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Coming of Age

Creative financing options for renewable installations inspire action and several whiffs of controversy.

January 2011

By Peter Fairley

Amidst the cultivated wheat fields adjoining Denver International Airport (DIA), creative financing schemes (and a team of earthmovers) are preparing 28 acres to generate 3 percent of the airport’s power. By spring 2011, 19,000 PV panels should be displacing enough coal-fired power from Colorado’s grid to slim DIA’s annual carbon footprint by 5,000 metric tons annually. Thanks to a power purchase agreement (PPA), which tasked a third party with financing the $16-million project, the array will immediately benefit the airport’s bottom line. “We’re actually making money,” says DIA deputy manager John Ackerman.

Illustration by Matthew Hollister
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While PPAs get smarter and better for the buyer, novel approaches to financing renewable energy installations such as zero-down leasing schemes are springing up in the market. The impact can be seen in government stats for California, which show that third parties own nearly half of the residential rooftop systems installed in the state through November of this year. That’s 2.6 times more than their share for the previous year.

David Kennedy, the former Greenpeace activist behind Oakland-based solar leasing firm Sungevity, says the smorgasbord of financing options emerging shows that solar energy, long stymied by punishingly high upfront costs, has grown up. “We’ve finally started to address upfront costs and do what every other energy-generating resource does: finance its cost structure over time by getting investors to pay for it,” says Kennedy. He predicts much creativity to come: “It’s going to get even more explosive and take off with a diversity of financing offerings akin to what you experience when you go to a car lot.”

Denver airport’s PPA —their third for solar power—shows that property owners are becoming more savvy. At a glance the deal is textbook PPA: Denver solar developer Oak Leaf Energy Partners signed up Baltimore-based Constellation Energy to build and operate DIA’s latest array, while DIA committed to purchase the solar output for the next 20 years. Constellation will also capture federal tax breaks for the equipment, plus renewable energy credits that local utility Xcel Energy must purchase to meet Colorado’s renewable energy standard. Similar laws mandating utilities to increase renewables’ share of their power supply are on the books in 29 states, D.C., and Puerto Rico. In this case, Constellation isn’t walking away with all of the value, a common criticism with earlier PPAs. While early PPAs set a fixed power price higher than the market rate in the early years of the contract, DIA is paying a variable rate indexed at 80 percent of the market price.

DIA is also making some money on the financing end by lending Constellation some of the cash it needs to buy the solar panels at a 5.5 percent interest rate. That’s cheaper capital than Constellation could find on the open market, and an attractive return for DIA on what Ackerman calls a “highly secure” investment. “If they were to default on the loan we would take possession of the solar system, which is easy because it’s on our property,” he observes with not a hint of irony.

Inherent collateral makes solar financing a low-risk venture, which explains why energy advocates were flabbergasted when quasi-governmental mortgage underwriters Fannie Mae and Freddie Mac raised a red flag over another hot new financing program: PACE, which stands for property-assessed clean energy. The City of Berkeley proved the concept three years ago, showing that local governments could install solar systems for residents and local businesses and then recoup their investment over several decades through increased property taxes. The program was exploding nationwide with federal support when Fannie Mae and Freddie Mac pulled the plug last summer, arguing that the tax debt unfairly took precedence over their mortgages.

Negotiation or litigation may yet put municipalities back in the green financing game. That, however, would serve to highlight a perceptual challenge facing its competitors. Under the terms of solar leases and PPAs—but not the municipal financing programs—building owners sell off the renewable energy credits earned by their solar panels, wind turbines, and other renewable equipment and have thus conveyed rights to their greenness to a third party. When the building owner promotes their building’s renewable features, they inevitably create an appearance of double-dipping.

Craig Briscoe, an associate partner with Portland-based Zimmer Gunsul Frasca Architects, says lost renewable credits are such a common issue that LEED offers a work-around, enabling green building developers to regain credit for on-site generation by buying renewable energy credits on the open market. Those can come from sprawling wind farms in west Texas that crank out credits far cheaper than solar arrays on urban rooftops, but must cover twice the annual generation in question.

Still, even when the purchased credits are backed by projects that are dutifully verified, a whiff of something untoward remains. “Somebody is out there tracking the dollars, making sure the project is actually built. But when you try to explain it, it sounds like you’re buying air,” says Briscoe.

Call it one more sign that renewable energy finance has come of age.


This article appeared in the January 2011 print issue of GreenSource Magazine.

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