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CITY OF BOSTONThomas M. Menino, Mayor
Environmental and Energy ServicesJames W. Hunt, III, Chief
Solar Financing: Shedding Light on Solar Incentives
July 16th, 2009Green Roundtable 2
City of Boston Climate Action Plan
2000: Boston joins ICLEI—Cities for Climate Protection
2005: Mayor Menino signs U.S. Mayors Climate Protection Agreement Kyoto Protocol targets
2007: Executive Order Relative to Climate Action:
– Greenhouse Gas Emissions reduction goals:
• 7% below 1990 levels by 2012
• 80% below 1990 levels by 2050
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� All private projects over 50,000 square feet must be LEED “Certifiable”
� All public projects must be LEED Silver certified
� 10 million square feet of LEED construction is currently in the pipeline.
Green Building Action Plan
Brigham & Women’s Hospital
John Hancock Building
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Green Affordable Housing Program
• Department of Neighborhood Development (DND)
• $2 million from Massachusetts Technology Collaborative
• 140 kW on 240 units of housing
• All housing must now be:– PV ready– LEED Silver certifiable– ENERGY STAR or equivalent
• Over half of current Boston capacity is cited on affordable housing
1460 DOT Ave.
7 Sussex St.
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Fenway Park April 9, 2008
Thomas M. MeninoMayor of Boston
Samuel W. BodmanUS Secretary of Energy
25 MW BY 2015
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PV Technical Potential:
670-900 MW(14%-19% 2006 electricity
consumption)
7http://gis.cityofboston.gov/solarboston
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Where are we? Where are we Going?Solar Installed Capacity
0
200
400
600
800
1000
1200
1400
1600
1800
1984… 1995… 1999… 2001 2002 2003 2004 2005 2006 2007 2008
Year
kW
SWH
PV
PV Market Growth Scenarios
0
20
40
60
80
100
120
140
160
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year
25%
35%
45%
55%
65%
Market Growth
� Installed capacity increased over 300% from 2006-2008
�480 kW to 1.8 MW of PV and solar hot water heating
� 50% average annual PV market growth rate (2002-2007)
� 47.8% average annual growth (PV and SWH) necessary to meet Mayor’s goal of 25 MW by 2015
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Solar Policy
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Investment Tax Credit• Investment Tax Credit
– 30% for PV
– In place through December 31, 2016
– Carryforward 20 years for commercial and through at least 2016 for residential
– Previously, $2000 cap for residences; now uncapped and can take against the alternative minimum tax
– Utilities can now get it
– Have to be rich
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Modified Accelerated Cost Recovery System (MACRS)
Year Percentage
1 20.00%
2 32.00%
3 19.20%
4 11.52%
5 11.52%
6 5.76%
•50% bonus depreciation available for systems installed in 2009
•If claiming federal tax credit, depreciable basis reduced by 15%
•Approximately 90% of PV systems can be depreciated according to MACRS, 5% can be depreciated on 20-year schedule, and 5% can’t be depreciated
•MACRS provides an approximately 26% net present value (= 12% better than standard depreciation)
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Financial Crisis
Good-Bye Tax Equity 14DRAFT 14
RE Finance: U.S. Landscape• RE investing in the US is tax-driven; this continues to be true today, even if recent legislation
has temporarily expanded the options for monetizing federal tax credits.
• RE finance thru mid-2008 was characterized by:
– Complex structures necessary to allocate tax benefits to parties with tax liability (“Tax Investors”).
– Available capital exceeds RE project demand, resulting in downward pressure on Tax Investor returns and debt yields.
• Finance Landscape in 2009
– Investment capital liquidity severely constrained.
– Project capital requirements exceed available funding, resulting in higher Tax Investor returns.
– Tax Investor financing is largely unavailable with consolidation in the market, constrained capital and uncertainty about future income tax liability, leading to a “flight to quality”.
– Debt terms (rates and tenors) have tightened, lenders are more selective and the number of “club financings” (a group of banks sharing risk equally) have increased.
– Tenor (debt term) have shortened - many banks offering ‘mini-perms’ which require re-financing after 5 –7 years.
– Temporary move away from PTC risk toward the ITC / Cash Grant.
• Summary – Project capital is severely constrained and what is available is expensive.
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Hello IRS
Commercial PV gets 30% grant in 2009/10 16DRAFT 16
RE Finance: U.S. Landscape• Near term market drivers
– ITC and Cash Grant: increases financing options (allows lease transactions for wind); increases pool of investors; eliminates production risk.
– Reduced access to development capital slows the new project pipeline.
• Longer-term trends
– Discussions of national RPS and Carbon Cap & Trade.
– Sunset date on Cash Grant may suggest continued tax-based incentives
• Summary
– The current supply of capital is limited, and costlier than pre credit crisis, with only the best projects being financed (i.e. “flight to quality”).
– Long-term recovery will be driven by regulatory policy and general economic conditions.
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Massachusetts Tax Benefits
• 20-year value-added property tax exemption
• Commercial:– 100% income tax deduction
• = ~9.5% tax credit• = ~5.7% net value tax credit after federal interaction
• Residential– 15% tax credit
• Capped at $1,000• Three year carryforward
– Sales tax exemption
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Incentives for PV 1Residential Rebates
(www.masstech.org/solar)
Base Incentive $1.00
MA Components $0.50
Moderate home value adder $2.00
Moderate income adder (<120% of median income)
$1.25
Total possible rebate $4.75
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Incentives for PV 2Non-Residential Rebates
Commercial Rebates for Incremental Capacity ($ per watt (dc))
Incremental Capacity
First: Next: Next: Next:
1 to 25 kW
> 25 to 100 kW
> 100 kW to 200 kW
> 200 kW to 500 kW
Base Incentive $3.15 $3.00 $2.00 $1.40
PLUS: Additions to Base
Massachusetts Company Components Adder $0.15 $0.15 $0.15 $0.15
Public Building Adder $1.00 $1.00 $1.00 $1.00
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Interactions with Tax Credits
• If grant is taxable income, apply full tax credit to full installed cost
• If grant is non-taxable, subtract out grant value from tax credits before calculating benefits
• Example:– Taxable commercial rebate has 66% total value after
federal interaction– Non-taxable commercial rebate has ~44% total
possible value
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Net Metering
Type CapacityGenerating
source
Treatment by
Utility –
Gov.
owned
Treatment by Utility
– private Transfer of Credits
# of Designees for
Allocation of
NM credits
Class I up to 60kW Solar and Wind
~Retail
~Retail
May be transferred to another customer in same utility territory
no more than 5
Class II> 60kW to
1 MW
Agricultural products, Solar & Wind
~Retail
May be transferred to another customer in same utility territory
no more than 10
Class III
From
Agricultural products, Solar & Wind
Without distribution cost for each kWh
May be transferred with utility’s permission no more than 50
1 to 2 MW
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Renewable Energy Credits
Customer
Utility
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REC Options• Generator retires and claim “greenness”
• Sell to REC broker/aggregator– Ex. Mass Energy Consumers Alliance– $0.03/kWh for three years
• Try to sell on your own into RPS– Register with NEPOOL GIS REC tracking system– Register with MA Department of Energy Resources
• Wait for DG carve-out rules to be developed– RPS carve-out for generators 2 MW and under– ? %– ? Technologies– ? structure
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Questions?
Andy Belden, Solar Boston Coordinator
[email protected](703) 963-9163
Wilson Rickerson, [email protected]
