purchased customers” • “Look to other utilities - what works and what before you start construction” • “Keep share prices reasonable enough for the doesn't” • “Be fair to your customers. Funding, equipment, and average customer” • “Community solar adds to the overall portfolio of installation are secondary” • “Build pricing based on sustainable model rather options available to customers” • “Make sure your program is flexible for your than as a subsidized pricing project” • “When developing a community solar program, customers” • “People will say they will pay a premium for green get your billing and IT departments involved early” • “Just do it. It's what your customers say they want power, but when the opportunity is available, they and this is your core business” will not pay”
Source: Smart Electric Power Alliance Program Administer Survey Data, 2018
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PROGRAM DESIGN DECISION TREE
In 2015, SEPA worked with a group of 18 utilities and organizations who had previously launched community solar programs to define the key decisions that must be made when designing a program. Since that time, SEPA has assisted multiple utilities in designing community solar programs for their service territories. Using lessons learned from these efforts, SEPA has updated the program design decision tree found in this section.
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COMMUNITY SOLAR: THE DECISION TREE
The Community Solar Decision Tree seeks to streamline the major community solar program attribute design process down to a series of WHO RUNS THE WHAT IS THE WHAT ARE THE WHAT ARE THE discrete choices, which have been built off of SEPA’s years of research PROGRAM? SUBSCRIBER’S PARTICIPATION OTHER TERMS & into and work on community solar program design. At its core, the ECONOMIC RESTRICTIONS? CONDITIONS? Decision Tree seeks to add specificity to the following key questions: PROPOSITION? 1) Who runs the program? • Utility Role • Target Customer • Minimum Term 2) What is the subscriber’s economic proposition? • Asset Owner Classes • Program Length • Subscriber 3) What are the participation restrictions? • Siting & Scale • Unsubscribed Payment Structure 4) What are the other terms and conditions? • Subscriber Initiation Impacts Energy • Participation Limit: • Subscription Fee Each major attribute of a community solar program has been broken Residential Transferability • Subscriber Credit down into these four categories, and the options most commonly seen in Participation Limit: • Additional Grid • Generation programs today are identified for each. The following pages of this report Non-Residential Benefits Guarantee dive into further detail behind each option, and provide examples from • REC Treatment programs across the country that use these program attributes.
By following the questions identified and options presented, it is possible to create a draft community solar program design in short order.
Source: SEPA Research, 2018
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COMMUNITY SOLAR: THE DECISION TREE UTILITY ASSET ROLE OWNER WHO RUNS THE PROGRAM?
FULL ADMINISTRATOR BILLING UTILITY UTILITY PPA W/ DEVELOPER SUBSCRIBER When launching a community solar program, one of the first decisions ADMINISTRATION W/ OUTSOURCE ONLY DEVELOPER required is related to who administers the program. The program administrator is most directly connected to the subscribers. This means they have the greatest control over how the program is messaged and can gain the most customer relations benefit. In legislatively enabled markets, this role typically falls to a third-party developer, with the utility ASSET OWNERSHIP engaged for billing purposes only. In voluntary markets, many utilities • Does the utility have access to low-cost financing? take on full administration (including marketing, customer acquisition, KEY • How can you best monetize the investment tax credit? program design, etc.) themselves, while others leverage developers for • How much experience do you have managing solar some – or all – of those activities. CONSIDERATIONS generation?
Similarly, physical ownership of the community solar asset can be done Utility PPA in several ways. Municipal and cooperative utilities often leverage a OPTIONS Utility with Developer Subscriber developer to either own and administer the program, or sell the energy Developer to the utility under a PPA. In other programs, subscribers physically Rocky Fremont purchase and own (rather than lease or gain access to) their shares of Northern CPS Energy / Mountain Department the system. Lights Clean Energy Power of Utilities EXAMPLE Community Collective Subscriber Community Solar Simply Solar Solar Solar
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SUBSCRIBER SUBSCRIBER PAYMENT INITIATION STRUCTURE FEE
UP FRONT ONGOING HYBRID FEE FEE REFUNDABLE NO FEE COMMUNITY SOLAR: THE DECISION TREE PAYMENT RATE PAYMENT AFTER MIN TERM
SUBSCRIBER GENERATION WHAT IS THE SUBSCRIBER’S ECONOMIC PROPOSITION? CREDIT GUARANTEE The first evolution of community solar programs relied upon an up-front payment model, RETAIL RATE PARTIAL RATE COMMUNITY GUARANTEED VARIABLE mimicking a rooftop ownership scenario for the consumer. In recent years, and particularly as (VNEM) (LINE ITEM VNEM) SOLAR CREDIT MONTHLY GENERATION utilities have begun launching programs, an ongoing payment structure has become popular RATE GENERATION where the customer pays a fixed rate for energy produced each month. Many programs leverage net energy metering to provide customers their energy credit. In some jurisdictions, often where SUBSCRIBER PAYMENT STRUCTURE bills are unbundled, the utility has identified specific charges that are offset by participation in • What do target subscribers say they the community solar program. For example, the utility may fully credit all fuel and generation most want? related charges, but continue to pass through at prevailing rates any transmission and • Can your current billing system handle KEY distribution charges. Alternatively, a handful of companies have identified the specific value ongoing payments? created by the community solar project to the system, and provide that as a credit to CONSIDERATIONS • Is there a risk that your state will participating customers. consider the subscription a financial security? One other item that directly impacts the customer’s value proposition is the generation that gets credited. Solar is a variable resource, and many argue that the end consumer should see that Ongoing Upfront variability passed through in the community solar program. This is most often reflected in OPTIONS Rate Hybrid Payment programs where the customer subscribes in kW blocks, or panel increments. In some situations, Payment however, the utility “sells” blocks of kWh. For those programs, it can be stated that the participant Orlando is getting guaranteed production from the program. Blocks of kWh can be far simpler for MiEnergy Consumers Utilities customers to understand, and for utilities to integrate on the bill; however, they can also create Cooperative’s Energy Commission added complications. In order to ensure that the system is not oversold, the utility may need to EXAMPLE Renewable Solar Community sell fewer blocks of kWh to account for seasonal variability, or long-term system degradation. Rays Gardens Solar
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Source: SEPA Research, 2018 WWW.SEPAPOWER.ORG
TARGET CUSTOMER SITING & SCALE CLASSES
RESIDENTIAL SELECT C&I ALL CUSTOMER DESIGNED FOR DESIGNED FOR COMMUNITY SOLAR: THE DECISION TREE VISIBILITY CLASSES LOCATIONAL VALUE
WHAT ARE THE PARTICIPATION RESTRICTIONS? PARTICIPATION PARTICIPATION LIMIT: RESIDENTIAL LIMIT: NON-RES. Since community solar programs often are tied to a specific asset, they can 100% AVERAGE OTHER <= 20% OF <= 50% OF NO become size- and participation-constrained. Some programs are structured to CONSUMPTION PROJECT PROJECT LIMIT limit participation solely to one customer class, such as Residential, while others allow for broader participation on a first-come-first-served basis. A handful of programs are designed for explicit communities – typically where the system is located – and prioritize those customers over all others for PARTICIPATION LIMIT: RESIDENTIAL participation. • Most customers (per survey data) prefer offsetting 100% of their load A separate restriction for participation exists regarding the physical amount of • Limiting to < 100% can allow for energy that an individual customer may procure. The most frequently used KEY CONSIDERATIONS more participants in the program approach for Residential customers is a restriction based on their average • Does any portion of the program annual consumption. For larger customers, like the commercial and industrial need to be carved out / reserved for (C&I) class, it may be more appropriate to limit participation to a specific C&I and/or Low Income customers? portion of the entire project so that smaller customers still have an opportunity to participate. 100% Average OPTIONS Other Consumption
Jacksonville Energy Madison Gas Electric EXAMPLE Authority Shared Solar SolarSmart
SEPA | 2018 COMMUNITY SOLAR UPDATE Source: SEPA Research, 2018 24 WWW.SEPAPOWER.ORG
MINIMUM TERM PROGRAM UNSUBSCRIBED LENGTH ENERGY
NONE 1-2 YEARS <10 YEARS 10-20 YEARS PPA LENGTH/ FULLY PARTIALLY RECOVERED UNRECOVERED COMMUNITY SOLAR: THE DECISION TREE SYSTEM LIFE RECOVERED RECOVERED FROM FROM RATEPAYERS AT AVOIDED SUBSCRIBERS COST
ADDITIONAL WHAT ARE THE OTHER KEY TERMS & CONDITIONS? SUBSCRIPTION REC GRID BENEFIT TRANSFERABILITY TREATMENT Lastly, details regarding the term of the transaction, how available capacity gets allocated, CONSIDERED NOT PORTABLE & AVAILABLE TO SOLD AT (LOCATION BENEFIT, CONSIDERED RETIRED ON TRANSFERRED TO HELD OR and how specific benefits and attributes get monetized can all impact the ultimate TRANSFERRABLE WAITING LIST MARKET VALUE STORAGE, ETC.) BEHALF OF CUSTOMER SOLD TO MARKET economics of the community solar program. Perhaps the most important items to clarify for PARTICIPANT consumers are the Minimum Term and the Program Length. Generally speaking, consumers prefer short-term contracts and don’t like being tied into long-term agreements (based on PROGRAM LENGTH multiple comments during focus groups conducted under this project). • What do target subscribers say they most But term is more nuanced than it sounds, and really breaks down into two specific factors: want? (1) how long a customer is required to stay in the program (Minimum Term), and (2) how KEY • Can your current billing system handle long the program administrator guarantees the economic transaction (Program Length). CONSIDERATIONS ongoing payments? • Is there a risk that your state will consider The vast majority of programs seen create some type of long-term guarantee of the the subscription a financial security? program’s economics. This is accomplished by either the up-front payment or a locked-in PPA Length / ongoing payment; that is, the consumer knows exactly what the solar costs over a long OPTIONS <10 Years 10-20 Years System Life period. Peninsula Kit Carson Minimum Terms are sometimes created so a customer does not switch between different Light Austin Electric rate schedules multiple times in a year (“gaming,” for example, seasonal price differences Company Energy Cooperative between a standard rate and a time-of-use rate). Not all programs require a minimum term, EXAMPLE Harbor Community and those that do often only require a commitment of one to two years. Community Solar Community Solar Solar SEPA | 2018 COMMUNITY SOLAR UPDATE 25 Source: SEPA Research, 2018 WWW.SEPAPOWER.ORG
DECISION TREE IN ACTION
Ultimately, there are many ways a community solar program can be successfully designed. The key is giving proper consideration to what target subscribers are looking for in a program and what the administrator is aiming to accomplish. For example, a program designed to satisfy the demand of the most environmentally concerned customers will and should look very different compared to a program aiming to reduce the electricity bills of low- to moderate-income customers.
Consider the two examples on the following pages. Each utility made vastly different design selections and each has been very successful based on SEPA’s criteria that they:
1) are fully, or 2) return value to all rate-payers 3) have largely nearly fully, in an economically balanced satisfied subscribed; and equitable manner; and subscribers.
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MADISON GAS ELECTRIC SIMPLE SOLAR
SUBSCRIBER UTILITY PAYMENT SUBSCRIBER GENERATION ROLE STRUCTURE CREDIT GUARANTEE
FULL ADMINISTRATOR BILLING UP FRONT ONGOING HYBRID RETAIL RATE PARTIAL RATE COMMUNITY GUARANTEED VARIABLE ADMINISTRATION W/ OUTSOURCE ONLY PAYMENT RATE PAYMENT (VNEM) (LINE ITEM VNEM) SOLAR CREDIT MONTHLY GENERATION RATE GENERATION
TARGET PARTICIPATION UNSUBSCRIBED ADDITIONAL CUSTOMER LIMIT: RESIDENTIAL ENERGY GRID BENEFIT CLASSES
100% AVERAGE OTHER FULLY PARTIALLY RECOVERED UNRECOVERED CONSIDERED NOT RESIDENTIAL SELECT C&I ALL CUSTOMER CONSUMPTION RECOVERED RECOVERED FROM (LOCATION BENEFIT, CONSIDERED CLASSES FROM RATEPAYERS AT AVOIDED SUBSCRIBERS STORAGE, ETC.) COST
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AVISTA UTILITIES / CLEAN ENERGY COLLECTIVE
SUBSCRIBER UTILITY PAYMENT SUBSCRIBER GENERATION ROLE STRUCTURE CREDIT GUARANTEE
FULL ADMINISTRATOR BILLING UP FRONT ONGOING HYBRID RETAIL RATE PARTIAL RATE COMMUNITY GUARANTEED VARIABLE ADMINISTRATION W/ OUTSOURCE ONLY PAYMENT RATE PAYMENT (VNEM) (LINE ITEM VNEM) SOLAR CREDIT MONTHLY GENERATION RATE GENERATION
TARGET PARTICIPATION UNSUBSCRIBED ADDITIONAL CUSTOMER LIMIT: RESIDENTIAL ENERGY GRID BENEFIT CLASSES
100% AVERAGE OTHER FULLY PARTIALLY RECOVERED UNRECOVERED CONSIDERED NOT RESIDENTIAL SELECT C&I ALL CUSTOMER CONSUMPTION RECOVERED RECOVERED FROM (LOCATION BENEFIT, CONSIDERED CLASSES FROM RATEPAYERS AT AVOIDED SUBSCRIBERS STORAGE, ETC.) COST
SEPA | 2018 COMMUNITY SOLAR UPDATE 28 Source: SEPA Research 2018 1220 19TH STREET NW, SUITE 800, WASHINGTON, DC 20036-2405 202-857-0898 ©2016 Smart Electric Power Alliance. All Rights Reserved. ©2018 Smart Electric Power Alliance. All Rights Reserved.
DIRECT TESTIMONY OF JACKSON KOEPPEL
EXHIBIT 3
“A GUIDE TO COMMUNITY SOLAR: UTILITY, PRIVATE, AND NON-PROFIT PROJECT
DEVELOPMENT”
NATIONAL RENWABLE ENERGY LAB
ACKNOWLEDGEMENTS The Community Solar Guide was developed for the National Renewable Energy Lab by Northwest Sustainable Energy for Economic Development, Keyes and Fox, Stoel Rives, and the Bonneville Environmental Foundation. This Guide builds on the research and writing from the Northwest Community Solar Guide, published by Bonneville Envi- ronmental Foundation and Northwest SEED.
AUTHORS completeness, or usefulness of any information, Jason Coughlin, Jennifer Grove, Linda Irvine, Janet F. apparatus, product, or process disclosed, or represents Jacobs, Sarah Johnson Phillips, Leslie Moynihan, Joseph that its use would not infringe privately owned rights. Wiedman Reference herein to any specific commercial product, process, or service by trade name, trademark, REVIEWERS AND CONTRIBUTORS manufacturer, or otherwise does not necessarily Dick Wanderscheid, Bonneville Environmental constitute or imply its endorsement, recommendation, Foundation; Jessica Raker, Northwest SEED; Rachel or favoring by the United States government or any Huang, Sacramento Municipal Utility District; David agency thereof. The views and opinions of authors Brosch, University Park Community Solar, LLC; Tom expressed herein do not necessarily state or reflect Eichbaum, University Park Community Solar, LLC; Jerry those of the United States government or any agency Marizza, United Power; Lauren Martindale, Clean Energy thereof. Collective SPONSORS GRAPHIC DESIGN This report was made possible through funding from the Lynnae Burns, Bonneville Environmental Foundation U.S. Department of Energy’s Solar America Communities program. To learn more, please visit: Available online at: www.osti.gov/bridge www.solaramericacommunities.energy.gov
Published November 2010 This document is not legal or tax advice or a legal opin- ion on specific facts or circumstances. The contents are NOTICE intended for informational purposes only. This report was prepared as an account of work sponsored by an agency of the United States The authors are solely responsible for errors and omis- government. Neither the United States government sions. nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes Prepared for NREL any legal liability or responsibility for the accuracy, Subcontract No. AGJ-0-40314-01 TABLE OF CONTENTS
SECTION 1: INTRODUCTION 2 Purpose 2 How To Use This Guide 2 Why “Community” Solar? 2 Definition of Key Terms 3 SECTION 2: COMMUNITY SOLAR PROJECT MODELS 6 Utility-Sponsored Model 7 Special Purpose Entity (SPE) Models 12 Non-Profit Model 19 Summary Chart of Benefit Allocations 21 SECTION 3: EMERGING STATE POLICIES TO SUPPORT COMMUNITY SOLAR 22 Group Billing 22 Virtual Net Metering 23 Joint Ownership 24 SECTION 4: TAX POLICIES AND INCENTIVES 26 Business Energy Investment Tax Credit (“Commercial ITC”) 27 U.S. Treasury Renewable Energy Grant 27 Tax Credit Bonds 28 Federal Grants 29 State and Local Tax Considerations 29 Interactions Among State and Federal Incentives 30 SECTION 5: SECURITIES COMPLIANCE 32 SECTION 6: GETTING STARTED 34 SECTION 7: RESOURCES 38 Organizations and Institutions 38 Publications 39 APPENDIX A 40 Business Formation and Types: Special Project Entities for Community Solar Projects 40 Summary Table of Business Types 45 APPENDIX B 46 Introduction to IREC’s Community Renewable Model Program Rules 46 Introduction
PURPOSE In communities across the United States, people are seeking alternatives to conventional energy sources. Whether they aim to increase energy independence, hedge against rising fuel costs, cut carbon emissions, or provide local jobs, they are looking to community-scale renewable energy projects for solutions. Advances in solar technology, an increase in federal and state tax incentives, and creative new financing models have made solar projects including community solar projects, more financially feasible.
