Utilities can make solar accessible to their customers by encouraging customers to install rooftop systems via financial incentives or by selling customers solar electricity generated from a utility-scale solar system. Many variations of these two options are in use in Texas. Utilities, for example, incentive commercial and residential rooftop installations with rebates and loans. On the other hand, many utilities choose to retain control of solar generation and offer solar to their customers via a community solar or power purchase agreement arrangement. Each solar offer is described below.
Rebates are a form of financial incentive where customers are refunded a portion of their investment after the system has been approved and constructed. Rebate amounts will be based on the number of watts installed. For instance, CPS Energy (serving the San Antonio area) provides rebates that range from $.80/W to $1.20/W.
To offset initial up-front costs rooftop PV installations, some utilities will offer customers loans.
To retain control of distributed generation and its revenue base, utilities may decide to sell customers solar power from a utility-scale solar system instead of incentivizing rooftop solar installations. Utility-scale DG solar projects are becoming popular across Texas and are beginning to be built as community solar projects (link to community solar). Many options exist to finance and develop utility-scale DG projects such as Power Purchase Agreements, USDA funding, the Federal Investment Tax Credit, and accelerated asset depreciation.
Power Purchase Agreements
A power purchase agreement (PPA) is a contract to buy electricity generated by a utility-scale system or sell excess electricity to a power provider. Use of a PPA is relatively risk-free as the developer will be responsible for financing, contracting, operating, and maintaining the system, while the utility’s principle obligation is to purchase all generated power at the negotiated price. PPAs are common and are being used by CPS Energy and Austin Energy’s community solar programs.
The US Department of Agriculture (USDA) provides grants to utilities in rural communities to help finance renewable energy projects, including solar. Grants range from $2,500 to $500,000, and can cover up to 25 percent of the project cost. More information can be found here.
The Energy Efficiency and Conservation Loan Program (EECLP) provides loans to finance energy efficiency and conservation projects for commercial, industrial, and residential consumers. With the EECLP, eligible utilities, including existing Rural Utilities Service borrowers can borrow money tied to Treasury rates of interest and re-lend the money to develop new and diverse energy service products within their service territories. For instance, borrowers could set up on-bill financing programs whereby customers in their service territories implement energy efficiency measures behind the meter and repay the loan to the distribution utility through their electric bills. More information can be found here.
The objective of the Rural Cooperative Development Grant Program (RCDGP) is to improve the economic condition of rural areas by assisting nonprofits and businesses in the startup, expansion or operational improvement of rural cooperatives and other mutually-owned businesses through Cooperative Development Centers. Grants are awarded through a national competition, with a maximum award amount of $200,000. More information can be found here.
Tax credits reduce the cost of installing a solar system and ultimately make the electricity more affordable. Use of tax credits require an adequate tax appetite and are not available to nonprofits. For nonprofit utilities, the Investment Tax Credits (ITC) is typically monetized by a for-profit subsidiary, a financing entity, or through a PPA. The ITC has been extended through the end of 2019 and there is no limit to the maximum tax credit. For more information, see the US Department of Energy’s fact sheet or the Database of State Incentives for Renewables and Efficiency (DSIRE) program overview. To claim the investment credit, please see directions provided by the Internal Revenue Service (IRS) on how to complete Form 3648.
Modified Accelerated Cost-Recovery System (MACRS) is a beneficial tax program allowing for quicker asset depreciation for qualifying solar equipment. For more information, see the IRS resource on MACRS.
DSIRE is a comprehensive resource that provides information on incentives and policies that support renewable energy and energy efficiency in the United States. It is searchable by state. To learn more about policies and incentives in Texas, visit DSIRE.