Where does the U.S. solar industry really thrive? Unsurprisingly, it has the largest presence in the Sun Belt running from California to North Carolina, as well as a few pockets of the Northeast. These different regions meet some or all the crucial requirements for feasible solar financing options, including:
- A high percentage of sunny days.
- Expensive energy prices that make solar an appealing alternative.
- Flexible ownership models for commercial property owners.
- Various state incentives for solar projects.
California is an instructive example. The Golden State includes three of the 10 sunniest cities in the U.S., according to NerdWallet. It also has high electricity costs, being one of only six states with a price per kilowatt-hour greater than $0.15 in the second quarter of 2017. Its statewide installed solar capacity is also the only one to exceed 18,000 megawatts (MW).
While solar panel installations boomed between 2006 and 2016 (going from effectively 0 in yearly added capacity to more than 14,000 MW per Solar Energy Industries Association [SEIA] data), the effects were unevenly distributed by region. In addition to disparities in the four requirements we listed earlier, many states prohibit power purchase agreements (PPAs) or have commercial energy rates rendering solar projects economically challenging. What's the solar financing solution to making projects feasible virtually everywhere?
The benefits of solar financing via Commercial Property Assessed Clean Energy
Enter the Commercial Property Assessed Clean Energy (C-PACE) financing tools. C-PACE helps simplify the economics of solar in light of the varying state-level regulations of electricity. Here's how it works:
- Property owners can finance 100 percent of the cost of solar and/or energy-efficiency upgrades as a voluntary property tax assessment on a commercial building.
- The loan can be structured for up to 30 years, giving it a longer timeline than either a PPA (typically up to 20 years) or a capital or operating lease (only 7 to 10 years).
- This amortization timeline allows for cash flow positive projects even in states with relatively low energy prices.
- The assessment is tied to the building rather than the owner, meaning it can be passed along during a sale.
"Without a doubt, C-PACE has the potential to vastly expand solar markets across this country and we hope developers seriously consider it as a viable option moving forward," explained Mike Mendelsohn, senior director of project finance and capital markets at SEIA.
Whereas solar projects have traditionally required a complex mix of requirements be met for ultimate viability, C-PACE only has two preconditions. First, a state must allow assessments be added on properties. Second, a district must exist to administer the resulting C-PACE loan. As of Q2 2017, 34 states met the first requirement and 21 had set up districts for specific projects. Commercial solar financing has rarely been as widely accessible as it now is through C-PACE.
What's ahead for C-PACE?
Looking into the future, C-PACE could become an equalizer for solar project viability across states. Of particular interest will be the handful of jurisdictions that both restrict PPAs and have C-PACE programs up and running. The largest and most notable is Florida.
In the Sunshine State and the six others in this category, C-PACE is currently the only real option for long-term solar financing. To understand its unique benefits, consider the challenges of alternative cash purchases and capital leases.
In each of those cases, there is not significant return until well over a decade later, making the arrangement either unattractive as an investment or outside the life of the lease. C-PACE unlocks immediate advantages via tax incentives and supports a cumulatively cash flow positive project. The loan can even be bought up if and when cheaper capital becomes available.
Over the long term, C-PACE is also a powerful complement for on-site storage projects. Since a large portion of electric bills are for demand charges, it makes sense to mitigate these costs in any way possible, including via a combo of storage infrastructures and solar panels. Through C-PACE, the expenses of storage and solar can be bundled, resulting in superior return on investment from rooftop solar installations.
C-PACE is an exciting development in the financing of solar. In the years ahead, it may become a key enabler of the industry's growth beyond its current strongholds in the coastal and southern states. Trina Solar is committed to providing a diverse portfolio of commercial solar solutions to building owners, so they can get maximum ROI from their new projects, whether they are financed through C-PACE or other means.
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