This guide is designed as a resource for those who want to develop community solar projects, from community organizers or solar energy advocates to government officials or utility managers. By exploring the range of incentives and policies while providing examples of operational community solar projects, this guide will help communities to plan and implement successful local energy projects. In addition, by highlighting some of the policy best practices, this guide suggests changes in the regulatory landscape that could significantly boost community solar installations across the country. HOW TO USE THIS GUIDE The information in this guide is organized around three sponsorship models: utility-sponsored projects, projects sponsored by special purpose entities – businesses formed for the purpose of producing community solar power, and non-profit sponsored projects. The guide addresses issues common to all project models, as well as issues unique to each model.
The guide begins with examples of the three project sponsorship models, discussing the legal and financial implications of each model. This is followed by a discussion of some state policies that encourage community solar – ways for multiple individuals to share in the benefits of a single solar installation. The guide then reviews some of the tax and financing issues that impact community solar projects. While the guide cannot offer legal or tax advice, the authors hope to provide an outline of the legal hurdles and pitfalls that every project organizer should consider. Finally, the “Getting Started” section provides readers with practical tools and tips for planning their own project. The Appendices provide a more detailed comparison of business structures suitable for special purpose entities pursuing solar projects and the Interstate Renewable Energy Council’s Model Community Renewables Program Rules.
This guide cannot possibly describe all available incentives or cite all the examples of community solar efforts nationwide. To track the most recent developments, we refer the reader to resources in Section 7. WHY “COMMUNITY” SOLAR? For the purpose of this guide, Community Solar is defined as a solar-electric system that, through a voluntary program, provides power and/or financial benefit to, or is owned by, multiple community members. Community Solar advocates are driven by the recognition that the on-site solar market comprises only one part of the total market for solar energy. A 2008 study by the National Renewable Energy Laboratory found that only 22 to 27% of residential rooftop area is suitable for hosting an on-site
2 SECTION 1: INTRODUCTION photovoltaic (PV) system after adjusting for structural, shading, or ownership issues.i Clearly, community options are needed to expand access to solar power for renters, those with shaded roofs, and those who choose not to install a residential system on their home for financial or other reasons. Fairness also supports expanding programs in ways that increase options for participation. As a group, ratepayers and/ or taxpayers fund solar incentive programs. Accordingly, as a matter of equity, solar energy programs should be designed in a manner that allows all contributors to participate.
This guide focuses on projects designed to increase access to solar energy and to reduce up-front costs for participants. The secondary goals met by many Community Solar projects include:
4Improved economies of scale 4Optimal project siting 4Increased public understanding of solar energy 4Generation of local jobs 4Opportunity to test new models of marketing, project financing and service delivery
Creative mechanisms to foster greater deployment of solar energy projects are not limited to those described in this guide. Readers may be interested in investigating the following efforts that employ some elements of community solar:
4Bulk purchasing efforts in Portland, OR (Solarize Portland!) and nationwide (1BOG) 4Solar services co-ops such as Cooperative Community Energy, CA 4Utility-owned distributed generation on customer rooftops, such as the Arizona Public Service Community Power Project
DEFINITION OF KEY TERMS The following terms are defined in the context of community solar.
Renewable Energy Credits (RECs, carbon offsets, or green tags): A renewable energy facility produces two distinct products. The first is electricity. The second is the package of environmental benefits resulting from not generating the same electricity– and emissions –from a conventional gas or coal-fired power plant. These environmental benefits can be packaged into a REC and sold separately from the electrical power. A REC represents the collective environmental benefits, such as avoided mercury, CO2 and other environmentally harmful pollutants, as a result of generating one megawatt-hour (MWh) of renewable energy.
In most cases, RECs are sold on a per MWh basis. However, some project organizers choose to sell all future rights to RECs up front, on a per installed watt basis, effectively capturing an installation rebate and forgoing any future revenue from REC sales.
Net metering: Most on-site renewable energy systems use net metering to account for the value of the electricity produced when production is greater than demand. Net-metering allows customers to bank this excess electric generation on the grid, usually in the form of kilowatt-hour (kWh) credits that can be used as needed during a given period. Essentially, whenever the customer’s system is producing more energy than the customer is consuming, the excess energy flows to the grid and the customer’s meter
SECTION 1: INTRODUCTION 3 runs backwards. Because this “netting of energy” results in the customer purchasing fewer kWhs from the utility, the electricity produced from the renewable energy system can be valued at the retail price of power. Most utilities have a size limit for net metering. Community Solar project organizers should be sure to check before assuming participants in a community solar system can net-meter. It may be that some alternative arrangement, such as group billing or joint ownership, is used to account for the value of the electricity produced by a community solar project.
Tax appetite: Individuals and businesses can reduce the amount of taxes owed by using tax credits. For a tax credit to have any value, though, the individual or business must actually owe taxes. If they are tax- exempt or merely lacking sufficient income to need tax relief, the tax credits have no value. Individuals or businesses that can use tax credits to reduce the amount they owe in taxes are said to have a “tax appetite.” For example, public and non-profit organizations are tax-exempt and therefore do not have a tax appetite. In addition, tax-paying entities might be eligible to use tax-based incentives, but have insufficient tax appetite to make full use of them.
Investment Tax Credit (ITC): Section 48 of the Internal Revenue Code defines the federal ITC. The ITC allows commercial, industrial, and utility owners of photovoltaic (PV) systems to take a one-time tax credit equivalent to 30% of qualified installed costs. There is also a federal residential renewable energy tax credit (Internal Revenue Code Section 25D) but the residential tax credit requires that the PV system be installed on a home the taxpayer owns and uses as a residence, thus it would rarely, if ever, be applicable to community solar projects.
Power purchase agreement (PPA): A PPA is an agreement between a wholesale energy producer and a utility under which the utility agrees to purchase power. The PPA includes details such as the rates paid for electricity and the time period during which it will be purchased. Sometimes, the term PPA or “3rd Party PPA” is used to describe the agreement between the system owner and the on-site system host, under which the host purchases power from the system. This arrangement is not explicitly allowed in all states; in some states it may subject the system owner to regulation as a utility. To avoid confusion, in this guide, a PPA refers only to an agreement by a utility to purchase power from the solar system owner.
Solar services agreement (SSA): A solar services agreement is an agreement between the system owner and the system site host, for the provision of solar power and associated services. The system owner designs, installs, and maintains the system (a set of solar services) and signs an agreement with the host to continue to provide maintenance and solar power. The agreement is sometimes referred to as a PPA, but in this guide, we use the term SSA to indicate that the agreement between the system owner and the system site host is more than a power purchase: it is an agreement that the system owner will provide specific services to ensure continued solar power.
Securities: A security is an investment instrument issued by a corporation, government, or other organization that offers evidence of debt or equity. Any transaction that involves an investment of money in an enterprise, with an expectation of profits to be earned through the efforts of someone other than the investor, is a transaction involving a security. Community solar organizers must take care to comply with both state and federal securities regulations, and preferably, to steer clear of inadvertently offering a security. (Further information on securities is provided in Section 4, Tax Policies and Incentives.)
4 SECTION 1: INTRODUCTION United Power’s Sol Partners Installation, Colorado
SECTION 1: INTRODUCTION 5 Community Solar Project Models
People have many reasons for organizing or participating in a community solar project. Just as their motives vary, so do the possible project models, each with a unique set of costs, benefits, responsibilities, and rewards. This section reviews several project models:
4Utility-Sponsored Model, in which a utility owns or operates a project that is open to voluntary ratepayer participation.
4Special Purpose Entity (SPE) Model, in which individual investors join in a business enterprise to develop a community solar project.
4Non-Profit “Buy a Brick” Model, in which donors contribute to a community installation owned by a charitable non-profit corporation.
The authors of this guide hope to illustrate the pros and cons of different sponsorship models, as well as the variations within project models, so that project planners can select the model and variations that best suit their situation and goals. Before selecting a project model, every planner should consider the following issues:
Allocation of Costs and Benefits. Who will pay to plan, construct, and operate the solar system? Who will have rights to benefits, including the electricity produced, RECs, revenue from electricity sales, tax benefits, other incentives, and ownership of the project’s assets (such as the solar system itself)? A table at the end of this section summarizes the options for allocating benefits within the structure of each sponsorship model.
Financial and Tax Considerations. Will money be raised through a solar fee on electricity bills, by equity or debt financing of a business entity, through charitable donations, or various other options? What kind of tax implications will there be for participants–e.g., will the project generate taxable income for participants? Will it generate tax credits or deductions for participants?
Other legal issues. How will the project design address securities regulation, utilities regulation, business regulation, and the complexity of agreements between various project participants?
The chart on the following page compares aspects of the three sponsorship models.
6 SECTION 2: COMMUNITY SOLAR PROJECT MODELS COMPARISON OF MODELS
Administered by Utility Special Purpose Entity Non-profit Owned by Utility or 3rd party SPE members Non-profit Financed by Utility, grants, ratepayer Member investments, Donor contributions, subscriptions grants, incentives grants Hosted by Utility or 3rd party 3rd party Non-profit Subscriber Profile Electric rate payers of Community investors Donors the utility Subscriber Motive Offset personal Return on investment; Philanthropy electricity use Offset personal electricity use Long-term Strategy of Offer solar options Sell system to host Retain for electricity Sponsor production for life of Add solar generation system (possibly for Renewable Retain for electricity Portfolio Standard) production for life of system Examples Sacramento Municipal University Park Solar for Sakai Utility District – Solar- Community Solar, LLC Shares Program Clean Energy Collective, United Power Sol LLC Partners
UTILITY-SPONSORED MODEL For communities desiring to organize a community solar project, the local electric utility is a good place to start. First of all, utilities are likely to have the legal, financial and program management infrastructure to handle organizing and implementing a community solar project. Second, many utilities are actually governed by their member- ENROLLMENT OPTIONS customers and can be directed to pursue projects on their members’ • Single payment up-front behalf. Fully one-fourth of Americans own their own electric power • Payment spread out on ii company, through co-ops, or city- or county-owned utilities. And, Installment Plan in general, publicly owned utilities have taken the lead in deploying • Monthly subscription (no community solar projects. But even when the utility is investor-owned up-front fee) or privately held, it may wish to expand customer choice with an option for community solar power. iii
SECTION 2: COMMUNITY SOLAR PROJECT MODELS 7 OVERVIEW In most utility-sponsored projects, utility customers participate by contributing either an up-front or ongoing payment to support a solar project. In exchange, customers receive a payment or credit on their electric bills that is proportional to 1) their contribution and 2) how much electricity the solar project produces. Usually, the utility or some identified third party owns the solar system itself. The participating customer has no ownership stake in the solar system. Rather, the customer buys rights to the benefits of the energy produced by the system. Note that utility-sponsored community solar programs are distinct from traditional utility “green power” programs in that “green power” programs sell RECs from a variety of renewable energy resources; utility community solar programs sell energy or rights to energy from a specific solar installation, with or without the RECs.
Utility-sponsored programs can help make solar power more accessible by decreasing the amount of the purchase required, and by enabling customers to purchase solar electricity in monthly increments. Both Sacramento Municipal Utility District’s Solar Shares and Tucson Electric Power’s upcoming Bright Tucson programs allow customers to participate in community solar on a monthly basis. UTILITY-SPONSORED PROJECT
Ratepayers Voluntary Purchases Community Solar Installation RECs (in some cases)
Value of Energy
Production Incentive (If available)
Utility
Electricity
TAX AND FINANCE ISSUES FOR UTILITY-SPONSORED PROJECTS A utility project’s ability to use tax incentives will depend on the individual utility’s characteristics. Electric co-ops, municipal utilities and public utility districts are exempt from federal income taxes and thus cannot benefit from federal tax incentives, like the ITC and depreciation. However, they can make use of Clean Renewable Energy Bonds (CREBs) that are not available to the for-profit investor-owned or privately held utilities.
8 SECTION 2: COMMUNITY SOLAR PROJECT MODELS Since 2008, investor-owned utilities have been eligible to use the commercial ITC on qualifying public utility property. And as tax-paying entities, they potentially have the tax appetite to make use of them. However, normalization accounting rules limit regulated utilities’ flexibility in maximizing the value of these tax benefits compared to other private developers. Normalization rules require regulated utilities to spread the benefits of investment tax credits throughout the useful life of the solar project in their rate- making process. The utility’s incentive for investment is the difference between the value it receives from the tax credit up front and the value it passes on to customers over time (i.e. the time value of money). Private developers have the flexibility to pass on the benefits of the ITC sooner, which can give them a price advantage over utility solar projects. iv
Other legal issues for utility-sponsored projects include the following:
4Securities Compliance. In designing mechanisms for customer participation in solar projects, utilities must be careful to comply with securities regulations. This requires carefully considering what benefit a customer-participant receives in exchange for a financial contribution to the project and how the project is marketed. For example, customer participants may buy ownership stakes in the solar system itself or just the rights to certain benefits from the energy produced (such as credit on their electric bills, RECs, or access to a special electric rate). To avoid any appearance of selling securities, the Sacramento Municipal Utility District (SMUD) chose not to sell actual ownership of panels, but instead to credit customers for an estimated monthly output of solar electricity, specified in advance of enrollment.
4 Allocation of Incentives. In addition to federal tax incentives, a utility-sponsored project might be eligible for a variety of state incentive programs that provide cash benefits or savings to the project. The utility must consider whether and how these incentives will be passed on to customer participants and the tax implications of how the incentives are handled. For example, in Washington State, participants in a utility-sponsored program are eligible for production incentives. While the state Department of Revenue has ruled that the incentive is not taxable, the IRS has not ruled definitively on whether or not subsidies for solar PV in community solar installations are taxable income, although the precedent is that subsidies for energy conservation measures are not taxable.v
4RECs. Customer participants in utility-sponsored projects often desire to claim the environmental benefits of using solar energy. They can only make such a claim if they receive RECs or the utility retires the RECs on their behalf. If the utility keeps the RECs for any reason, including Renewable Portfolio Standard compliance, only the utility can make environmental claims related to the solar system. The utility-sponsored project should consider and make explicit how RECs are allocated.
From a participant perspective, the tax implications are minimal.vi Bill credits for the value of electricity are not generally taxed; at the same time, participants in a utility-sponsored project are not eligible for the federal investment tax credit. The relative ease of participating in a utility-sponsored project may offset some of the foregone tax incentives available under other community solar ownership models.
EXAMPLES OF UTILITY-SPONSORED PROJECTS The following examples highlight some of the project options available to those planning a utility- sponsored project.
SECTION 2: COMMUNITY SOLAR PROJECT MODELS 9 Sacramento Municipal Utility District (SMUD): SolarShares Program
SMUD has long been a leader in solar energy deployment. The SolarShares program allows customers to purchase output from a solar project on a monthly basis. Rather than own the system, SMUD contracted with a solar developer, enXco, to build, own, and maintain a 1-MW system. enXco sells the power to SMUD under a twenty-year power purchase agreement. The electricity from this system is fed directly into the grid and SMUD uses this solar-generated electricity as the basis for its SolarShares program. Courtesy of Rachel Huang, Sacramento Municipal Utility District
Customers pay a fixed monthly fee, based on both the amount of PV to which they want to subscribe (from 0.5 to 4 kW) and their average electricity consumption. In order to encourage conservation, SMUD makes the SolarShares less expensive for their customers who use less electricity. Once enrolled, a customer is locked in at the fixed monthly fee, for as long as they wish to participate. They receive monthly kWh credits for the estimated output of their solar subscription. Although customers currently pay a premium for solar energy, the effective rate for solar is locked in when they enroll, which maintains the ability of solar to act as a hedge against future price increases. The program is fully subscribed, with approximately 700 residential SolarShares customers. Customers can join a waiting list, and enroll when current customers drop or move out of the territory. SMUD is making plans for expansion of up to 25 MW over the next few years.
