Every year, the growth of solar development in Massachusetts increases at an extraordinary pace. Almost all projects completed thus far in the Department of Energy Resources’ Solar Carve-Out program have been private. As more and more solar systems continue to be built, many nonprofit entities have begun wondering why they are being left on the sidelines.
Over the past two years, there has been a growing trend of offering leases and power purchase agreements to municipalities, high schools and colleges. This arrangement has worked tremendously well, and is now common in the investment community. Building upon this success, there is a new niche model that allows nonprofits to enjoy a greater degree of financial benefit from solar energy.
There are two major incentives that drive the Massachusetts solar industry. The first is the availability of federal tax credits. Since nonprofits enjoy tax exempt status, it has been traditionally viewed that a direct ownership of the solar assets would not be financially viable. The second benefit is the Solar Renewable Energy Credits (SRECs) that represent the environmental attribute of a solar system. These credits are sold at auction by the solar system owner, which in most arrangements is the investor that has contributed its capital for tax benefits. All in all, it would seem that none of the major incentives would be able to go to a nonprofit entity.
A greater sharing partnership for such groups comes in the form of a charitable contribution to a non-profit entity. A tax equity investor would fund a solar project and own it for the duration of the tax recapture period, about five to six years, after which the solar system would be donated to a nonprofit as a charitable contribution. This allows the tax investor to take all tax benefits, as well as an additional tax write-off for the remaining value of the solar system. The nonprofit would receive an entire solar system at virtually no cost, and still be able to receive the ownership of SRECs for another five years.
During the tax recapture years, the nonprofit can receive additional revenue from the solar investors by charging a land/roof lease for using developable space. This lease would help supplement income for the nonprofit for an underperforming asset, the free roof space or vacant land, that would otherwise be idle.
In addition to the favorable financial incentive to go solar, a wide range of educational benefits exist. Solar systems installed on school properties can provide a hands-on experience for the students and can help create a sustainability curriculum. Solar projects have been highly sought after by private schools to attract prospective students to avant-garde institutions. The possibilities of incorporating a solar facility into an educational curriculum are endless. For example, agricultural oriented schools have the opportunity to develop a novel hybrid system between active farming practices and onsite energy production, offering a double use for farm land. This example is currently in process on a tobacco field on the campus of Elon University in North Carolina.
The benefits of charitable solar are not one-sided. For tax investors, this gifting process allows them to have a direct participation in their charity campaign. The solar gift is a great way to see how donations are put to use directly for a cause that brings about the awareness of energy independence and sustainable education. It is common for donors to question the appropriation of their donations funds for a charitable cause. Sometimes the money is not well spent, or it is left in the hands of an inefficient manager. A charitable solar contribution allows investors and donors to see their money at work on a daily basis.
The model of charitable solar is novel, but it is one that has been implemented. As the solar industry grows, there will be more developing opportunities that provide financial benefits to all sectors. For an industry that is supported by government incentives, the benefits should not be limited to simply private corporations. This mutual benefiting model is a workable plan that gives mutual benefits to the private, nonprofit and public sectors, and offers a good cause that can be championed by everyone.
Tom Wu is CEO of Invaleon Technologies Corp.
