Third Party Ownership of PV for Affordable

Housing DeWitt Jones

Boston Community Capital

Green Homes and Sustainable Communities 2008 August 7, 2008

BCC Energy AdvantageProgram Goals

Materially improve net operating income of financially at-risk affordable housing developments through renewable energy and energy conservation

Create market-based financing system for renewable energy and energy conservation in affordable housing developments

Connect low income communities to emerging green trends

Project Impacts for Affordable Housing Reduce increases and volatility of utility

expenses (fix utility costs) Stabilize properties’ financial structure Improve current financing and re-financing

options Improve building performance and comfort Lower current utility costs ?

Target Benchmarks

Replace 30-40% of current electricity load with RE

Reduce 33% of current electricity load through conservation and efficiency

Reduce 25% of current heat/DHW load through conservation and efficiency

Reduce 33% of current water use through conservation

Challenges for Existing Properties to Make Capital Investments Don’t have sufficient capital Cannot take on additional debt Little confidence that savings will be achieved

Who maintains system? First cost limitations High transaction costs Don’t attract best partners

PV realities

Not Economic Affordable housing cannot pay above market Requires significant subsidies Small systems—little impact Hard to capture tax credits and environmental

attributes revenue Limited aggregation opportunities Better economic alternatives

Third Party Ownership Benefits Simple, inexpensive for hosts Creates opportunity for market not served

Non profit, fragmented market Captures tax benefits Monetizes attributes

Sustainable, scalable business Each party does its own thing Market pricing for all parties Incents long term performance

Third Party Ownership

Selects, designs, installs and owns PV panels on host’s property

Sells solar electricity to host through PPA Services and maintains system Provides all financing Captures tax and attributes benefits Benefits from aggregation and volume

Third Party Ownership Parties PPA Developer—finds projects & partners Solar Contractor—installs system Properties/Hosts-purchases electricity Finance/Lessor—finances system, tax O&M Provider—services & guarantees PV PV or RE incentive—subsidies Attributes markets—additional revenue

Third Party Barriers for Affordable Housing Current PPA providers too busy with better

deals—size, multiple owners, sites, states Solar and energy finance companies don’t

trust affordable housing or PBI Housing owners don’t trust technology Tax and legal structure barriers for non-

profits Complex Better alternatives

Current Mass Affordable Housing PV 100% capital subsidy Approximate $9/watt Small systems—under 50 kW (often 10-20) Marginal impact on operating budget Expensive servicing and DAS Program ended Different results for some new construction

Third Party Ownership for PV

Solar ITC and Bonus depreciation Benefits from aggregation Optimizes property selection Aligns performance and economics Minimizes two-tiered subsidy for affordable

housing Discrete and detachable system Allows unfamiliar parties to work together

BCC Solar Energy Advantage

Design third party financing system for affordable housing

$3.5-4 million PV incentive funds from MTC Signed 5 PPAs with one in process 1 Megawatt of Capacity—20% of Mass Solar Approximate $4 watt incentive 16% to 64% of load Largest (380kW) roof top PV in Mass

BCC SEA Phase I Projects

Property Location Units Size kW % of load

Mishawum Charlestown 337 392.0 15%

Washington Elms Cambridge 145 92.1 30%

North Village Webster 132 156.4 44%

Riverview Pittsfield 120 198.7 34%

Walden Square* Cambridge 244 76.9 64%

Crossway* Lee 38 110.5 50%

TOTAL 1016 1,026.7 26%**

Third Party Ownership—BCC SEA PPA Developer & Provider

Built legal structure Selected projects and partners

Received PV incentive and structured as production incentive

Provide credit support for properties to investor

Eliminated capital & technical risks for hosts Eliminated payment risk for investor

Financing Structure

BCC SEA Capitalize with $3.5-4 million from incentive funds Released as PBI per kWh $2 million in additional credit support for PPA Profitable over 20 years

Revenue PPA—$.16/kWh PBI--$.65/kWh (7 years) REC & FCM--$.05/kWh

Finance Partner

Investment & Structure Sale/leaseback at placed-in-service 7 year lease with buyout in year 7 Market return, tax credit compliant

Risks covered PBI revenue covered by incentive funds PPA revenue covered by BCC SEA credit support Trusts technology and O&M guarantee

Benefits for Host Properties

Pays for electricity at or below today’s cost for 20 years with 1.25% escalator

Only pays for electricity generated Fixes 40% of electric costs No capital or balance sheet impact Minimal transaction and operating costs Option to purchase system at years 8, 14, 20

Impact on PV Incentive Programs Approximately $3.50/ watt or less

Should go down with second round Half of typical cost for housing projects

Serves market otherwise unserved Close to cost for large commercial projects Supports generation, not installation All parties make money—sustainable model

Benefits to other parties

PV Installer volume lower marketing costs

O&M provider Volume and concentration incentive to exceed targets

Others Lawyers Accountants

Estimated Pricing Impacts

Capital Savings Tax advantages-more than 30% savings Aggregation—10% Correct building selection—10%

Revenue increases System performance—better than 10% Correct building and system design—10% Attributes market—7% Monitoring costs—5%

Mishawum Park

Charlestown neighborhood of Boston 337 unit resident-owned facility Rescued and redeveloped by residents No syndication 100% low income Very high utility costs with owner paying all

utility costs 392 kW

Mishawum Park, Boston, MA

Mishawum Park

392 kW system largest rooftop solar installation in MA third largest PV system in all of New York

and New England largest PPA ever signed in New England for

any type of facility. largest PPA signed for an affordable housing

development in country

Impacts for Mishawum

Reduced volatility in electric costs Covers at least 16% of very high load Saves $1 million if electricity prices double

over 20 years (have doubled in last 5 years) Current savings if prices doubled equal to

resident services budget Receives future benefits from time-of-use or

demand pricing Not otherwise available

Challenges

ITC Incentives—not sustainable or reliable Getting owners to say yes Net metering and interconnection Long term operating risks Regulatory rules—offsite, utility companies Best use of subsidies?

Why do solar

Offers hedge for future, reduces volatility Improving economics Shift towards time-of-use pricing Expanding subsidy and environmental

attributes for solar Gateway to other investments/systems Innovation and market participation will leave

low income communities behind

DeWitt JonesBCC Solar Energy Advantage

Boston Community Capital56 Warren Street, Boston, MA 02119

617-427-8600djones@bostoncommunitycapital.org

www.bostoncommunitycapital.org