4PROGRAM HIGHLIGHTS 4FINANCIAL DETAILS • System Owner: enXco, with SMUD purchasing 100% • Installed Cost: NA of the output under a 20-year PPA • Capital Financing: Handled by 3rd Party, enXco • Installed Capacity: 1 MW • Tax Credits: 30% federal Business • Participant Agreement: Customers pay a fixed Investment Tax Credit taken by enXco, MACRS taken monthly fee in return for a kWh credit. Credit varies by enXco monthly, as solar output varies, so a 12-month • Estimated Annual Cost: Varies by customer size & consecutive commitment is requested. array size; Output from a 0.5-kW share for the small • Electricity: The estimated kWh generated by a user will cost $129/yr at today’s prices. customer’s share is netted against his or her As the price for non-solar energy rises, a participant consumption at home, at the full retail rate. could eventually realize monthly savings on their • RECs: Retained by SMUD solar purchase. • Number of Participants: Approximately 700
For More Information: Rachel Huang, [email protected], (916) 732-6930, www.smud.org/
10 SECTION 2: COMMUNITY SOLAR PROJECT MODELS United Power: Sol Partners Cooperative Solar Farm, Colorado
United Power is a rural electric co-opvii serving homes and businesses throughout Colorado’s northern front range. The Sol Partners Cooperative Solar Farm is located on United Power’s property in Brighton. Under a program launched in the summer of 2009, co-op members can license solar panels for a 25-year period and receive credit for all the power generated by their panels. Rather than net the kWh produced by the panels against the customer’s personal electricity usage, the utility will bill the customer as usual, but then add a credit at the community solar rate, which is slightly above the full retail rate.
The program will “grow as you go” with new customers providing the funds for future expansion. Although the second phase will be considerably less expensive to build, the customer agreement will be the same for both Phase I and II. Customers may lease multiple panels, up to 10 kW for residential and 25 kilowatts for commercial.
Courtesy of Jerry Marizza, United Power, Inc
4PROJECT HIGHLIGHTS 4FINANCIAL DETAILS • System Owner: United Power • Total Installed Cost: Phase I: Approximately $10/watt. • Installed Capacity: 10 kW with plans for Phase II Phase II: $5.50/watt • Participant Agreement: One-time fee to • Capital Financing: Utility financed lease a 210-watt panel for 25 years • Tax Credit: NA (tax-exempt) • Electricity: Customers receive a monthly bill credit • Grants: $50,000 from State Governor’s for the value of their panel’s production at a solar Office for design rate, slightly above the retail rate (currently 11 • One-time Subscription cost: $1,050 cents per kWh vs. 10.5 cents retail) • Value of electricity credits over 25 years: $900 • RECs: Retained by United Power assuming a constant solar credit rate (but this solar • Number of Participants: 25 credit rate will likely rise, as will the retail rate)
For More Information: Jerry Marizza, [email protected], (303) 637-1250, www.unitedpower.com/
OTHER UTILITY-SPONSORED COMMUNITY SOLAR PROJECTS City of Ellensburg, WA; Florida Keys Electric Co-op, FL; St. George SunSmart, UT; City of Ashland, OR Coming Soon: Seattle City Light, WA; Tucson Electric Power, AZ
SECTION 2: COMMUNITY SOLAR PROJECT MODELS 11 SPECIAL PURPOSE ENTITY (SPE) MODELS To take advantage of the tax incentives available to commercial solar projects, organizers may choose to structure a project as a business. In most states, there is a range of business entities that could be suitable for a participant-owned community solar project. (Please see Appendix A for more in-depth descriptions of these business entities.) The main challenges in adapting these commercial solar structures for community projects include:
4Fully utilizing available tax benefits when community investors have limited tax appetite, including a lack of passive income.
4Maintaining the community project identity when engaging non-community-based tax-motivated investors.
4Working within limits on the number of unaccredited investors if the project is to be exempt under securities laws.
OVERVIEW When a group chooses to develop a community solar project as a special purpose entity, they are taking on the significant complexity of forming and running a business. The group must navigate the legal and financial hurdles of setting up a business and raising capital, while possibly having to comply with securities regulation. In addition, they must negotiate contracts between the participant/owners, the site host and the utility; set up the legal and financial processes for sharing benefits; and manage the operation of the business.
Given the complexity of forming a business, it is not surprising that many special purpose entities pursuing community solar are organized by another existing business entity with legal and financial savvy. Solar installation companies such as My Generation Energy in Massachusetts have successfully created LLCs to purchase solar installations funded by a group of investors. Although this expands the market for solar, we have not included this as an example of community solar because the benefits are limited to a small group of tax-motivated investors. In an alternative model, the Clean Energy Collective in Colorado is an LLC that has created a complex business structure that allows for individuals to buy solar panels in a common installation. While the CEC incurred significant legal costs to set up the company structure, they are now able to offer participation to an unlimited number of utility customers.
12 SECTION 2: COMMUNITY SOLAR PROJECT MODELS SPECIAL PURPOSE ENTITY
Payment for Energy (SSA)
Special Purpose Community Solar Entity Installation Purchases Electricity
Members Electricity
Payment for Energy (PPA) Payment for RECs Utility Host Production Incentives (if available) Net Metering
TAX AND FINANCE ISSUES FOR SPECIAL PURPOSE ENTITY PROJECTS Federal income tax benefits offer significant value for solar projects, but they can be challenging for community projects to use effectively. Making use of tax credits or losses (from depreciation) requires a taxpayer to have significant taxable income. Moreover, passive investors in a community solar project (investors who do not take an active role in the company or its management) can only apply the ITC to passive income tax liability. As discussed below, most investors in a community solar project will likely be passive investors, and few will have passive income. As a result, most individuals cannot fully utilize federal tax benefits. In this section, we describe the major limitations on using federal tax benefits and outline potential financing structures that accommodate those limitations. However, the descriptions here are general and do not account for the many nuances that might apply to individual projects.
Passive Activity Rules IRS “passive activity” rules are a major challenge for community-based renewable energy investors trying to use federal tax benefits. In most cases, an individual’s investment in a community solar project will be considered a passive investment. Passive activity rules allow tax credits or losses generated from passive investment to be used to offset only passive income.viii
SECTION 2: COMMUNITY SOLAR PROJECT MODELS 13 Most individuals primarily have non-passive income, which includes salaries, wages, commissions, self- employment income, taxable social security and other retirement benefits. Non-passive income also includes portfolio income such as interest, dividends, annuities, or royalties not derived in the ordinary course of a business. While portfolio income may seem passive, the IRS specifically excludes it from the category of passive income.
Passive income can only be generated by a passive activity. There are only two sources for passive income: a rental activity or a business in which the taxpayer does not materially participate.
Participation generally means work done in connection with an activity in which the taxpayer owns an interest. To “materially” participate in the trade or business activity (in this case, operation of a solar project) a person must participate on a regular, continuous, and substantial basis in the operations of the activity. This is a high standard that participants likely will not be able to meet. That means most participants will be passive investors, limited to applying federal tax benefits to passive income. The community solar project itself likely will not generate sufficient income to make full use of the ITC or depreciation benefits, at least not in the early years of a project. Therefore a project intending to rely on federal tax benefits will have to seek participation of an investor with a larger tax appetite.
At-Risk Limitations In addition to passive activity rules, at-risk rules limit the amount of losses one can claim from most activities. Specifically, one can only claim losses equivalent to one’s amount of risk in the activity. The “at-risk” amount generally is the amount of cash and property one contributes to the activity. In addition, any amount borrowed for use in the activity is at-risk, so long as the borrower is personally liable for repayment of the loan or the loan is secured with property not used for the activity. Money contributed from a non-recourse loan will not be considered “at-risk.”
Securities Regulation This topic will be explored more fully in the Securities Compliance section below, but is worth mentioning here because securities regulations are a major factor in financing structures for the SPE model. To reduce the burden of securities compliance, many small projects seek a private placement exemption to registration requirements. Qualifying for such an exemption requires limiting who can invest in the project (based on assets or income for individuals) and how such an offering can be conducted. The practical effect is to limit the number of middle-income people who can invest in a community solar project. If a project is designed to produce electricity proportional to the amount used by the participants, securities issues will effectively limit the size of a project. For example, private placement exemption limits the number of “unaccredited” investors to 35 or fewer.x A 1-MW solar facility, in contrast, could serve far more participants, perhaps 300-500. Therefore, project developers must carefully consider how to reconcile their financing mechanism with the size of their project, the number of participants, and type of participants.
Potential Financing Structures Special purpose entities need to plan their financing structure carefully. Structures that effectively use the ITC can be complex and tend to mimic the structures used by larger commercial solar projects. For a community SPE, potential financing structures that maximize federal tax incentives include:
14 SECTION 2: COMMUNITY SOLAR PROJECT MODELS 4Self-financing: The simplest option for a community SPE is to finance the project with equity invested by community members. However, in order to fully utilize federal tax benefits, the SPE would need to have enough community investors that have sufficient tax appetite to use federal tax incentives. Given the passive loss rules and the at-risk limitations discussed above, this is not a realistic goal for community groups consisting of individuals who lack other sources of passive income. That means, the project organizers will likely have to make the project economically viable without full use of federal tax incentives (difficult without aid from a state or local incentive of similar value), or will have to use one of the more complex structures like a flip or a sale/leaseback described below. This need not take away from the community ownership, if the project can find even one community member with the financial resources and tax appetite to participate as the primary tax investor.
4Flip Structure: In this scenario, the community SPE would partner with a tax-motivated investor in a new special purpose entity that would own and operate the project. Initially, most of the equity would come from the tax investor and most of the benefit would flow to the tax investor (as much as 99%). When the tax investor has fully monetized the tax benefits and achieved an agreed upon rate of return, the allocation of benefits and majority ownership (95%) would “flip” to the community SPE (but not within the first five years). After the flip, the community SPE would have the option to buy out all or most of the tax investor’s interest in the project at the fair market value of the tax investor’s remaining interest. (The numbers provided here reflect IRS guidelines on flip structures issued for wind projects claiming the federal production tax credit; similar rules potentially could apply to solar projects claiming the ITC.)
4Sale/Leaseback: In this scenario, the community SPE (as the developer of the project, the site host, or both) would install the PV system, sell it to a tax investor and then lease it back. As the lessee, the community SPE would be responsible for operating and maintaining the solar system as well as have the right to sell or use the power. In exchange for use of the solar system, the community lessee would make lease payments to the tax investor (the lessor). The tax investor would have rights to federal tax benefits generated by the project and the lease payments. The community SPE might have the option to buy back the project at 100% fair market value after the tax benefits are exhausted.
There are numerous complex legal, financial, and tax issues associated with all of these financing structures. These descriptions do not begin to cover them all, but rather present the possible frameworks to work from. For further information on financing structures, see Section 7: Resources.
EXAMPLES OF SPECIAL PURPOSE ENTITY PROJECTS The following examples represent two possible approaches; a volunteer-led LLC and a business enterprise ready to partner with utilities across the country. Both special purpose entities are structured as LLCs. Although there has been much interest in the possibility of structuring a community solar enterprise as a co-op, in fact, there are no examples of operating solar power co-ops.xi Several rural electric co-ops that deliver electricity to their customer/members have started “community solar” programs, but the programs are peripheral to their function as consumer co-ops for the distribution of electricity.
SECTION 2: COMMUNITY SOLAR PROJECT MODELS 15 University Park Community Solar LLC, Maryland
The volunteer founders of University Park Community Solar spent more than two years crafting the legal and financial aspects of their business model. With expert consultation, including help from a state Senator to change the Maryland net metering law, they formed a member-managed LLC that will return their investment in five to six years. Within the group, there are both active and passive investors. A-22 kW system was installed on the roof of a local church in May 2010. The LLC will pass benefits to its members based on revenue from several sources: electricity sold to the church and grid, the auction of RECs, federal tax incentives, and depreciation. The LLC and the Church have signed a 20-year agreement detailing the provision of electricity, access to the solar array, maintenance, insurance, and other issues. The host has an option to purchase the system before the 20-year term is up. The founders note that accounting and legal fees Courtesy of David Brosch, University Park Community Solar, LLC could overwhelm any return to members. To assist in establishing the LLC, the group received pro bono help from the Maryland Intellectual Property Legal Resource Center and paid approximately $12,000 for other legal and accounting expertise. Going forward, they plan to handle the accounting and tax paperwork in house as much as possible. The LLC organizers were careful to obtain legal advice on how to gain an exemption from state and federal SEC filing requirements. They are not all “accredited” investors. In addition, they were required to create lengthy disclosure documents to ensure that investors were fully informed of the risks. Their attorneys advised them to pursue an exemption that restricted them in several aspects, including having fewer than 35 unaccredited investors, keeping the offering private, and limiting membership within the state of Maryland. (See Section 5: Securities Compliance to read more about securities compliance and private placement exemptions.) 4PROJECT HIGHLIGHTS 4FINANCIAL DETAILS • System Owner: University Park Community Solar LLC • Installed Cost: $5.90/watt • System Host: Church of the Brethren, University • Capital Financing: Member financed Park, MD • Tax Credits: 30% federal ITC equivalent to $39,000 • Installed Capacity: 22 kW • Grants: $10,000 from State of MD • Participant Agreement: LLC passes net revenues • MACRS: Will depreciate 85% of cost over six years (after expenses) and tax credits to members • Estimated Annual Income from Power Sales: $3,600 • Electricity: LLC sells power to church below retail in year 1, rising 3.5% per year rate. Rate escalates approx 3.5%/yr. Host net meters. Annual net excess generation is compensated by the utility. • RECs: LLC is currently negotiating the sale of RECs to the installer • Number of Participants: 36 LLC Members
For More Information : David Brosch, [email protected], (301) 779-3168, www.universityparksolar.com 16 SECTION 2: COMMUNITY SOLAR PROJECT MODELS Clean Energy Collective, LLC, Colorado
The Clean Energy Collective (CEC) provides a member-owned model that enables individuals to directly own panels in a community solar farm. The CEC works closely with local utilities to create community-scale solar projects that combine the on-bill credits of a utility-owned project with the equivalent tax benefits and rebates of an individually owned solar project. While the 30% investment tax credit is not directly available to individuals
who participate in the project, Courtesy of Lauren Martindale, The Clean Energy Collective, LLC the cost to participate is adjusted to reflect the value of the tax credits. The CEC takes the 1603 Treasury Grant instead of the ITC as the initial owner of the array. Portions of the array are then sold to customers at discounted costs (reducing the cost by the proportioned Treasury Grant discount). Customers must be qualified taxpayers and cannot take a tax credit on their purchase as the grant has been taken by the CEC. Both parties are subject to recapture over the first five years if the resulting system is then sold to a disqualified or non-tax paying entity. Creating this proprietary project model, with ownership, tax and legal considerations, was quite challenging. When individual owners purchase panels in the solar farm, the utility credits them for the power produced at or above the retail rate (net-metering economics) directly on their electric bill using the CEC’s RemoteMeter™ software system. The purchase price is as low as $725, depending on available rebates and RECs. For example, in the first project, CEC sold the rights to all future RECs up-front, on a per watt basis, enabling them to offset a portion of the installed cost. The benefits of ownership are transferable: if an owner moves within the service territory, the bill credits follow them; if they move out of the territory, an owner can resell their ownership to another utility customer or back to the CEC at fair market value or donate the property to a non-profit. The owners must be customers of the electric utility within which the community array is located and their purchase is limited to the number of panels they need to offset 120% of their yearly electric use. These rules ensure that benefits directly accrue to the local utility customers rather than outside investors. The CEC is the management company representing the community owners and maintaining the solar arrays. In order to provide “utility-grade” long-term power to the utility, a percentage of the monthly power credit value and the initial sale price fund equipment insurance, operations and maintenance escrows.
SECTION 2: COMMUNITY SOLAR PROJECT MODELS 17 The first CEC project is a 77.74-kW array in the Holy Cross Energy service territory (western Colorado). The CEC leased the land, sold the project to customers, and negotiated a PPA with Holy Cross Energy. The PPA rate paid by Holy Cross will escalate as regular utility rates increase. CEC’s RemoteMeter™ system automatically calculates monthly bill credits for customer accounts and integrates directly with the utility’s billing system to apply the credits. The CEC is breaking ground soon on its next community- owned 1-MW solar array at the Garfield County Airport near Rifle, Colorado.
