Echo Valley’s “Community” Solar Program
By Mark Fogarty
7 min read
When Affordable Projects Become Mini Utilities
At first glance, there is nothing out of the ordinary about the solar panels on the roofs of the ten buildings that make up the Echo Valley housing project in West Warwick, RI. Affordable housing developers have been using solar panels and qualifying for solar tax credits for some time. But there is something quite different about these panels. They are generating more power than the project needs, allowing the excess to be sold to neighboring homes and businesses.
This “community” solar program is the first of its kind at an affordable community in Rhode Island, according to Tyler McIntyre, the managing partner of design and construction of its developer, New York City-based Fairstead. Community solar, as he explained in an article written for the publication Next City, “allows any customer to sign up to power their homes and buildings with renewable energy—and lower their monthly utility bill—without installing their own on-site solar project.
“These small-scale programs allow for solar projects to be capitalized not only from investment tax credits administered by the Internal Revenue Service but with debt from financial institutions willing to lend against the stable cash flows from utilities.”
McIntyre says that the recently passed Inflation Reduction Act (IRA) is going to give a boost to projects like this (although Echo Valley was completed before the Act was signed into law).
“The financial benefits of the project would have been more significant had it been completed post-IRA,” he says. “We were able to do Echo Valley by the skin of our teeth, financially, in comparison with a post-IRA world.”
The project was part of a Low Income Housing Tax Credit renovation, he says, and was completed in 2018.
“I’m really proud of that project,” he says. “We built it using a LIHTC award we received from Rhode Island Housing.”
One hundred units of housing were included in a $26.4 million retrofitting at the existing property, which Fairstead acquired in 2017.
Fairstead has an in-house energy team run by Mick Gilbert, he says. “We were doing analyses of entering one of those kinds of programs, and utilizing the full area of the roof.”
First In the State
After installing the solar panels, Fairstead “enrolled in Rhode Island’s Community Remote Distributed Generation program. It was the first affordable housing development in the state to participate,” McIntyre wrote in Next City.
“The fair revenues provided by our partner, National Grid, allowed this project to be financed with tax credits and the private debt market.”
The executive said that up until now, many developers based the number of solar panels on project roofs “on energy use rather than generating electricity for the surrounding buildings or neighbors who could utilize it.”
A total of 110 direct electrical meters were installed, “one for each resident, and a house meter for each building. Each resident was given the opportunity to sign up for a ten percent reduction on their electric bill by being a consumer of the electricity that is generated from the solar array on the roof.”
Despite having the right of first refusal, not all the residents signed up, though. “If 100 percent of the residents had signed up, there would have been no power left for the neighbors,” McIntyre says.
Those saying “no” the first time now get a chance to sign up once a year, but the rest of the power, about 33 percent, goes off-project. “A resident down the block sees a credit on their bill for signing up.”
That includes one commercial customer, a carpenter, McIntyre says. That business takes up about 30 percent of the rest of the power generated by the solar panels, along with five or six neighbors.
“National Grid is the disseminator of that electricity. So, we produce electricity, we put it onto their system, and they disseminate the actual electrons.”
Is an expansion of the program possible? “We have looked at ground systems,” says McIntyre, “which could potentially be an additional project we could add for our neighbors, and we also have wooded land on a part of the property where we could put solar panels, but right now, neither of those projects are in the works.”
Spelling Out the Advantages
The IRA will definitely give advantages for this kind of work, he says. “Having the Investment Tax Credit (ITC, to subsidize solar development) go from 22 percent up to 30 percent was a benefit to all solar projects across the country. The tax benefits of solar were diminishing over time, and the IRA reset that percentage back to 30 percent.”
Two other factors have Fairstead excited, McIntyre says. The cost of connecting solar to the power grid (the interconnection) was not considered as an eligible basis before IRA, but now is.
“That’s huge because a lot of time the interconnection costs sink solar because it could be a large cost and you weren’t eligible to get a tax credit on them. Now you can offset that large cost with tax credits.”
The second positive factor is a booster to put solar panels on affordable housing.
“That 30 percent can now become up to 40 or 50 percent of your solar costs,” he says. “You can’t go back in time but doing Echo Valley in 2023 would be a much greater financial return than doing it in 2020.”
But, doing the project in 2020 served a positive in that it “pushed the boundaries of our company.”
McIntyre is waiting for governmental guidance on the IRA to come out, because it may be possible that the Internal Revenue Service can send developers ITC money for doing solar deals through a direct pay arrangement, instead of giving tax credits, which developers then need to sell to get the money. (See Direct Pay Provision sidebar.)
“The costs inherent in finding a syndicator could be removed from smaller solar projects.”
The company notes that besides the solar power, the Echo Valley units “have undergone updates to their kitchens and baths and received eco-conscious upgrades – including an oil-to-gas conversion to the heating system and air sealing, new flooring, and, as-needed, accessibility enhancements.
“Common areas, too, were elevated, with the addition of high-efficiency fixtures and improvements to the security system. New windows and siding have improved the building’s insulation, not to mention curb appeal.”
Direct Pay Provision
• The current law will allow tax-exempt entities and state/local government entities to receive a “direct payment” in lieu of a Solar Tax Credit (ITC) for solar developments. Under the provision, the eligible entity would elect to be treated as having made a payment of tax and would thus be eligible to receive a refund check directly from the government after filing their tax return.
- The eligible entity would request a refund of tax equal to the ITC amount earned after the completion of construction.
- The refund would be received following the filing of the tax return in the year the system was placed in service (potentially subject to a change in interpretation once the Internal Revenue Service releases Guidance on this section).
• The term “applicable entity” means:
(i) Any organization exempt from the tax imposed by Subtitle A;
(ii) Any State or political subdivision thereof;
(iii) The Tennessee Valley Authority;
(iv) An Indian tribal government (as defined in Section 30D(g)(9);
(v) Any Alaska Native Corporation (as defined in Section 3 of the Alaska Native Claims Settlement Act (43 U.S.C.1602(m)); or
(vi) Any corporation operating on a cooperative basis, which is engaged in furnishing electric energy to persons in rural areas.
Source: https://www.law.cornell.edu/uscode/text/26/6417
