Nonprofit solar project financing in Texas using PACE

Nonprofit solar project financing in Texas using PACE


I’m in Austin today outside the Frank Pickett Scout training center You can see there’s a nice mid-sized solar system on the roof there We financed that about six or seven years ago back when I was at Sun power and I’m here today specifically to talk about financing for nonprofit customers in Texas and specifically nonprofit customer financing using Texas pace So there’s a number of challenges with doing this with pace which I’m going to get to in a minute I want to talk about this project because We’re often asked. Hey, there have been a lot of nonprofit projects financed in Texas Why is it so challenging to get these done with pace and there’s a few good reasons for that? This one’s going to get slightly technical. Although we’re still going to keep the time span on this one limited so when this project was done back in the 2012-2013 time period we had a couple of unique incentive regimes in place at the time so the broader point here is and this applies to solar projects throughout the United States is Every solar project benefits from a unique regulatory and incentive regime that’s in place at the time that it’s done That applies at the federal level the state level in the utility level as well as regulations at the local level Okay, so at the time this was done We had a local incentive here in Austin Okay, we had net metering at the time and we also had a very interactive attractive performance-based incentive Okay, that regime has changed significantly Austin’s now for the past few years but on what’s called the value of solar tariffs the rate that it gives you on that tariff is Significantly lower than some of the rates. We were realizing under the net metering regime. The performance-based incentive is also declined significantly okay, so the Boy Scouts of America office here benefited from a higher and more attractive net metering and performance-based or PPI incentive at the time Moreover we out of different federal incentive at the time So we’ve always had the 30 percent federal incentive based on the investment tax credit We had a unique period of time when we were financing solar projects after the recession of the late no.9 Where Congress passed the grant in lieu of tax credit? Which you commonly hear referred to as the 1603 grants the grant was identical to the investment tax credit in most respect But it had a unique provision Under the investment tax credit a bank or a leasing company including Technology Credit Corporation Which we financed this project through you can take advantage of the investment tax credit But you cannot do a lease to a nonprofit entity The unique provision of the 1603 incentive when it was out was that you could use the 30% 1603 and do at least to a nonprofit entity. That was how we financed this project We were able to take advantage of the 30% Grant and then write a lease to this customer that incorporated the savings because we were able to take advantage of that Okay in today’s environment the federal investment tax credit is not applicable in a Situation where a bank or a leasing company is providing a lease to the nonprofit customer, okay It’s beyond the scope of this conversation provide detailed tax background, but in summary if you are a financing company Or you’re asking financing companies and doing your diligence That’s because under a lease The host customer is deemed the user of the system and if the user is not a taxpayer Then they’re not eligible nor is the bank eligible for the investment tax credit in a Power Purchase Agreement situation the power purchase agreement provider owns the system for tax credit purposes and can still take advantage of the tax credit and then sell power to the nonprofit customer The challenge however, is that many municipal? municipalities including City of Austin utility Austin Energy as well as numerous others including cps in san antonio and outside of austin outside of texas LADWP in california prohibit Power Purchase Agreements within the boundaries of the Municipal Utility So we’ve set up a unique situation here where you could only take advantage of the tax credit for a non-profit Customer if you’re able to do a power purchase agreement, but Austin Energy and its infinite wisdom prohibits power purchase agreements for Nonprofits are actually for all customers. So there’d be no method under today’s incentive regime to take advantage of that 30% This could be financed with pace. The problem is as we’ve talked about in Prior videos You can only do pace in, Texas if you have a positive cash flow or savings investment ratio greater than one in order to achieve that at The low power prices we have in Austin under the vos tariffs and without taking advantage of the 30% Tax credit you get into a very very tight window where you can make these work. So there are several ways I’ll highlight three that you could still make nonprofit projects or the pace. Okay. Number one is you’d have to have an extremely aggressive Installation price for a project of this size like the one behind me Contractors can’t build at that price when you get to some larger ones We’ve done a couple of Goodwill facilities in Texas that got up into two hundred five hundred kilowatt range You start to get much lower billed prices. It may be feasible. So aggressive bill price is one two There are still some incentives that a number of utilities in Texas encore up in Dallas have some incentives there are still some around Texas if you have Incentive going from the local utility or the government Then you could still perhaps in lieu of the 30 percent get enough cash flow from that to make the project work The third option is you could still finance a portion of the project with pace But the customer could put cash into the project. So the requirement is the project has to cash flow but only the portion that you Finance has to cash flow So if the customer is essentially equit eyes in the project putting some portion of cash in That can help it some customers are going to be willing to do that Others are going to want to finance their project with no money down again, if that’s the case under the pace regulations you have to have a positive savings investment ratio when I’m stopping through El Paso at The other end of this client road trip, we’ll talk about one of the health care facilities We did there and talk about other opportunities to get nonprofit deals done in the state

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