4PROJECT HIGHLIGHTS 4FINANCING DETAILS • System Owner: Individuals in Holy Cross Energy • Installed Cost: $466,000 or $6/watt (Cost to utility territory customers: $3.15/watt, includes all rebates, RECs • System Host: CEC leases site from the Mid Valley and credits taken by the CEC) Metropolitan District • Capital Financing: Project built with internal CEC • Installed Capacity: 78 kW private capital, which is paid back as individuals buy • Participant Agreement: Minimum $725 purchase into the project (a single panel after rebates and incentives). Panel • Federal Tax Credit: CEC takes the 1603 Treasury owners receive monthly credits for the value of the Grant and passes the savings to the customer electricity produced for 50 years. • Rebates: $1/watt plus $0.50/watt for rights to the • Electricity: CEC, as agent for its customers, has a RECs from Holy Cross Energy PPA with Holy Cross Energy to purchase the power • Estimated Annual Income from Power Sales: produced. Customers receive the resulting monetary $15,444 ($198/kW), rising as regular rates rise credit on their monthly electric bill. • Simple Payback: 12.8 years • RECs: Holy Cross Energy purchased rights to RECs for $500/kW (paid up-front). • Number of Participants: 18 customers
For More Information: Lauren Martindale, [email protected], (970) 319-3939, www.easycleanenergy.com
18 SECTION 2: COMMUNITY SOLAR PROJECT MODELS NON PROFIT MODEL If a non-profit were to While this is not strictly “community solar” in that the donors do not share return some benefit to directly in the benefits of the solar installation, the donors do share indirectly, donors, (for example, by lowering energy costs for their favored non-profit and demonstrating a portion of production environmental leadership. In addition, with emerging state policies such as incentives or a share of virtual net metering and group billing, there may be possibilities for a non-profit electric savings) this would project sponsor to share benefits with their donor/members. In a variation on constitute a “quid pro quo” non-profit ownership, a non-profit may partner with a third party for-profit entity, contribution and the donor which can own and install the system and take the tax benefits. This model has could not deduct their been deployed successfully in the California Multifamily Affordable Housing entire contribution. program and at other non-profit locations throughout the country.xii
OVERVIEW Non-profit organizations such as schools and churches are partnering with local citizens to develop community solar projects. Under this model, supporters of the non-profit organization help finance the system through tax- deductible donations. While the non-profit is not eligible for the federal commercial ITC, it may be eligible for grants or other sources of foundation funding that would not otherwise be available to a business. An example of this model is the “Solar for Sakai” project on Bainbridge Island, Washington, in which a community non-profit raised donations for a solar installation, and in turn donated the installation to a local school. xiii
NON-PROFIT PROJECTS
Donors RECs Donations Community Solar Installation Value of Energy
Tax Deductions Electricity
Utility Non-Pro t Host
Net Metering
SECTION 2: COMMUNITY SOLAR PROJECT MODELS 19 TAX AND FINANCE ISSUES FOR NON-PROFIT PROJECTS As non-tax-paying entities, non-profit organizations typically are not eligible for tax incentives. However, donors to a non-profit project can receive a tax benefit in the form of a tax deduction. The IRS allows taxpayers who itemize deductions to deduct verifiable charitable contributions made to qualified organizations. Of course, a tax deduction is much less valuable than a tax credit. For example, a $100 tax credit reduces taxes owed by $100 while a $100 tax deduction reduces taxes owed by $25 for a taxpayer in the 25% federal bracket.
Donors can deduct their contributions to a community solar project if the project sponsor obtains tax- exempt status as a charitable organization under the Internal Revenue Code (26 U.S.C. § 501(c)(3)). Section 501(c)(3) organizations must be organized and operated exclusively for exempt purposes such as charitable, religious, educational, or scientific purposes. Section 501(c)(3) organizations may not be operated for the benefit of private interests and are restricted in how much time they can devote to lobbying activities. The Application for Recognition of Exemption under Section 501(c)(3) is IRS Form 1023. Solar for Sakai, Bainbridge Island, Washington
Community Energy Solutions, a non-profit organization on Bainbridge Island, Washington, led the effort to raise funds for a solar installation at Sakai Intermediate School. Twenty-six community organizations or individuals made tax-deductible donations to Community Energy Solutions. The school owns the PV system and all of the resulting power and environmental attributes. Courtesy of Joe Deets, Community Energy Solutions
4PROJECT HIGHLIGHTS 4FINANCIAL DETAILS • System Owner: Sakai Intermediate School • Installed Cost: $50,000 or $9.80/watt • Installed Capacity: 5.1 kW • Grants: $25,000 from utility (Puget Sound • Electricity: Net metered Energy) • Donations: $30,000 via Community Energy Solutions • Production Incentive: $0.15/kWh from State of WA
20 SECTION 2: COMMUNITY SOLAR PROJECT MODELS SUMMARY OF BENEFIT ALLOCATION OPTIONS BY MODEL
As evidenced by the examples above, there are many options for allocating the benefits of community solar within each sponsorship model. The following chart summarizes the most common options.
Utility Special Purpose Entity Non-profit Electricity from Solar • Participant receives an • SPE sells the electricity to • Non-profit owner uses on- System estimated or actual kWh the utility (PPA) site and net-meters credit for their portion • SPE sells the electricity to of project (virtual net the system host (SSA) • Non-profit owner assigns metering) • SPE assigns kWh to utility to utility accounts per accounts per agreement agreement with utility • Participant receives a with utility (virtual net (virtual net metering) monetary credit for the metering) value of production for • Electricity from the • Electricity from the their portion of the project system is netted against system is netted against a SPE members’ group bill group bill Renewable Energy • Assigned to participants • Rights to RECs sold up- • Rights to RECs sold up- Credits • Retired on participants’ front front behalf • RECs sold on an on-going • RECs sold on an on-going • Retained by the utility basis basis • Retained for participants • Retained for non-profit Federal Tax Credits and • Neither the commercial • SPE can pass benefits of • Project donors can deduct Deductions ITC nor the residential Commercial ITC through to the donation on their taxes renewable energy tax participants • Non-profits are not eligible credit is available to • Only of use if participants for federal tax credits participants have a tax appetite for • If the utility has a tax passive income offsets appetite, it may use the commercial ITC • Normalization accounting rules will impact the value of the ITC for regulated utilities Accelerated • Not available to • SPE passes depreciation • Not useful to non-profits Depreciation (MACRS) participants benefits through to the • An investor-owned utility participants, subject to may be able to use MACRS, passive activity rules provided they own the system • To qualify for MACRS, regulated utilities must use normalization accounting State and Utility • Utility may qualify and • SPE may qualify and use • Nonprofit may qualify and Rebates and Incentives use rebates/incentives rebates/incentives to buy use rebates/incentives to to buy down the project down the project costs or buy down the project costs costs;, benefits are pass through to partici- indirectly passed on to pants participants
SECTION 2: COMMUNITY SOLAR PROJECT MODELS 21 Emerging State Policies to Support Community Solar
Over the last several years, a number of states have expanded their successful on-site solar programs by instituting policies that encourage innovative community solar programs. While each of these state programs varies considerably, a number of themes are emerging. For example, all of the current state- level programs require the solar array and the group members to be located within the same utility service territory. Other requirements to participate in “group” ownership benefits vary, but may include a cap on system size, proof of partial ownership, or limits on the type of ratepayers that can participate. Billing methods also vary; some programs offer one aggregate bill for the entire group; others assign a pro-rated monetary credit on each member’s bill.
State-level community solar policies can be grouped based on how the benefits of community solar are distributed. In general, there are three broad categories: group billing, virtual net metering, and joint ownership. Given the importance of these policies to the success of community solar programs, it is worth spending some time on these mechanisms for sharing benefits.
GROUP BILLING Group billing arrangements operate much like LOCAL FLAVOR master metering in a multi-unit residential or In Vermont, two well-known residents, Ben and commercial building. Under master-metering, Jerry, decided to share the benefits of one solar a landlord receives a single electric bill for all installation on a shared electric bill. They hired electricity usage within a building, including AllEarthRenewables to build a solar array tenant load. The landlord then determines how on Ben’s guesthouse and informed to assign energy costs to individual tenants their electric utility that the output taking into account tenant leases. Group billing of the installation should be netted for community projects works much the same against the combined consumption way except that participants do not need of both Ben’s and Jerry’s homes, in to reside in a single building. First, a utility one bill. The solar panels offset all produces a group bill showing all participants’ of the energy consumption at the energy consumption and relevant charges. guesthouse, and the remainder of the Then, output from a shared PV system is netted energy is applied toward offsetting the combined against the group bill. The remaining costs use of Ben’s and Jerry’s homes. They get one are allocated to participants according to an electric bill, and split the offset 50/50. They don’t agreement between the participants. Under have a formal contract, but it works because they this framework, group billing allows multiple are good pals with a life-long history of working participants to receive net-metering credits from together. a single renewable energy facility.
A drawback to group billing is that a customer representative must serve as a point of contact and an intermediary between a group of participants and a utility. The customer representative takes on such tasks as billing and dispute resolution that exposes the representative to administrative burdens. This framework may also raise concerns over the creditworthiness of a customer representative.
22 SECTION 3: EMERGING STATE POLICIES TO SUPPORT COMMUNITY SOLAR Vermont has expanded its net metering program to allow group billing for shared systems and this expansion has proven very popular. xiv In the service territories of Vermont’s two largest utilities, Green Mountain Power and Central Vermont Public Service territory, over 22 groups have formed to share in the output of a renewable energy system with system sizes ranging from 1.5 kilowatts to 199 kilowatts. Vermont’s program is not limited to solar energy systems; any eligible renewable energy resource within Vermont’s net metering program, including wind, small hydro, biomethane, and solar, can be installed under a group billing arrangement.
VIRTUAL NET METERING Community renewables programs in Massachusetts, California, and Maine rely on virtual net metering as a means for distributing economic benefits from a shared solar energy system. Similar to group billing, virtual net metering allows net metering credits generated by a renewable system to offset load at multiple retail electric accounts within a utility’s service territory. However, under virtual net metering, credits appear on each individual customer’s bill the same as they would under traditional net metering.
To date, Massachusetts has implemented the most expansive community solar program using virtual net metering. Massachusetts’ program has two avenues of participation: a “neighborhood net metering” program that allows neighborhood-based facilities to serve the energy needs of a group of at least ten residential customers in a neighborhood and an alternative program that allows participating net-metered systems to allocate monthly excess generation to one or more customers within a distribution company’s service territory.
Under Massachusetts’ “neighborhood net metering” program, a renewable energy system must be behind a participating customer’s meter. However, only a minimal amount of load needs to be present on site. In fact, even “parasitic” load needed to run a facility is allowed to count to meet on site load requirements. Kilowatt-hour credits generated by a renewable energy system are allocated to participating customer accounts by participating utilities. Utilities are not required to include the distribution component of participants’ applicable retail rate within neighborhood net metering credits.
Under an alternative program, and in a departure from what is typically seen in net metering, Massachusetts allows any customer with a net-metered system to allocate credits associated with monthly excess generation from a system to other customers of the same distribution company. Customers designated by the owner of the net-metered system receive a net metering credit that reflects the host customer’s fully bundled retail rate. The net metering credit offered to designated customers is calculated using the retail rate of the host customer ($ per kWh) multiplied by the allocation of kWh for the designated customer. While on-site load must be present where the net-metered system is installed, as with neighborhood net metering rules, parasitic load qualifies as on site load. Taking these rules together, the alternative program is very flexible in who can participate and offers a more financially attractive net metering credit than the neighborhood net metering program.
SECTION 3: EMERGING STATE POLICIES TO SUPPORT COMMUNITY SOLAR 23 Under California’s Multifamily Affordable Solar Housing (MASH) program, residents of SOLAR FOR ALL multifamily, low-income complexes such as The non-profit San Diego Community Housing the SDCHC townhomes in San Diego (see text Corporation (SDCHC) partnered with a third party, box) are allowed to receive bill credits from a Everyday Energy, to put a 20-kW system on its single on site PV system.xv The building owner Hacienda Townhomes property. Everyday Energy allocates net metering credits to individual installed and owns the system on the 52-unit tenants and a building’s common load. Virtual apartment building, taking advantage of the tax net metering allows the building owner to benefits that are not available to the non-profit avoid having to build a separate solar energy Housing Corp. SDCHC signed a 20-year Solar system with a separate inverter for each Services Agreement with Everyday Energy under tenant, which saves considerable funds. which they will pay a flat fee to cover maintenance According to a recent program report, issued and electric services from the installation. An in the summer of 2010, 179 projects eligible electric meter measures the energy flow directly for participation in the MASH program and to the grid, and the utility (San Diego Gas & representing 10 megawatts of solar have been Electric) credits the tenants and common areas as incentivized to date and over 10 megawatts of directed in the Virtual Net Metering agreement. It projects are under review. The California Public is projected that residents will save 30% on their Utilities Commission has indicated that it will electric bills. consider an expansion of the program to allow for participation by other customer groups.
JOINT OWNERSHIP Taking a page from successful community wind programs, a few states have begun to explore options for distributing benefits of participation in a community renewables program through frameworks akin to wholesale power sale arrangements. One of the primary motivators of the community wind movement was a desire to promote rural development by expanding opportunities for citizens to invest in renewable energy systems by allowing them to piggyback their projects onto larger wind projects in order to benefit from economies of scale. This history leads to a primary difference between the emergence of community solar and development of community wind insofar as community wind uses a technology that began as utility-scale and is only now moving into smaller scale applications. Community solar is approaching this issue in reverse–moving from on site systems to larger solutions.
Maine’s Community-Based Renewable Energy Pilot Program lawxvi allows “locally owned electricity generating facilities” with at least 51 percent ownership by “qualifying local owners” to elect one of two incentive mechanisms. Under the first, qualifying local owners can enter into a long-term contract to sell output from a facility to a transmission and distribution utility. The contract price for energy may vary over the course of a year, but the average price, weighted based on the expected output of a facility, may not exceed $0.10 per kWh. This price only includes the value of a power sale and does not include a purchase of RECs. A significant downside of this approach is that a payment for power sales to a wholesale or retail purchaser results in taxable income at a federal level and possibly at a state level. Depending on the tax bracket a particular customer faces, the taxation of payments for power sales can significantly decrease the size of benefits available to participating customers.
24 SECTION 3: EMERGING STATE POLICIES TO SUPPORT COMMUNITY SOLAR Under Maine’s second incentive option, generation is virtually net-metered to joint owners in proportion to their ownership stake in a system. For example, a 50 percent owner would receive 50 percent of the net metering credits generated by a system via virtual net metering.
Colorado has allowed jointly owned systems for quite some time but has not formulated detailed program rules to support joint ownership.xviii Colorado also recently authorized a community renewables program under a subscription-based model.xix Implementation of the program is underway at Colorado Public Utilities Commission and it is anticipated that rules concerning community renewables will be in place by the end of 2010.
Washington’s community solar rules allow for ownership of community solar projects up to 75 kW that are either jointly owned by individuals, businesses, and non-profits or owned by a utility and voluntarily funded by the utility’s ratepayers. Participants receive production incentives based on their proportional share of the output of a project. In addition, in the case of utility-owned projects, participants receive the value of the electricity. Washington’s community solar incentives are among the most generous in the world if projects use inverters and modules made in Washington. For such systems, the production incentive is set at $1.08 per kWh through June 2020, but is subject to dilution if incentive payments exceed 0.5% of utility gross revenue in a given year.
St. George SunSmart Program with temporary signs
SECTION 3: EMERGING STATE POLICIES TO SUPPORT COMMUNITY SOLAR 25 Tax Policies and Incentives
It has been said that the U.S. makes its energy policy in its tax code. This is certainly true in the solar arena. Federal tax incentives for solar systems are especially valuable and tend to be a primary driver in the design of project structures and financing strategies. This section introduces some of the state and federal tax policies that impact community solar projects, as well as some of the other federal financial incentives in the form of grants, bonds, and loans. Details on tax issues specific to each ownership model can be found in Section 2: Community Solar Project Models.
Federal tax incentives provide significant support to solar Receiving any kind of financial projects, offsetting approximately 56% of the installed cost of benefit or loss from participation a commercially owned PV systemxxi and 30% of a residential in a community solar project installation. However, community solar project designers could have tax consequences should be aware that federal tax incentives were developed for the participant. In addition, with either individually owned PV installations or commercial- tax incentives can interact scale solar projects in mind. Community-scale projects don’t in complicated ways, and fit squarely into either category, which makes it challenging project organizers should seek to design projects that can make use of either the residential professional advice before or commercial tax credits. For example, the residential including tax incentives in a project Renewable Energy Tax Credit is not available to community plan. solar projects because it only applies to taxpayers who install a solar system on their own residence.
