SOLAR TODAY - September/October 2010

solar financing

A tale of two
Commissions

Insight into the thinking among regulators who believe that the solar power purchase agreement (PPA) model is not subject to regulation can be found in a decision from the Hawaii Public Utilities Commission (PUC). With the question before it, the PUC ruled that since the PV system at issue was only able to provide “service” to a single customer, the generator“will not furnish energy for the public’s use” and will not be operated “for public use” under the relevant Hawaii statute governing utilities. Therefore, the third-party owner was not a public utility and was not subject to regulation by the PUC.

The Florida Public Service Commission (PSC) came to the opposite conclusion under an almost identical definition of public utility. The Florida PSC ruled that the supply of electricity to even a single member of the public would be a sale “to or for the public.” In Florida, the same generator would be subject to PSC regulation as a public utility.

tiogA energy

Tioga Energy arranged for an investor to own this 220-kilowatt array installed at the Athenian School in Danville, Calif., established a PPA between the owner and the school at rates better than the local utility provided, and arranged for O&m of the array. The system, custom-designed in the shape of the letter A, covers some 30,000 square feet of hillside.

them more than what they pay under the PPA or lease.

While simple from the customer’s perspective, both models have some complexity behind the scenes. For both models, ownership of the solar energy system is held by an entity that can efficiently utilize federal tax benefits. Developers and system “hosts” often don’t have the tax appetite to take full advantage of available tax benefits. Instead, they establish relationships with tax-equity investors, usually banks, to own systems. (There’s a wrinkle with the use of a U.S. Treasury grant in lieu of the solar investment tax credit — see discussion under “Tax Advantages of Third Party Ownership.”) A single developer may arrange for a single tax-equity investor to invest in multiple projects up to a set dollar amount, usually in the tens of millions of dollars, based on stated customer criteria. This framework marries entities able to fully take advantage of available incentives to solar developers that have large capital needs.

Because third-party ownership allows for the efficient
use of available tax incentives, third-party ownership is very
attractive for schools, nonprofits and government entities,
which can’t directly use federal tax benefits because they
don’t pay taxes. Third-party owners, who can fully utilize
available tax incentives, are able to pass on their savings and
offer the non-tax-paying customer a much lower cost per
kilowatt-hour than they could achieve on their own. For
instance, Tioga Energy ( tiogaenergy.com) developed the
array at the Athenian School ( athenian.org) in Danville,
Calif. (see photo above). Tioga established a PPA between
the owner and the school at rates better than the local util-
ity provided, and arranged for O&M of the array.