Millions of Idle Power Plants

The next time you walk around your community, look up! On the rooftops of buildings all around us, you’ll see idle power plants – potential sites for rooftop solar installations – just waiting to be activated in the fight against climate change.

The Power of Rooftop Solar

Combating climate change requires our economy to make a comprehensive transition to clean energy. If we are to make a full and complete transition, then rooftop solar must be part of the solution. The buildings all around us consume so much power and generate so much carbon. But on top of each building lies potential. Specifically, the rooftops of those buildings have high technical potential to generate solar power right at the point where it is consumed. According to the National Renewable Energy Laboratory’s 2016 study, the technical potential of rooftop solar across all building types and sizes could produce enough electricity to equal 39 percent of total national electric-sector sales.[1]

Before any building begins to pull power from the grid, we should maximize the potential for that building to generate its own power. In addition to rooftop solar becoming the hallmark of 21^st century green buildings, three compelling reasons for incorporating rooftop solar emerge.

First, maximizing the energy production of a building makes reducing the energy consumption of a building a more meaningful exercise in the fight against climate change. For example, let’s say energy efficiency improvements can reduce a building’s total energy consumption by 25 percent. If you can first generate 50 percent of the building’s power needs through renewable energy (thus cutting its carbon emissions in half), then a 25 percent reduction in the building’s total energy consumption actually has the benefit of reducing the building’s remaining carbon emissions by 50 percent – creating a form of carbon reduction leverage.

Second, generating power on site is simply cheaper than pulling it through hundreds of miles of power lines. Consumers of the power can enjoy energy savings year after year, with many solar systems now designed to last more than twenty years.

Third, each rooftop represents a meaningful impact investment opportunity. A new roof with proper orientation and minimal shading represents a long-term stream of cash flow, because a quality rooftop solar project can produce and sell power year after year and immediately unlock the Investment Tax Credit available for every new commercial and residential solar project placed in service in the United States.

Adopted in 2005 and extended twice over in bipartisan fashion, the Investment Tax Credit provides the owner of the solar system with a tax credit equal to thirty percent (30 percent) of the value of the eligible basis of the solar system (26 U.S. Code § 48). With rooftop solar, it is highly likely the entire cost of the system will be included in the eligible basis. The tax credit is a dollar for dollar offset in taxes due, a meaningful tool for the owner of a solar system to reduce their taxable income. For a $100,000 solar project, that translates into $30,000 of tax credits, which will become the property of the owner of the solar project as soon as the system is placed into service (i.e., turned on). The Investment Tax Credit isn’t transferable or tradable, so the owner of the system must use them, creating both a challenge for system owners and an opportunity for impact investors.

The Impact Investment Opportunity

Incorporating rooftop solar into all the suitable rooftops across our built environment means deploying a notable amount of capital and addressing ways to monetize the investment tax credit that accompanies each solar system.

Tax credits are a meaningful incentive and a valuable investment tool. But tax credits are only valuable for individuals or organizations with tax liability against which they can apply those tax credits.

Suppose you are a commercial building owner who runs a for-profit business that generates a lot of income. Putting a solar project on your rooftop makes great economic sense, because that project will generate a 30 percent investment tax credit which, as the owner of the system, you can use to reduce your tax liability.

But let’s look at another example. Let’s take a house of worship, a community organization, a fire department or a school. These are tax-exempt organizations, which means owning a solar system comes with a tax credit that you cannot use, transfer or sell. The investment tax credit policy is intended to accelerate the adoption of solar, but in doing so, the policy has excluded the communities and building owners that could most benefit from clean energy.

This is where Sunwealth comes in. Through our Solar Impact Fund, we raise capital from tax equity investors who are eligible individuals and corporations, each of whom can monetize the tax credit. With the proceeds of our tax equity offering (and a corresponding debt offering), we acquire rooftop solar projects by leasing a rooftop from a building owner and building a solar system, which we own, on the leased rooftop. Then, we execute a power purchase agreement with the building owner, providing power to the building at a price that is 15-30 percent less than the retail electricity rate. By becoming the owner of the system, we – along with our tax equity investors who are passive co-owners of the system – become the owners and beneficiaries of the tax benefits. Now, the tax credits being produced by a system on the rooftop of a house of worship (or nonprofit, school, fire department, municipal building, etc.) can be monetized by an investor – creating more value for those providing capital to build the system and unlocking more energy savings for those organizations buying the power.

Investment Tax Credit: Impact Capital & Green Building Catalyst

For 17 consecutive quarters, Sunwealth’s rooftop solar projects have consistently and simultaneously delivered solar power to a diverse community of organizations and target returns to investors. Without our tax equity investors, the projects on the rooftops of tax-exempt organizations could not be monetized by the building owners. At a time when buildings need to be as green as they can be to help drive a transition to a clean energy economy, tax equity investments in rooftop solar deliver incredible economic value and activate those otherwise idle power plants in the fight against climate change.

 

About the Author

A 2018 Boston Business Journal 40 Under 40 honoree, Ryan Dings is an experienced clean technology executive with a deep commitment to impact investment. As Chief Operating Officer of Sunwealth, Ryan leads the development of Sunwealth’s community of clean energy investors. In addition to his role at Sunwealth, Ryan serves as the chair of the board of directors of the Social Innovation Forum, Boston’s leading community for social impact engagement and connection.

To learn more about our company and the power of tax equity, contact us at 617-752-7322 or hello@sunwealth.com or visit- https://www.sunwealth.com

Article Footnote
[1] Rooftop Solar Photovoltaic Technical Potential in the United States: A Detailed Assessment, National Renewable Energy Laboratory, January 2016: https://www.nrel.gov/docs/fy16osti/65298.pdf