There is proposed legislation at the federal level that could change this. Senator Mark Udall (CO) has proposed the SUN Act 2010 which would allow individuals to claim the residential tax credit when purchasing solar panels in a community solar project. For more information and updates, please consult Senator Udall’s website www.markudall.senate.gov/.
Tax incentives vary widely, depending on the status of the project sponsor. For example, investor-owned utilities are eligible for tax incentives that are unavailable to municipal utilities or electric cooperatives. Non-profit projects cannot use solar tax benefits, per se, but donations to them are tax-deductible. Special Purpose Entity business projects have the greatest flexibility for taking advantage of federal tax incentives. As a result, a host of project business structures - some of which are very complicated and require significant legal expertise - have been created in order to maximize federal tax incentives. These structures are discussed in greater detail in Section 2: Community Solar Project Models.
The following federal incentives may be applicable to a community solar installation depending on the details of each project. Additional detail on each of these federal incentives can be found on the Database of State Incentives for Renewables & Efficiency (DSIRE) located at www.dsireusa.org/.
26 SECTION 4: TAX POLICIES AND INCENTIVES BUSINESS ENERGY INVESTMENT TAX CREDIT (“COMMERCIAL ITC”) The Commercial ITC is among the most valuable incentive available for solar energy. The Commercial ITC allows commercial, industrial, and non-public utility owners of PV systems to take a one-time tax credit equivalent to 30% of qualified installed costs. Under the Commercial ITC, the owner of the PV system for tax purposes can be different from the owner of the host property. As a result, the use of a third party to finance systems has emerged as a leading trend in the solar industry. The tax credit can be used to offset regular tax and alternative minimum tax (AMT). The Commercial ITC is currently available for systems that are placed in service prior to the end of 2016. There is no cap on the amount of the Commercial ITC. Unused credits can be carried Available to private forward for up to 20 years. Commercial entities will likely pay income taxes utilities and SPEs on any up-front rebate or cash incentive they receive. If so, they do not have owing federal to reduce the “cost basis” by the amount of the rebate before calculating the taxes. Commercial ITC. After January 1, 2017, owners of qualifying solar facilities will be eligible to claim a 10% ITC.
Eligibility and timing issues are complex. For a discussion of these issues, as well as the basis reduction and allocation issues, please see the DSIRE website: www.dsireusa.org/solar/incentives.
U.S. TREASURY RENEWABLE ENERGY GRANT The American Recovery and Reinvestment Act of 2009 created a cash grant alternative to the Commercial ITC. The owner of a qualified solar facility that is eligible for the ITC can instead elect to receive a grant for approximately the same value. This is especially valuable to tax-paying entities that nevertheless can’t take full advantage of the ITC due to lack of tax appetite. Unless extended, the Treasury Grants will be available to new projects for only a short time longer. Projects must “begin construction” by the end of 2010 and be placed in service on or before January 1, 2017 in order to qualify. The Treasury department has issued guidance determining that beginning construction means beginning work of a physical nature or paying or incurring at least 5% of the total cost of the project by the end of 2010. Unless extended, applications for grants must be made by October 1, 2011.
Like the ITC, the amount of the grant is equivalent to 30 percent of the tax basis (usually the cost) of the qualifying facility. Also like the ITC, the tax Available to utilities basis of the property is reduced by one-half the amount of the grant. The cash and SPEs eligible for grant is subject to recapture if, within five years of the placed in service date, the ITC until the project ownership changes hands, the system is shut down permanently, December 31, 2010. or an interest in the project is transferred to an ineligible owner such as a public entity.
The ITC cannot be claimed for a solar facility for which a cash grant is claimed. Treasury must pay grants within 60 days after the date the project owner applies for payment or the date the facility is placed in service, whichever is later. The grant will not be considered taxable income at the federal level to the recipient, though some states might tax this grant. xx
Non-profit organizations and federal, state, and local government entities are ineligible to receive Treasury Grants.
SECTION 4: TAX POLICIES AND INCENTIVES 27 MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS) In addition to grants and tax credits, federal tax policy allows businesses (but not individuals) to depreciate their investments in solar projects on an accelerated basis. Depreciation refers to the concept that over time, assets such as equipment lose value and will eventually need to be replaced. To account for this reduction in asset value, businesses record an expense over a set period of time. For qualified solar projects, this period is five years. Subject to certain restrictions, an owner with other sources of passive income can offset that income with losses generated by accelerated depreciation deductions under the modified accelerated cost recovery system (MACRS). For projects placed in service by the end of 2010, bonus depriciation is avalable which allows the owner to deduct 50% of the adjusted basis of an eligible solar system in the first year.
For projects taking the ITC, the depreciable basis must be reduced by half the Available to value of the ITC. For example, if the ITC equals 30% of project costs, then the utilities and depreciable basis is reduced by 15%. SPE’s with a tax liability and The IRS publishes schedules that detail how different asset classes should be depreciated. For additional information, please consult IRS Publication #946. A passive income. more detailed discussion of using tax benefits can be found in Section 2, in the discussion of the Special Purpose Entity ownership model.
TAX CREDIT BONDS Qualified tax credit bonds are a mechanism to lower the cost of debt financing Available to non- for non-tax-paying entities such as government agencies, municipal utilities tax paying entities and electric cooperatives. Two tax credit bonds in particular – Clean Renewable such as municipal Energy Bonds (CREBs) and Qualified Energy Conservation Bonds (QECBs) – utilities and electric were created to finance renewable energy projects and programs. However, all cooperatives. available tax credits have been awarded and no additional funding is expected.
CLEAN RENEWABLE ENERGY BONDS (CREBS): CREBs are a tax credit bond which can be used by government entities, municipal utilities and electric cooperatives to finance solar installations and other renewable energy projects. Ashland, Oregon used the proceeds from a CREB to partially finance its Solar Pioneers II community solar project in 2008.
QUALIFIED ENERGY CONSERVATION BONDS (QECBS): QECBs are tax credit bonds similar to CREBs. The advantage of QECBs is that in addition to using them to finance renewable energy projects, they can also be issued for energy efficiency projects and green community programs, among other things. In addition, up to 30% of a QECB allocation can be used for private sector activities. To date, the authors of this Guide are unaware of a community solar project that has used QECBs. CREBs and QECBs can be issued in two different ways. 4 Tax credit to the purchaser of the bond: A qualified entity issues a CREB or a QECB. Rather than receive interest on the bond from the issuer, the purchaser of the bond receives a federal tax credit. To date, the tax credit that the bond purchaser receives has not been sufficient and therefore, the bond issuer also makes a supplemental interest payment (or issues the bond at a discount). 28 SECTION 4: TAX POLICIES AND INCENTIVES 4Interest rate subsidy to the issuer of the bond: A qualified entity issues a taxable CREB or QECB. The purchaser of the bond will pay taxes on the interest income. In return for issuing a taxable bond, the issuer will receive an interest rate subsidy from the federal government. For CREBs and QECBs, this subsidy is 70% of a referenced credit rate. This “direct pay subsidy” mechanism can result in a lower cost of financing than a traditional tax-exempt bond or a traditional tax credit bond.
FEDERAL GRANTS While not necessarily a source of long-term funding, federal grants can be used to bring down the cost of a community solar project. Such grants would lower the cost of the PV system installation and/or subsidize the cost of participation in a community solar project. In 2009-2010, enhanced funding was provided for State Energy Programs and Energy Efficiency and Conservation Block Grant Programs (EECBG). In addition, there have been a number of other stimulus-related funding opportunities for PV projects and some of these funding avenues may still be open. For rural communities, there may be USDA grants and loans available through the Rural Energy for America Program (REAP).
Examples of projects benefiting from federal grant funding are Seattle City Light’s new community solar initiative funded under the U.S. Department of Energy’s Solar America Cities program, the second phase of St. George, Utah’s SunSmart Community Solar program using Energy Efficiency and Conservation Block Grant funding, and APS’s Community Power Project using a High Penetration Solar Deployment grant from the DOE’s Solar Energy Technologies Program.
STATE AND LOCAL TAX CONSIDERATIONS Tax issues vary considerably from state-to-state and among localities. However, there are several common issues that project developers should consider when planning and structuring their projects. Taxes in any of the categories below could impose a significant cost on the project. Project developers should determine which taxes will apply to their project and who will be responsible for the cost. Taxation issues can become especially complex when a project involves both taxable and tax-exempt entities.
4 Net Income Tax: Most states impose a net income tax modeled on the federal system. Thus, any revenue generated by a project will likely be subject to both state and federal income taxes. Some states offer investment tax credits that can be taken in addition to the federal Commercial ITC or other income tax credits and deductions for renewable energy. In Utah, for example, the State’s residential income tax credit is available to participants in community solar projects owned by qualifying entities (municipalities, counties, etc.), such as the SunSmart program in St. George. xxii
4Sales and Use Taxes: Most states impose a sales tax on sales of tangible personal property. Some states also impose a use tax on sales of certain services or a transfer tax on sales of real property. For a solar facility, most state sales taxes will apply to the purchase of solar equipment, but usually not to the sale and use of electricity. Many states offer sales tax incentives for solar facilities in the form of reduced rates, exemptions or rebates.
SECTION 4: TAX POLICIES AND INCENTIVES 29 4Property Tax: Nearly all states impose a property tax that is assessed annually, based on the value of real property. Most states also tax tangible personal property that is used for business purposes. For property tax purposes, assessment values might be determined by a central state authority or by a local assessor’s office. As with sales taxes, many states offer property tax incentives for solar facilities in the form of exemptions or special assessments.
4 Excise Taxes: Some states and municipalities impose excise taxes that could potentially apply to a solar facility. An excise tax is special tax imposed on particular goods or activities, such as a gasoline tax or gambling tax.
INTERACTIONS AMONG STATE AND FEDERAL INCENTIVES Both the Commercial ITC and the Treasury grants are valued at 30% of the tax basis of the solar facility. The “basis” typically means the cost of buying and installing the facility. But certain factors can reduce the basis from which the 30% is taken. Other financial incentives (such as state rebates and grants) will reduce the taxpayer’s basis for calculating the ITC or Treasury grant, unless they are considered taxable income to the taxpayer. If the incentive is considered taxable income, then it does not need to be subtracted from the cost basis. These rules avoid “double-dipping” that would come from receiving both a tax-free incentive and a tax credit.
30 SECTION 4: TAX POLICIES AND INCENTIVES SMUD’s SolarShares Installation
SECTION 4: TAX POLICIES AND INCENTIVES 31 SecuritiesSecurities Compliance Compliance
Community solar projects can be structured to create ownership models that monetize financial incentives, capitalize on favorable government and utility policies, and expand ownership opportunities. When devising a creative business model, though, the project organizer should consider whether or not the model involves the issuance of securities, and, if so, what federal and state securities laws may be involved. A full review of state and federal securities requirements related to small offerings is beyond the scope of this guide, but this discussion is intended to offer a foundation for project organizers to research the issue.
Any entity, no matter how small or large, that attempts to raise capital may be deemed to be issuing securities if it offers or sells stock, membership units, partnership interests or other types of participation interests. If the project is deemed to be offering a security, the project will incur substantially more time and expense in ensuring that it complies with the securities laws. The consequences of failing to comply can be severe and the project, its directors, officers, and employees involved in the offer and sale of the security may be subject to liability for such failure.
The securities laws are intended to protect persons who invest money with an expectation that they will receive profits from the efforts of others, or who invest money in a venture with the expectation of receipt of a valuable benefit when the investor does not have control over the managerial decisions of the venture. Compliance with securities laws requires registering the offering with the Securities Exchange Commission (SEC) and the applicable state regulatory agency or finding a specifically-defined state and federal exemption from the registration requirements. Most states’ securities laws have parallels to the federal requirements, but many states require additional filings, even if their exemptions are similar in substance to the federal exemptions.
Registration can be a time-consuming and expensive process that includes filing a formal registration statement with the SEC and preparing extensive disclosure documents called an “offering memorandum.” However, even with a registration exemption, filings and the preparation of offering documents may still be required, depending on the participants in the project and many projects will not be able to support the up-front costs of securities compliance.
The definitions of a “security” under federal and state laws include a long list of financial instruments and agreements. Federal and various state definitions are not identical, but commonly include, for example, any note, stock, bond, evidence of indebtedness, certificate of interest or participation in any profit sharing agreement, or investment contract.
A common exemption used by smaller-scale non-utility-owned projects is the private placement exemption which allows a company to raise investment capital from a certain number of investors. All private placement exemptions limit the number of individuals or entities to whom the securities can be offered. The level of the disclosure requirements is triggered according to the net worth or income level of
32 SECTIONSECTIONSECTION 5:5: 5: SECURITIESSECURITIES SECURITIES COMPLIANCECOMPLIANCE COMPLIANCE the investor and/or the relationship of the investor to the entity issuing the security (such as acting as the executive officer or director of the entity).
The most relevant test for analyzing whether a contract or an investment is a security under federal law is the “Investment Contract Test.” Many states have additional criteria for determining the existence of a security but the basic components are similar to the Investment Contract Test: a security exists if (i) a person invests money or property, (ii) in a common enterprise (i.e. an enterprise in which the benefit to the investor is dependent upon the participation of others), (iii) with an expectation of profits, (iv) solely or primarily from the efforts of someone other than the person providing the money or, in other words, without the right to exercise practical and actual control over the managerial decisions of the enterprise.
It follows that the terminology used to describe participation in a community solar project should avoid references to “shares” or “stock,” since those terms are the classic ones used to describe securities issued by a corporation and might create an expectation of profits and other rights customarily associated with stock or shares. All marketing and promotional materials used for the project should refrain from making any statements suggesting that an investment or other opportunity to make money is being offered to participants.
In a utility-owned model, where the utility enters into a contract or arrangement with its retail customer to provide electricity generated by a project, there is a risk that the contract or arrangement could be deemed a security if the customer is required to “invest money” in the project and if the customer has an expectation of getting some kind of profit over and above the value of the electricity it receives.
To the extent that a retail customer agrees to purchase solar power from a utility and to pay a specified, generally applicable rate for the solar power used and the customer is billed periodically based on recent past usage, just like the arrangements for purchasing other power, it is less likely that the customer would be viewed as making an investment of money in the project. By contrast, if the customer is required to make payments in excess of the retail market rate for the solar power, it is more likely that the customer will be viewed as making an investment of money. Therefore, the utility must take care to ensure that the rate charged for the solar power does not contain a charge for the customer’s acquisition of an interest in the project. In addition, a payment is more likely to be an investment if the customer pays an amount up front in return for an undetermined amount of solar power over a period of time that may also be undetermined.
In order to reduce the likelihood that the contract is a security, payments made under the contract could be: (1) applicable to a specific, relatively short period of time (e.g. monthly, quarterly); (2) due after solar power is provided; and (3) according to a specified, generally applicable market rate per unit that does not include a component for the purchase by the customer of an interest in the project. The contract, pricing and billing arrangements and related materials, to the extent possible, should resemble a customary consumer purchase of non-solar electricity and should not be marketed to emphasize that the amount of solar power sold to customers depends on the participation of other customers or the success of the utility in obtaining subscribing customers or in operating the project.
SECTION 5: SECURITIES COMPLIANCE 33 Getting Started
As discussed in earlier sections of this guide, there are many legal, financial and project design considerations that need to It took us over two years to develop our be thought through to launch a successful community solar project structure and only two months project. With so many factors to consider it can be difficult to to find our members. know where to start. This section is intended to provide insight - David Brosch, University Park into “what it takes” to launch a community solar project so that Community Solar community organizers and project developers can efficiently move concepts to completion.
Like many construction projects, community solar project development can be broken down into phases including: feasibility, project development, construction, operations and maintenance, and decommissioning. It’s important to note that phases can often overlap and are not necessarily completed in the order listed.
FEASIBILITY ANALYSIS PHASE The first step is to conduct a comprehensive feasibility analysis. This analysis should determine if there is a good project site with an adequate solar energy resource to justify the project, identify a project team and supporters, prepare an initial financing plan, confirm absence of major obstacles, and gauge the local community and utility’s receptivity to a project.
PROJECT DEVELOPMENT PHASE If the feasibility analysis indicates that there are enough positive elements in place to pursue a community solar project, the project will move into the development phase. At this point, it may be helpful to document the project details in a business plan (which may be required to secure financing) or project charter.
