“It’s not easy being green,” a famous amphibian once crooned, but in the Bay State, at least, commercial and industrial property owners might soon get a little more incentive to green-ify their properties – and pending legislation is certain to sweeten the deal for banks that might still be cautious about financing energy efficient retrofits. The Boston-based Eastern Bank turned the spotlight on green financing recently when it provided around $43 million in financing to three firms for the creation of four solar farms in Massachusetts and one in New Jersey. Those five farms will have a combined capacity of 17 megawatts of direct current. The four Bay State solar farms are expected to provide enough electricity for 2,500 Massachusetts households annually.
“This is not new technology. It’s getting better and better, it’s becoming more efficient, it’s becoming cheaper every day,” says Stephen Pratt-Otto, senior vice president of community development lending at Eastern Bank. “What is new is the state incentive program. That’s what’s cutting edge, and that’s where the money is.”
That state incentive program is the Solar Carve-Out that falls within the broader Renewable Portfolio Standard. While the larger program has been in place since 2003, Gov. Deval Patrick emphasized growth in the solar sector in 2007 when he set a goal for 250 megawatts of solar energy throughout Massachusetts by 2017. At the time, the Commonwealth had maybe two to three megawatts.
Between larger solar farms and smaller rooftop installments, Massachusetts has now reached a cap of 281 megawatts of solar energy (enough to power more than 37,000 homes per year), prompting Patrick to up that goal to 1,600 megawatts by 2020 (enough power for 240,000 homes per year, or 97 percent of Boston households).
“It’s a well-established, well-developed program,” said Mark Sylvia, commissioner of the Commonwealth’s Department of Energy Resources. “Not only does it provide appropriate support for projects, it makes the financial bottom line supportable. We also have the auction mechanism,” which ensures that any excess energy credits will be sold one way or another.
Solar renewable energy credits (SRECs) and the potential for consuming one’s own electricity have been enticing to property owners.
And Pratt-Otto adds, “It’s financially attractive to the bank because we get a reasonable interest rate and we get an $11 million loan that we believe the cash flow is pretty predictable.”
He also described these loans, typically in the $3 million to $9 million range, as a “sweet spot” for Eastern Bank.
While a project like one of the aforementioned solar farms can take as long as two years to complete, however, others are looking to incentivize smaller solar energy projects.
State Sen. Brian A. Joyce, for instance, recently filed a bill that would update the state’s current Property Assessed Clean Energy (PACE) legislation. Joyce’s bill, among other provisions, establish a central administration for issuing PACE bonds, rather than leaving that up to individual cities and towns. Additionally, the new legislation would focus on financing retrofits to commercial and industrial properties because larger projects are more attractive to banks, Joyce said.
The Commonwealth’s own efforts to incentivize energy efficiency, including the use of solar panels, are just one piece of the larger puzzle, though.
An Attractive Offer
Some banks say they’ve been increasing financing for solar panels and other energy efficient retrofits over the past few years, as SRECs and self-consumption of electricity becomes increasingly attractive to property owners.
“The driving factors seem to be economic and not so much green energy,” said Gerry Nadeau, the executive vice president of commercial lending at Rockland Trust. “They’re looking at internal rates of return based on the upfront tax credit, the sale of SRECs and the value of the electricity.”
And while the department’s report expresses concern that most clean energy financing deals might be too small to be especially attractive to banks, Nadeau said the deals are attractive for Rockland Trust, at least, because they’re financing customers they already have.
“They usually want to add this as a way of making money or saving money,” he said. “In most cases, they were putting the tax credit back into the transaction, and most of them are repaying their loans on a five- to ten-year schedule.”
Nadeau says most of those deals range from a couple hundred thousand dollars to a million and a half, while the typical single technology and non-comprehensive energy efficient project falls below the $50,000 mark, according to the department of energy resource’s own data. Nadeau concedes, however, that many residential property owners who retrofit their homes with solar panels may well be taking that funding out of home equity lines of credit or loans.
Lest you believe that financing solar energy projects is some type of charity case, Pratt-Otto says that this type of lending falls under that oft-repeated mantra of “doing good, while doing well.”
“We get comparable interest rates to the same sized loans in real estate,” he said. “We believe the cash flow is predictable and in many ways more attractive than real estate financing.”
Email: lalix@thewarrengroup.com.