Site selection and Resource Evaluation Proper siting includes a site analysis for any potential shading, as well as determining optimal tilt of the modules, location of inverters and other system components, wiring distances, foundation or structural support, and security or public access requirements. The project owner must also obtain exclusive rights to build the solar project if they are not the property owner. This is usually negotiated through a land lease agreement with the property owner and/or site host. Careful consideration should be given to site selection, to minimize the environmental footprint and harmonize with existing land uses.
Understanding the amount of solar resource and the effects of climate and latitude on solar energy production is critical to finalizing the system location and obtaining estimates for financial modeling. Typically, project organizers will rely on solar resource maps or solar energy production calculators, such as PV Watts or RETScreen to get an initial assessment of the solar resource.
Financing In order to obtain financing for a project, a financial pro forma must be created that models the proposed system’s costs, revenue (from the production estimates), and the interaction of incentives and financing. This document will reveal the financial viability of the project, and is a necessary component of any project proposal. A very basic sample budget is provided after this discussion to suggest the broad categories of expenses and income that should be considered. 34 SECTION 6: GETTING STARTED Ownership Structure The ownership structure of the project will need to be finalized and the business model chosen. The project owner(s) may also need to consult legal and tax professionals to ensure the entity is properly structured to minimize risks to the site host, investors and participants.
Permitting and Environmental Review The permitting process for a community solar project will depend on the location, size, and type of project. The project will, at minimum, require an electrical permit. A building permit is often necessary, especially if the PV array is a stand-alone structure. The best course of action is to check with the local planning department early on as the permit and environmental compliance requirements may influence the design and siting of the project.
Interconnection and Power Arrangement The local utility will be involved in interconnecting the system to the electric grid. Utilities generally follow a standard interconnection process and have agreements that must be completed prior to construction. In addition to connecting the system to the distribution system, the arrangements for transferring the power “benefits” must also be accounted for. This is usually negotiated through a power sales agreement between the project owner and the utility or host in the form of a PPA, SSA, net-metering, or other contractual arrangement.
Procurement and Contracting For projects of this scale, it is common to issue a request for proposals (RFP). The RFP can be fairly broad, allowing solar professionals to offer their recommended system design and specifications; or fairly specific, in order to compare bids on pre-determined project specifications. After identifying solar professionals, or receiving proposals in response to an RFP, it is important to evaluate them as one would evaluate other types of installers and contractors. Professional credentials are one indication of a PV installer’s knowledge and qualifications. The North American Board of Certified Energy Practitioners (NABCEP) offers a well-respected voluntary certification program for PV installers.
CONSTRUCTION PHASE Choosing a solar contractor and/or construction manager is an important decision. In recent years it has become increasingly easy to locate and contact those in the solar field. Tools available to help identify local professionals include www.findsolar.com and the national Solar Energy Industry Association (SEIA.org).
OPERATIONS AND MAINTENANCE PHASE Operating a community solar project requires ongoing record keeping and timely filing of paperwork. Among other things, a project administrator may have to file tax forms and business license renewals, distribute incentive payments, sell RECs, and keep the insurance, lease and other payments up to date.
Maintenance, though fairly simple for PV systems, is essential to long-term management of a community solar system. Modules may need to be cleaned, but more importantly meters and inverters need to be monitored to make sure that the system is operating as expected. Various monitoring systems are available, offering options from instant email alerts when an inverter malfunctions to on-line daily performance monitoring. A good monitoring system will enable a system manager to minimize down time, protecting the participants’ investment. It’s important to include a project budget for monitoring, ongoing maintenance costs and parts replacement. In particular, establishing a reserve fund for future inverter replacements may be a good idea, given how expensive it can be to replace it if the warranty has expired. SECTION 6: GETTING STARTED 35 DECOMMISSIONING OR EXIT STRATEGY Although solar panels could easily last 25 years or longer, every project must consider the ultimate disposition of the solar installation. Whether the plan is to sell the project to the host, renew a lease, or remove the panels, a solid project plan has defined the options for exiting from the community solar project and potentially restoring the site to its original condition.
COMMUNITY SOLAR PROJECT: SAMPLE BUDGET The following budget template provides sample categories for a typical community solar project budget.
Note that the budget does not include the cost of labor to organize and develop the project. This could easily be a full time job for a year or two. Depending on how the project is developed (by a utility, an SPE or a non-profit), the developer role could be volunteer or paid.
SITE DEVELOPMENT COSTS Design $ Permits $ Electrical/Meter Upgrades $ Fencing/Security $ Educational Kiosk $ PROJECT DEVELOPMENT COSTS Consulting $ Legal $ RFP $ SYSTEM COSTS PV Panels $ Inverters $ Ground Mount/Racking System $ Balance of System Costs $ TOTAL INSTALLED COST $ MINUS GRANTS AND REBATES 1603 Treasury Grant $ Commercial ITC $ Other Grants and Rebates $ NET INSTALLED COST $ ANNUAL OPERATING EXPENSES Bookkeeping $ Accounting $ Legal $ System Monitoring $ Insurance $ Lease $ Sinking Fund: Inverter Replacement $ Taxes $ TOTAL ANNUAL OPERATING EXPENSES $ ANNUAL INCOME Sale of Electricity $ Sale of RECs $ Production incentive, if available $ 36 SECTION 6: GETTING STARTED COMMUNITY SOLAR PROJECT DEVELOPMENT WORKSHEET The following worksheet is meant to suggest the many steps involved in organizing a project but it is not comprehensive. Project organizers will need to create their own list of steps, based on their unique circumstances.
FEASIBILITY ANALYSIS Assess site for solar access Secure control of property and/or site Evaluate the solar resource Understand participant motivation Conduct market research/focus groups/surveys Investigate interconnection options Research financing mechanisms Gauge community receptivity and support PROJECT DEVELOPMENT Prepare a financial plan Determine ownership structure Develop operating agreement between host and project owner (if different) Develop participant agreement Obtain legal and tax consultation for contracts Define system and other technical specifications Execute agreement for the sale of power Complete permitting and environmental compliance requirements Execute interconnection agreement Conduct an RFP for design/build CONSTRUCTION Prepare the site for construction: grading, road improvements, other Dig trenches, lay cables, install transformer(s) Install fencing and site security features Complete inspections and commissioning Restore site/surrounding vegetation Complete paperwork for incentives OPERATIONS & MAINTENANCE Schedule and perform panel cleaning Save for inverter replacement Monitor system output Distribute benefits to participants (incentives, tax credits, etc.) File tax returns, state production incentive paperwork File annual business license requirements
SECTION 6: GETTING STARTED 37 Resources
This guide to community solar covers a broad array of topics, but does not go into detail on each of them. Communities interested in implementing a project will need a more thorough understanding of many of these topics. The resources listed in this section can provide much of that information.
ORGANIZATIONS & INSTITUTIONS 4Through the U.S. Department of Energy’s Solar America Communities partnership,local governments are working to accelerate the adoption of solar energy technologies for a cleaner, more secure energy future. The website offers case studies, policy updates, and news of solar activities across the country. www.solaramericacommunities.energy.gov
4The Database of State Incentives for Renewables and Efficiency (DSIRE) is a comprehensive source of information on state, local, utility, and federal incentives that promote renewable energy and energy efficiency. www.dsireusa.org
4The Office of Energy Efficiency and Renewable Energy (EERE) works to strengthen the United States’ energy security, environmental quality, and economic vitality in public-private partnerships. www.eere.energy.gov
4USDA Rural Development provides funding for the development and commercialization of renewable energy technologies in rural communities. The Rural Energy for America Program (REAP) offers grants and loans to help small rural businesses deploy renewable energy projects. www.rurdev.usda.gov/rd/energy
4The Bonneville Environmental Foundation (BEF) supports the development of renewable energy and watershed restoration and empowers people to shrink their carbon footprint. BEF’s Project Management Group assists with the funding and construction of solar installations in communities throughout the Northwest. www.b-e-f.org
4Northwest Sustainable Energy for Economic Development (Northwest SEED) empowers community-scale clean energy through targeted technical assistance, education and outreach. Northwest SEED seeks to increase responsible use of clean, renewable energy with maximum local control by providing on-the- ground support to communities in planning and implementing clean energy projects. www.nwseed.org/
4The American Solar Energy Society (ASES) is a nonprofit organization dedicated to increasing the use of solar energy, energy efficiency, and other sustainable technologies in the U.S. This website is a good source for information about solar technology and professionals. www.ases.org/
4The Interstate Renewable Energy Council (IREC) is a non-profit membership-based organization that provides a national forum in which public and private organizations involved with renewable energy may gather, disseminate and exchange information and engage in cooperative efforts. Their website offers the latest policy and practical solutions for tough renewable energy issues. www.irecusa.org/
4The Vote Solar Initiative works at the state, federal and local level to implement programs and policies that allow strong solar markets to grow. www.votesolar.org/
38 SECTION 7: RESOURCES PUBLICATIONS Solar Powering Your Community: A Guide for Local Governments U.S. Department of Energy (DOE) 2010 This guide includes case studies and lessons learned from Solar America Cities. Report: www.solaramericacommunities.energy.gov/resources/guide_for_local_governments
Community Solar Power: Obstacles and Opportunities John Farrell, Institute for Local Self-Reliance, September 2010. This report examines nine community solar projects, the policies that made them possible, and the substantial barriers that remain. Report available from: www.ilsr.org/
Financing Non-Residential Photovoltaic Projects: Options and Implications Mark Bolinger, Lawrence Berkeley National Laboratory, January 2009. This report examines the role of financial innovation in PV market penetration. It looks at how financing structures currently being used to support nonresidential PV deployment have, in part, emerged and evolved as a way to extract the most value from a patchwork of federal and state policy initiatives. Report: eetd.lbl.gov/ea/ems/reports/lbnl-1410e.pdf
Lex Helius: the Law of Solar Energy (2nd Edition) Stoel Rives, 2009 (See especially, Chapter 7: Financing) Report: tinyurl.com/25wvwkb
Installing Panels on the Church of the Bretheren, University Park, Maryland
SECTION 7: RESOURCES 39 Appendix A
BUSINESS FORMATION AND TYPES: SPECIAL PROJECT ENTITIES FOR COMMUNITY SOLAR PROJECTS Below are descriptions of the primary business entities suitable for community solar projects, their key characteristics, and the major advantages and disadvantages they might have. Note: We discuss characteristics commonly attributable to these business entities but legal requirements can vary from state to state. State law may also establish default rules that can be changed by agreement among the business owners.
GENERAL PARTNERSHIPS A general partnership is an association of two or more persons working together in a common business enterprise. There are few formal requirements for establishing a partnership and if the partners fail to enter into a written partnership agreement, the default provisions of the state partnership laws will govern the relationship of the partners. However, most partners choose to enter into a written agreement.
Advantages and Disadvantages of Forming as a General Partnership The key advantage of organizing as a general partnership is the ease of formation and the flexibility in the inter- partner relationship. General partnerships require little, if any, paperwork for formation or operation. General partnerships also allow for “pass-through” taxation, instead of the “double” taxation that corporations may be subject to. Additionally, most partnership interests will not be treated as securities because all the partners contribute equally to the decision-making processes and participate in management of the business.
General partnerships, however, have several key disadvantages. First, and most important, is that each partner is individually liable for the debts of the partnership. This means that if the partnership cannot pay its debts, the creditors can look to the individual partners to satisfy those debts. Because of the lack of limited liability, general partnerships have fallen in popularity as a business entity in recent years.
Second, the preparation of a partnership agreement requires the assistance of legal counsel and can be expensive, depending on the complexity of the partners’ relationships, financial and management.
Third, because of the close personal relationships inherent in a general partnership, partnership interests cannot usually be easily transferred or sold, and unless a partnership agreement so provides, it can be challenging to admit new or substitute partners.
Formalities As discussed above, in theory there are few, if any, formal requirements for the formation general partnerships. Similarly, there usually are few requirements for operation, but states usually establish some default rules to govern if partners do not enter their own agreement. For example, in the absence of an agreement otherwise, the default rules usually provide that partners have equal control over the business and equal share in profits and losses.
Partnerships are “pass-through” entities, which mean that profits and losses pass through to individual partners. That means the partnership is not a separate tax-paying entity; rather, the partners report profits and losses from the partnership on their individual tax returns.
LIMITED PARTNERSHIPS A limited partnership is a business entity comprised of two or more partners who operate or manage a business together. In every limited partnership, there are two types of partners: general partners and limited partners. The general partner usually invests significantly less capital than the limited partner(s) and has a significantly smaller ownership stake. Unlike general partnerships, limited partnerships have the ability to limit both the liability risk and the business involvement of certain partners known as “limited partners” but the general partner has unlimited
40 APPENDIX A liability. This feature is particularly useful for attracting “passive” investment partners who would like to participate in the profits of the business but not necessarily take on its risks or daily operations.
General partners manage the company’s day-to-day operations and are liable for the debts of the partnership. Because they are responsible for any debts or lawsuits incurred by the partnership, general partners often themselves form limited liability entities such as corporations or LLCs (both discussed below) to protect themselves from liability.
Limited partners contribute capital to the partnership but do not (and generally cannot) participate in the daily operations of the company. As an added benefit, they are also shielded from company debts and other liabilities. Limited partnerships are a popular choice for individuals who lack the time or expertise to run a business but would like to share in the profits.
Advantages and Disadvantages of Forming as a Limited Partnership There are several advantages to the limited partnership entity . The limited partners have limited liability and the limited partnership interests may be able to be sold easily without dissolving the limited partnership as an entity. The option of being a limited partner can attract investors because the investors’ liability is limited. However, with certain exceptions, the limited partners have to refrain from dabbling in management; if a limited partner becomes too involved in the partnership’s daily operations, the limited partner’s status could be altered to that of a general partner, with the attendant loss of limited liability.
While limited partnerships are relatively easy to form, a limited partnership agreement is essential to govern the relationships of the parties, especially the contribution of additional capital and the allocation of profits and losses.
The major disadvantages of the limited partnership are first, that the general partner of a partnership assumes personal liability for the partnership’s obligations and debts, and second, the passive nature of the limited partner’s involvement carries the risk that the partnership interest will be deemed to be a security.
Formalities Most states impose more requirements for forming a limited partnership than for a general partnership, such as filing a certificate of formation.
LIMITED LIABILITY COMPANIES (LLC’S) A limited liability company, usually called an LLC, is a separate and distinct legal entity. An LLCs provides the limited liability protection for its owners (known as members) with the pass-through benefits and flexibility of a partnership. The members of an LLC are not personally liable for its debts and liabilities but also have the benefit of being taxed only once on their profits.
However, LLCs have only been around for 30 years or so and smaller banks may be reluctant to extend credit to LLCs. Further, with such a short history, many legal issues that arise in connection with the LLC format have not been settled.
An LLC may be managed by either (1) the members or (2) one or more managers. If a limited liability company is managed by the members, then the owners are directly responsible for running the company (a “member-managed” LLC). A “manager” is a person elected by the members to manage the LLC. In this context, a manager is similar to a director of a corporation. A manager can be, but is not required to be, a member. If an LLC is managed by managers, then its members are not directly responsible for running the company and the passive nature of a non-managing member’s involvement carries the risk that the membership interest will be deemed to be a security.
APPENDIX A 41 LLC ownership can be expressed in two ways: (1) by percentage; and (2) by membership units, which are similar to shares of stock in a corporation. In either case, ownership confers the right to vote and the right to share in profits.
Advantages and Disadvantages of Forming as a Limited Liability Company The primary advantage of an LLC is that the members are not personally liable for the debts and liabilities of the LLC. The LLC allows individuals to organize with limited liability with fewer restrictions and fewer formalities that were necessary to form “S” or “C” corporations. Also, most limited liability companies can use the cash method of accounting, which means income is not generally taxed until it is received.
An LLC can be taxed either as a “pass-through” entity, like a partnership, or as a regular corporation. A regular corporation pays a corporate tax on its net income (the first tax), and then the stockholders pay income tax on dividends (the second tax) when the corporation distributes profits. With an LLC, the profits “pass through” to the owners who pay taxes at their individual tax rates. Also, the members can deduct the business’s operating losses against the member’s regular income to the extent permitted by law, which can be helpful if the project anticipates losses in the first few years.
A member may become liable for LLC debts if the member personally guarantees the debts, if personal funds are intermingled with LLC funds, if the LLC has minimal insurance, or if the members do not contribute enough money to the LLC when it is formed. In order to maintain the separate form of the LLC and maintain the liability protection of its members, LLC owners must carefully maintain separate records and keep personal affairs separate from the LLCs business. In particular, the LLCs money should never be intermingled with personal money.
Formalities Although an LLC requires fewer formalities than a corporation, there is still more paperwork involved than a sole proprietorship or partnership. An LLC agreement is essential to govern the relationships of the members, the financial arrangements and regulation of the transfer of membership interests or admission of a new member; in the absence of an LLC agreement, the state’s LLC laws will be applied to the LLC.
In general, the name of an LLC must clearly indicate that is an LLC and end with the words “Limited Liability Company,” “LLC,” “L.L.C.” or “Ltd. Liability Co.”
COOPERATIVE A cooperative is a legal entity owned and democratically controlled by its members. Members often have a close association with the enterprise as producers or consumers of its products or services, or as its employees.
A consumers’ cooperative is a business owned by its customers. Employees can also generally become members. Members vote on major decisions, and elect the board of directors from amongst their own number.
Generally, cooperatives are organized as non-capital stock corporations under state-specific cooperative laws. However, they may also be unincorporated associations or business corporations such as limited liability companies or partnerships. Cooperatives often share their earnings with the membership as dividends, which are divided among the members according to their participation in the enterprise, such as patronage, instead of according to the value of their shares. However, irrespective of the amount of a member’s contribution to the co-op, each member has one vote only. For tax purposes, most cooperatives are taxed as a separate entity like a corporation, though some are tax-exempt.
Advantages and Disadvantages of Forming as a Cooperative The democratic nature of cooperatives might appeal to community solar project organizers based on compatible goals of creating a collaborative and accessible structure. But there are significant limitations to cooperative structures that have made them an unpopular choice for renewable energy projects. Traditionally, members have little input into business operations and in certain states, members have to personally benefit from the
42 APPENDIX A co-op’s products and services (example: REI). In those states, the co-op structure is not designed to bring in outside investment from persons that cannot partake of the co-op’s products and services. However, in other states, outside investment is permitted and states are beginning to recognize the value of the co-op structure in a community solar setting.
Formalities Usually, cooperatives are formed by filing articles of incorporation with the state. It is important to create a comprehensive set of bylaws to govern the members’ relationship and the duties and obligations of the board of directors that will operate the business without significant input from the members. If the co-op is to be operated as a non-profit entity, the co-op will need to comply with the formalities for forming such an entity.
A note on the Co-op Model While solar power production co-ops are popular in Europe, the authors have not found an operating example in the U.S. although the co-op model is currently being pursued by some companies, such as Tangerine Solar. (www. tangerinesolar.com)
One explanation for this discrepancy may be in the differing regulatory regimes. In the U.S., in order to reduce costs from state and federal securities compliance, co-op members would receive limited compensation on capital subscribed as a condition of membership. This makes the co-op model less attractive to investors looking for a monetary return.
FOR-PROFIT CORPORATIONS A corporation is a separate and distinct legal entity, meaning the corporation does business under its own name. A corporation issues/sells voting common stock and (sometimes) preferred stock which can be voting or non-voting. The owners of the stock are called “stockholders” or “shareholders”.
A corporation is managed by a board of directors elected by the shareholders, which is responsible for making major business decisions and overseeing the general affairs of the corporation. The directors appoint officers, who run the day-to-day operations of the corporation. Each corporation must have at least one director. In a small (“close”) corporation, the shareholders, the directors and the officers are usually the same three or four people, but in a larger corporation, the shareholders are passive investors and, other than electing directors, have little control over the business operations of the corporation. In that situation, the stock issued to passive shareholders can constitute a security.
Directors and officers (and in some cases, the majority shareholders) of a corporation owe “duties of loyalty and care” to the corporation. Generally, this means the directors must act in good faith, with reasonable care, and in the best interest of the corporation. Directors, officers and majority shareholders must not use their position to gain personally from transactions with the corporation without complying with certain legal formalities.
Advantages and Disadvantages of Forming as a Corporation The primary advantage of a corporation is that shareholders are not generally liable for corporate debts provided shareholders follow the rules for their particular state regarding formation of the corporate and maintenance of the corporate identity. For example, a shareholder may be liable for corporate debts if the shareholder personally guarantees the debts, if personal funds are intermingled with corporate funds, or if the corporation is undercapitalized (i.e. shareholders do not contribute enough money to the corporation when it is formed). Other actions may affect the liability of the shareholders, so anyone considering this business entity should consult a legal professional to assure that all the proper formalities are followed.
A corporation can elect to be taxed either as a “C corporation” or as an “S corporation.” A “C” (or regular) corporation pays a corporate tax on its net income (the first tax), and then the stockholders pay income tax on dividends (the second tax) when the corporation distributes profits. An “S” corporation is like a pass-through entity but there are limitations on the number of shareholders and who may be a shareholder. APPENDIX A 43 FORMALITIES A corporation is required to hold annual meetings of shareholders to elect directors. In most jurisdictions, meetings can be held in person or by electronic means that allow all persons to hear the proceedings. It is important to maintain the corporation’s records scrupulously to prevent creditors making claims against the shareholders. The corporation also must obtain a separate tax identification and separate bank accounts.
The name of a corporation must contain words that identify the company as a limited liability entity, such as “Inc.,” “Ltd.,” or “Corporation.”
NON PROFIT ENTITIES (Note: The following discussion pertains to non-profit entities that pursue solar projects as part of their core mission. For a discussion of how an existing non-profit may fund a solar project through donations, please see Section 2, Community Solar Project Models: Non-Profit Model.) A non-profit entity can be a corporation, or other form of business entity that is organized to meet specific tax-exempt purposes. Common examples of non-profits include: religious, charitable and political organizations, credit unions and membership clubs such as the Elk’s Club. To qualify for non-profit status, the entity must be formed to benefit (1) the public, (2) a specific group of individuals or (3) the membership of the non-profit. If the non-profit has members, they may have the power to vote for directors and approve a sale or merger, but many smaller non-profits do not have members, due to the additional paperwork and required formalities. Even without members, donors may participate as advisors, patrons or contributors, but do not have a vote in the non-profit’s operations.
Being a non-profit does not mean the entity cannot make a profit. Non-profits can sell goods or services for money and can pay competitive salaries to officers and employees. The primary limitation is that any profits generated by the non-profit’s business operations cannot be distributed to members but must be retained by the non-profit and used to further its purposes and/or run its business. Non-profits are exempt from income, sales and property taxes and allow donors to deduct their donations from their taxes. Absent misuse of the non-profit’s resources, directors, officers and members are not liable for the debts of the non-profit.
Although tax-exempt entities such as non-profits are not usually eligible for tax credits, they may be eligible for other grants or other sources of foundation funding that would not otherwise be available to a for-profit entity.
Advantages and Disadvantages of Forming as a Non-Profit Corporation The largest advantage of organizing as a non-profit is that the entity is exempt from paying taxes on its profits, provided the activities of the entity continue to meet the requirements for exemption. It’s important to note that simply forming a non-profit does not automatically qualify the entity for federal and state tax exemption - only an officially recognized non-profit entity can apply for federal and state tax exemption. This application is often referred to as the 501(c)(3) application since that is the IRS code section most commonly applicable to non-profits. In fact, there are more than 20 code sections for non-profit qualification. Another common one is 501(c)(7), which applies to social and recreational clubs.
Formalities Unless a non-profit corporation files a 501(c)(3) application with the IRS, it will not be exempt from paying federal income taxes. If your non-profit’s purpose qualifies under 501(c)(3), then a legal professional can help prepare the application for you. Each state also requires a tax exempt application; however, most states accept the federal tax exempt application in place of their own.
The process for forming the non-profit can take several months – generally the IRS takes three to five months to examine and approve the 501(c)(3) application.
Like any business entity, it is critical to maintain the separate corporate identity of the non-profit. This means setting up a separate bank account, maintaining good corporate records and holding regular board meetings.
44 APPENDIX A SUMMARY TABLE OF BUSINESS TYPES
ENTITY TYPE LIABILITY FOR TAXATION PRIMARY PRIMARY OWNERS ADVANTAGES DISADVANTAGES General Personal liability Pass-through Ease of formation; Personal liability of Partnerships pass-through partners taxation Limited Personal liability Pass-through Pass-through No liability shield Partnerships for general taxation; limited for general partner partners; limited liability for limited liability for limited partners partners Limited Liability Limited liability Usually pass- Pass-through Relatively new Companies through taxation; fewer structure; may formalities to be harder to get maintain the LLC financing structure than corporations Cooperatives Limited Liability Separate tax entity Cooperative Inflexible Structure principles “S” Corporations Limited Liability Pass-through Liability shield; Limitations on Limited liability ease of invest- number and iden- ment; ease of tity of members transfer of shares in larger, non-close corporations “C” Corporation Limited Liability Separate tax entity Liability shield; Complexity; ease of invest- double taxation ment; ease of transfer of shares in larger non-close corporations Non- Profit Limited Liability Separate tax iden- Tax-exempt; tax No return for Entities tity; tax exempt deduction for donors; business donors purposes are limited; no voting rights for donors
APPENDIX A 45 Appendix B
INTRODUCTION TO IREC’S COMMUNITY RENEWABLE MODEL PROGRAM RULES Taking into account the various community solar approaches that have been implemented thus far, the Interstate Renewable Energy Council (IREC) worked closely with The Vote Solar Initiative to develop model rules for community renewable programs that are designed to assist stakeholders in developing programs that meet their diverse needs. The first part of this process was the development of a Community Renewable Power Proposal (Proposal) to generate stakeholder input on best practices in this emerging policy area. Two key principles greatly influenced the development of the Proposal. First, the Proposal was grounded in the belief that participants in a community renewables program should have an experience that is similar to that of customers investing in on-site renewable energy. Second, community renewables should be additive to successful on-site renewable energy programs and not undermine on-site renewable energy programs. It makes little sense to undermine successful on-site programs when seeking to expand options for participation. IREC’s Proposal generated significant stakeholder feedback, which was used to develop the Model Program Rules. IREC intends to continue to develop and refine its Model Program Rules.
During discussions with stakeholders on the development of these Model Program Rules, five areas emerged as deserving of special attention:
ALLOCATION OF BENEFITS Allocating benefits to program participants is a critical element of developing a successful renewables program. In considering the best method for allocating benefits to participating customers, IREC felt it was important to avoid structuring a program as a wholesale program that would result in taxable income. It makes little sense from an economic standpoint for customers to invest in greening their energy supply if benefits of doing so will be siphoned off in taxes. Additionally, many customers are motivated to offset as much of their energy bill as possible and most existing net metering programs accommodate this desire by placing net metering credits on a customer’s monthly bill. While the reasons underlying this motivation are complex, bill credits maintain a direct relationship between customers’ investments in renewable energy and a reduction in their utility bills. For these reasons, IREC chose virtual net metering as the best method for allocating benefits. This approach maintains a similarity in experience between customers installing on-site systems and those customers who participate in a community renewables program.
PROGRAM ADMINISTRATION Program administration represents another critical area of program design. Existing community renewables programs have fallen into two camps with regard to who has program administration responsibilities: customer representatives or utilities. IREC believes the best approach is to allow utilities to administer a community renewables program. This framework allows an entity with significant experience in administering complex energy programs to administer the details of a community renewables program. Use of a utility administrator also avoids any concern about creditworthiness of a third-party customer representative.
FINANCING OF COMMUNITY SOLAR A solar energy system represents a significant investment. Accordingly, an array of local, state, and federal incentives have been developed to incentivize customer investment in solar energy systems. In order to maximize the availability of funding, and to ensure available incentives are used as efficiently as possible, IREC’s Model Program Rules support direct ownership, third-party ownership, and utility ownership of community renewable systems. Allowing third-party ownership of a renewable energy system can be critical to tapping into funders who are able to fully utilize available federal tax credits. Thirteen states have explicitly authorized third-party ownership of on-site renewable energy systems and legislation enacting community renewables programs in Colorado, Massachusetts, Delaware and Washington have made clear that third-party owners of community renewable energy systems are not subject to public utility regulation.
46 APPENDIX B An important aspect of allowing utility ownership is a requirement that all system purchase costs, operation and maintenance costs, necessary investment returns, and other costs related to a utility-owned system must be recovered from participants enrolled in a utility program. This requirement is important to maintaining a level playing field between utility offerings and offerings of other parties by ensuring that all costs incurred by a utility to operate a community renewable system are recovered from program participants the same as occurs with other competitive providers.
VALUATION OF THE ENERGY PRODUCED BY THE RENEWABLE SYSTEM At the heart of a successful community renewables program is the experience participants have as a result of their participation in a community solar project. In general, a threshold decision must be made on whether the net metering credits generated by a project should be transferred to participants as a 1:1 kWh offset on the customer’s utility bill or whether the kilowatt-hours should be given a monetary value based on some other rate. Under most states’ net metering programs, net metering credits generated by an on-site system are used to directly offset kilowatt-hours delivered by a utility when a customer-generator’s consumption exceeds the energy supplied by a renewable energy system. Given most customer-generation is simply used on-site without requiring that a customer’s billing meter spin backwards to earn net metering credits, this framework makes intuitive sense. However, the vast majority of participants in community solar projects will not have generation located behind a billing meter, so the link between excess production and 1:1 kWh offsets is not as important. Moreover, credits denominated in dollars and cents are often much easier for utilities to administer and often require fewer billing software changes. Accordingly, for ease of administration by utilities, IREC chose to allow kWh generated by a project to be given a monetary value that can be applied to participants’ bills. In determining the appropriate monetary value to assign to kWh credits, three approaches are currently in use for community solar projects: (1) valuing a kWh credit based on the retail rate in effect where the project is located (MA does this), (2) valuing a credit based on a the retail rate in effect for the participant (CA does this), or (3) valuing a credit based on some other approach, such as the wholesale value of power production (ME’s approach).
IREC chose the second approach for several reasons. First, valuing the kWh credit at the retail rate in effect for the participant maintains the ability of the project to act as a price hedge against future utility rate increases. Second, valuing the kWh credit at the participant’s retail rate maintains an outcome that is as close as possible to the experience participants would have if they installed a solar energy system on-site. Third, transforming the kWh credit into a monetary credit should simplify the calculations required for customers that need to compensate a utility for the use of the distribution system. Finally, transforming kWh credits into a monetary credit allows customers that face demand charges to have their participation in solar generation recognized by valuing their kWh credits at a total aggregate retail rate.
COMPENSATING UTILITIES One of the thorniest issues with development of community renewables programs is setting an appropriate compensation rate for utilities to administer programs. It should be relatively noncontroversial that utilities should be allowed to recoup their administrative fees. However, the propriety of allowing a utility to recover costs for distribution service is a more controversial topic, and one on which California and Massachusetts have taken different approaches.
In Massachusetts, net metering credits created by a “neighborhood net metered facility” do not contain the distribution portion of a fully bundled retail rate. As a result, participants in a “neighborhood” facility continue to pay distribution charges. However, participants do not pay transmission fees. At this point in time, the Massachusetts approach seems reasonable because neighborhood net-metered facilities are limited to 2 megawatts and participating customers may be located anywhere within a distribution utility’s service territory. Although participating systems will be located close to load with no utilization of the transmission system, a utility would only need to be compensated for use of the distribution system.
APPENDIX B 47 Colorado’s legislation appears to require a similar outcome; however, the Colorado Public Utilities Commission just began implementation of Colorado’s program and this and other details are still being addressed. Thus, today it is unclear exactly how the benefits of customer participation in solar energy systems will be valued in Colorado’s program.
Unlike Massachusetts, net metering credits are valued at a fully bundled retail rate in California. This outcome appears sensible because, unlike the Massachusetts’ program, California’s virtual net-metering program is available only to occupants of certain types of multi-tenant buildings. Thus, California participants will be located within the same building on the same distribution circuit and, as a consequence, use of the distribution system will be nonexistent or minimal.
IREC’s Model Program rules take a nuanced approach to this issue by specifying that customers on the same distribution circuit as the community solar project will have their kWh credits valued at their full retail rate while also allowing a stakeholder process to determine an appropriate level of compensation for use of a utility’s distribution system once a number of factors have been taken into account.
Panels on a Steep Roof, University Park, Maryland
48 APPENDIX B IREC’S COMMUNITY RENEWABLES MODEL PROGRAM RULES These rules were created by the Interstate Renewable Energy Council and The Vote Solar Initiative to serve as a guide for renewable energy stakeholders to consider during development of a community renewables policy to meet the needs of their state. They provide a framework for building a community renewables program that is additive to successful on-site renewable energy programs and uses solar, wind, hydro, biomass and other renewable energy sources to allow communities to promote local job growth. These program rules are solely the recommendation of the Interstate Renewable Energy Council and The Vote Solar Initiative and do not necessarily reflect the recommendation of the authors, the Department of Energy, or the National Renewable Energy Laboratory.
I. GENERAL PROVISIONS (a) Subscriptions in a Community Energy Generating Facility may be transferred or assigned to a Subscriber Organization or to any person or entity that qualifies to be a Subscriber under these rules.
(b) New Subscribers may be added at the beginning of each billing cycle. The owner of a Community Energy Generating Facility or its designated agent shall inform the Electricity Provider of the following information concerning the Subscribers to the Community Energy Generating Facility on no more than a monthly basis: (1) a list of individual Subscribers by name, address, account number; (2) the proportional interest of each Subscriber in the Community Energy Generating Facility; and (3) for Subscribers who participate in meter aggregation, the rank order for the additional meters or accounts to which Net Metering credits are to be applied.
(c) A Subscriber may change the individual meters or accounts to which the Community Energy Generating Facility’s electricity generation shall be attributed for that Subscriber no more than once quarterly, so long as the individual meters or accounts are eligible to participate.
(d) An Electricity Provider may require that customers participating in a Community Energy Generating Facility have their meters read on the same billing cycle.
(e) If the full electrical output of a stand-alone Community Energy Generating Facility or the excess generation from a hosted Community Energy Generating Facility is not fully allocated to Subscribers, the Electricity Provider shall purchase the unsubscribed energy at a kWh rate that reflects the full value of the generation. Such rate shall include the avoided cost of the energy, including any Locational Benefits of the Community Energy Generating Facility.
(f) If a Subscriber ceases to be a customer within the distribution service territory within which the Community Energy Generating Facility is located, the Subscriber must transfer or assign their Subscription back to their Subscriber Organization or to any person or entity that qualifies to be a Subscriber under these rules.
(g) If the Subscriber ceases to be a customer of the Electricity Provider or switches Electricity Providers, the Electricity Provider is not required to provide compensation to the Subscriber for any unused Net Metering credits.
(h) A Community Energy Generating Facility shall be deemed to be located on the premises of each Subscriber for the purpose of determining eligibility for state incentives.
(i) Neither the owners of, nor the Subscribers to, a Community Energy Generating Facility shall be considered public utilities subject to regulation by the [responsible agency having regulatory oversight] solely as a result of their interest in the Community Energy Generating Facility.
(j) Prices paid for Subscriptions in a Community Energy Generating Facility shall not be subject to regulation by the [responsible agency having regulatory oversight].
(k) A Subscriber owns the Renewable Energy Credits (RECs) associated with the electricity allocated to the
APPENDIX B 49 Subscriber’s Subscription, unless such RECs were explicitly contracted for through a separate transaction independent of any Net Metering or interconnection tariff or contract. For a Community Energy Generating Facility located behind the meter of a participating Subscriber, the host Subscriber owns the RECs associated with the electricity consumed on-site, unless the RECs were explicitly contracted for through a separate transaction independent of any Net Metering or interconnection tariff or contract.
(l) The dispute resolution procedures available to parties in the Electricity Provider’s interconnection tariff shall be available for the purposes of resolving disputes between an Electricity Provider and Subscribers or their designated representative for disputes involving the Electricity Provider’s allocation of Net Metering credits to the Subscriber’s electricity bill consistent with the allocations provided pursuant to Rule II.b. The Electricity Provider shall not be responsible for resolving disputes related to the agreements between a Subscriber, the owner of a Community Energy Generating Facility, and/or a Subscription Organization or any other party. This provision shall in no way limit any other rights the Subscriber may have related to an Electricity Provider’s provision of electric service or other matters as provided by, but not limited to, tariff, decision of [responsible regulatory body or agency], or statute.
II. NET-METERING PROVISIONS (a) An Electricity Provider shall not limit the cumulative, aggregate generating capacity of Community Energy Generating Facilities. 1
(b) For a Community Energy Generating Facility, the total amount of electricity expressed in kWh available for allocation to Subscribers, and the total amount of RECs generated by the Community Energy Generating Facility and allocated to Subscribers, shall be determined by a production meter installed and paid for by the owner(s) of the Community Energy Generating Facility. It shall be the Electricity Provider’s responsibility to read the production meter.
(c) For a hosted Community Energy Generating Facility, the determination of the quantity of kWh credits available to Subscribers of that facility for Net Metering, including the host Subscriber, shall be based on any energy production of the Community Energy Generating Facility that exceeds the host Subscriber’s instantaneous on-site consumption during the applicable billing period and the Subscribers’ Subscriptions in that Community Energy Generating Facility.
(d) For a stand-alone Community Energy Generating Facility, the determination of the quantity of kWh credits available to each Subscriber of that Community Energy Generating Facility for Net Metering shall be based on the total exported generation of the Community Energy Generating Facility and each Subscriber’s Subscription in that Community Energy Generating Facility.
(e) For Subscribers that host a Community Energy Generating Facility or where participating Subscribers are located on the same distribution feeder as the Community Energy Generating Facility, the value of the kWh credits for the host Subscriber and those Subscribers on the same distribution feeder shall be calculated by multiplying the Subscriber’s share of the kWh electricity production from the Community Energy Generating Facility by the retail rate for the Subscriber. For Subscribers on tariffs that contain demand charges, the retail rate for the Subscriber shall be calculated as the Total Aggregate Retail Rate for the Subscriber.
1. This program rule is based upon IREC’s Net Metering Model Rule (b)(2), which specifies that the cumulative, aggregate generating capacity net metered by on-site renewable generation facilities shall not be arbitrarily limited. Some states cap the total amount of aggregate Renewable Energy Generation that can be Net Metered for a particular Electricity Provider. Most commonly, aggregate enrollment caps are expressed as a percentage of an Electricity Provider’s peak demand based on the aggregate of nameplate capacity of the generation systems (though it should be noted that capacity calculations are not standardized in their methodology across or even within states). Such percentages can vary from as low as 0.1% to as high as 20%. IREC believes aggregate caps arbitrarily and unnecessarily limit private investment in Renewable Energy Generation and needlessly curtail the flow of benefits that are associated with customer-side Renewable Energy Generation. For states that place an aggregate enrollment cap on net metered generation, that cap should be removed or expanded to ensure that community renewables programs do not undermine successful on-site programs.
50 APPENDIX B (f) For all other Subscribers to a Community Energy Generating Facility, value of the kWh credits allocated to each Subscriber shall be calculated by multiplying the Subscriber’s share of the electricity production from the Community Energy Generating Facility by the retail rate as charged to the Subscriber, minus a reasonable charge as determined by the [responsible agency having regulatory oversight] to cover the Electricity Provider’s costs of delivering the electricity generated by the community electricity generating facility to the Subscriber’s premises after taking into account the Locational Benefits and other benefits2 provided by the Community Energy Generating Facility. The [responsible agency having regulatory oversight] shall ensure that this charge does not reflect costs that are already recovered by the Electricity Provider from the Subscriber through other charges. In no event, shall the charge, if assessed, be greater than the Subscriber’s distribution service charge as determined on a per kWh basis.
(g) The Electricity Provider shall carry over any excess kWh credits earned by a Subscriber and not used in the current billing period to offset the Subscriber’s consumption in subsequent billing periods until all credits are used. Any excess kWh credits shall not reduce any fixed monthly customer charges imposed by the Electricity Provider.
III. DEFINITIONS. AS USED WITHIN THESE RULES, UNLESS THE CONTEXT OTHERWISE REQUIRES: (a) “Biomass” means a power source that is comprised of, but not limited to, combustible residues or gases from forest products manufacturing; waste, byproducts, or products from agricultural and orchard crops; waste or co- products from livestock and poultry operations; waste or byproducts from food processing, urban wood waste, municipal liquid waste treatment operations, and landfill gas.3
(b) “Community Energy Generating Facility” means Renewable Energy Generation that is interconnected at the distribution system level and that is located in or near a community served by an Electricity Provider where the electricity generated by the facility is credited to the Subscribers to the facility. A Community Energy Generating Facility may be located either as a stand-alone facility, called herein a stand-alone Community Energy Generating Facility, or behind the meter of a participating Subscriber, called herein a hosted Community Energy Generating Facility. A Community Energy Generating Facility may be no larger than two megawatts (MW). A Community Energy Generating Facility must have at least two Subscribers.
(c) “Electricity Provider” means the jurisdictional entity that is required to offer Net Metering service to Subscribers pursuant to [code section for applicable Net Metering rules].
(d) “Locational Benefits” mean the benefits accruing to the Electricity Provider due to the location of the Community Energy Generating Facility on the distribution grid. Locational Benefits include such benefits as avoided transmission and distribution system upgrades, reduced transmission and distribution level line losses, and ancillary services.
(e) “Net Metering” means a methodology under which electric energy generated by or on behalf of a Subscriber and delivered to the Electricity Provider’s local distribution facilities may be used to offset electric energy provided by the Electricity Provider to the Subscriber during the applicable billing period.
(f) “Renewable Energy Credit” means a tradable instrument that includes all renewable and environmental attributes associated with the production of electricity from a Community Energy Generating Facility.
(g) “Renewable Energy Generation” means an electrical energy generation system that uses one or more of the following fuels or energy sources: Biomass, solar energy, geothermal energy, wind energy, ocean energy, hydroelectric power, or hydrogen produced from any of these resources.
2. These benefits can often include capacity payments or energy market payments obtained by the Electricity Provider as provided for under the relevant independent system operator’s tariff. 3. The definition of Biomass may need to be adjusted to reflect state renewable portfolio standard definitions.
APPENDIX B 51 (h) “Subscriber” means a retail customer of a utility who owns a Subscription and who has identified one or more individual meters or accounts to which the Subscription shall be attributed. Such individual meters or accounts shall be within the same Electricity Provider’s distribution service territory as the Community Energy Generating Facility.
(i) “Subscriber Organization” means an organization whose sole purpose is to beneficially own and operate a Community Energy Generating Facility for the Subscribers of the Community Energy Generating Facility. A Subscriber Organization may be any for-profit or non-profit entity permitted by [state] law. The Community Energy Generating Facility may also be built, owned, and operated by a third party under contract with the Subscriber Organization.
(j) “Subscription” means an interest in a Community Energy Generating Facility. Each Subscription shall be sized to represent at least one kilowatt of the Community Energy Generating Facility’s generating capacity; provided, however, that the Subscription is sized to produce no more than 120% of the Subscriber’s average annual electrical consumption. For Subscribers participating in meter aggregation, 120% of the Subscriber’s aggregate electrical consumption may be based on the individual meters or accounts that the Subscriber wishes to aggregate pursuant to these rules. In sizing the Subscription, a deduction for the amount of any existing renewable energy generation at the Subscriber’s premises or any Subscriptions owned by the Subscriber in other Community Energy Generating Facilities shall be made.
(k) “Total Aggregate Retail Rate” means the total retail rate that would be charged to a Subscriber if all electric rate components of the Subscriber’s electric bill, including any riders or other additional tariffs, except for minimum monthly charges, such as meter reading fees or customer charges, were expressed as per kilowatt-hour (kWh) charges.
52 APPENDIX B End Notes i. See www.nrel.gov/docs/fy09osti/44073.pdf, p. 4. ii. Warren, Deborah B; and Steve Dubb. June 2010. TheDemocracy Collaborative at the University of Maryland. Growing a Green Economy for All: From Green Jobs to Green Ownership. p. 22. iii. It may be that the tax benefits of the ITC are not readily accessible to the for-profit utilities, due to the normalization accounting rules. iv. Alvarez, Paul and Benjamin Hodges, “Buying Into Solar” Public Utilities Fortnightly, December 2009 p. 57 v. 26 USC 136 states that subsidies from public utilities for energy conservation measures are not taxable. For example, Washington state’s production incentive was ruled to be not income. See apps.leg.wa.gov/WAC/default.aspx?cite=458-20-273. vii. Rural electric co-ops are consumer co-ops, formed for the purpose of delivering electric service to rural communities and financed by federal loans; these are distinct from a special purpose entity cooperative, formed to produce solar power and sell it to a utility. In the case of the rural electric co-op, the member/customers do not provide financing, they merely purchase electricity. In the case of a special purpose entity co-op, the members would provide the capital to build the project and they would not necessarily purchase any of the output. viii. See www.irs.gov/businesses/small/article/0,,id=146330,00.html for more information on passive income. ix. To see a list of IRS material participation tests and other details about passive activity and at-risk rules, see IRS Publication 925, available at www.irs.gov/pub/irs-pdf/p925.pdf. x. For an individual to be considered an accredited investor, he or she must have either: 1) a net worth of more than $1 million or 2) an annual income of $200,000 ($300,000 jointly with a spouse) in each of the most recent two years and a reasonable expectation of having the same income level in the current year. xi. Tangerine Solar, LLC, based in Washington State has created a legal and business model for a solar power co-op but has not built any projects yet. xii. The Portland Habilitation Center Northwest, a non-profit organization partnered with U.S. Bancorp Community Development Corporation who will own and finance an 870 kW system to provide energy to the non-profit. xiiii. Please see the Northwest Community Solar Guide for more information on this project. www.nwseed.org/Educational%20 Resources/publications/default.asp. xiv. See Vermont Public Service Board Rule 5.100 available at: psb.vermont.gov/sites/psb/files/rules/OfficialAdoptedRules/5100 adoptedrule_2.pdf. xv. See generally Multifamily Affordable Solar Housing Semiannual Report, January 20, 2010 available at: www.cpuc.ca.gov/ NR/rdonlyres/B3644285-F573-428F-AA0A-A2497A30401B/0/MASHSemiAnnualReport.pdf. xvi. See www.mainelegislature.org/legis/bills/bills_124th/chapters/PUBLIC329.asp. xvii. See mpuc.informe.org/easyfile/easyweb.php?func=easyweb_docview&docid= 77134&img_rng=217284&vol_id=2. xviii. See 4 CCR 723-3 Rule 3652 (c). xix. See Colorado House Bill 10-1342 available at: www.leg.state.co.us/. xx. See www.stoel.com/showalert.aspx?Show=6569. xxi. Bolinger, Mark, Financing Non-Residential Photovoltaic Projects: Options and Implications, LBNL January 2009, eetd.lbl. gov/EA/EMP/reports/lbnl-1410e.pdf. xxii. See Utah Code 59-7-614.3 www.le.state.ut.us/~code/TITLE59/htm/59_07_061403.htm.
ENDSECTIONEND NOTESNOTES 1: INTRODUCTION 53
ABRAMS ENVIRONMENTAL LAW CLINIC OF THE UNIVERSITY OF CHICAGO LAW SCHOOL
STATE OF MICHIGAN
MICHIGAN PUBLIC SERVICE COMMISSION
In the matter, on the Commission’s own Case No. U-18232 motion, regarding the regulatory reviews, revisions, determinations, and/or approvals ALJ Sharon Feldman necessary for DTE ELECTRIC COMPANY to fully comply with Public Act 295 of 2008
PROOF OF SERVICE
On the date below, an electronic copy of Direct Testimony and Exhibits of Jackson Koeppel on behalf of Soulardarity was served on the following:
Name/Party E-mail Address Administrative Law Judge Sharon Feldman [email protected] Council for DTE Electric Company [email protected] Andrea Hayden [email protected] Council for Staff Spencer A. Sattler [email protected] Counsel for Cypress Creek Renewables, LLC Jennifer Utter Heston [email protected] Counsel for Environmental Law & Policy Center Margrethe Kearney [email protected] Jeffrey Hammons [email protected] Counsel for Geronimo Energy Timothy Lungren [email protected] Counsel for Ranger Power, LLC Toni L. Newell [email protected] Counsel for Great Lakes Renewable Energy Association, Inc. Don L. Keskey [email protected] Brian W. Coyer [email protected]
Counsel for Michigan Environmental Council Christopher M. Bzdok [email protected] Lydia Barbash-Riley [email protected]
THE ARTHUR O. KANE CENTER FOR CLINICAL LEGAL EDUCATION 6020 SOUTH UNIVERSITY AVENUE / CHICAGO, ILLINOIS 60637-2786 (773) 702-9611 / FAX: (773) 702-2063 / www.law.uchicago.edu/mandel
The statements above are true to the best of my knowledge, information and belief.
UNIVERSITY OF CHICAGO LAW SCHOOL ABRAMS ENVIRONMENTAL LAW CLINIC Counsel for Soulardarity
Date: July 18, 2018
By:
Mark Templeton 6020 S. University Avenue Chicago, IL 60637 Phone: (773)702-9611 Email: [email protected]