Sample of Housing Projects Reveal Varied Uses of Renewable Energy
By Caitlin Jones & A. J. Johnson
9 min read
A statewide solar homeowner initiative in Connecticut, solar fiber optic lighting system in Alabama, solar-assisted public housing redevelopment project in Boston, and a wind power system-assisted apartment building in England illustrate the variety of ways that renewable energy is being used in affordable rental housing projects.
Connecticut Solar Initiative
In Connecticut, a private solar firm, consumer lender, corporate investor, and the state have teamed up in an initiative designed to make the use of solar energy affordable to moderate-income homeowners statewide.
Under the new Connecticut Solar Lease program (http://www.ctsolarlease.com), homeowners earning 150% or less of area median income can enter into a lease to have a solar photovoltaic (PV) system installed on their home, and make only fixed monthly lease payments for 15 years. After 15 years, they can opt to remove the equipment, buy the system at the prevailing fair market value, or extend their lease another five years.
The Connecticut program was designed by The Gemstone Group, a Wayne, PA-based firm that designs solar program; AFC First Financial, a consumer lender; and the Connecticut Clean Energy Fund. US Bank, through its affiliate US Bancorp Community Development Corporation (CDC), is the equity investor in the program. An entity set up by the bank will own and lease the solar equipment, receive the 30% federal solar tax credits and losses on the installed systems, and invest equity as each solar system is installed. The initiative calls for solar installations on as many as 1,000 homes, but the program will be curtailed after 2008 if Congress and the White House don’t enact legislation to extend the 30% solar investment tax credit beyond 12/31/08. The rate is slated to fall to 10% as of 1/1/09.
Adam Stern, a partner in The Gemstone Group, expected when interviewed by TCA on 7/11/08 for the first installations to occur within 30 days.
Consumers will choose a solar installer and the particular solar system including size (i.e. power-producing capacity). As a result, the size, efficiency, and cost of systems will vary. Stern, however, indicated the cost of the average system (about five kilowatts, to supply two-thirds of the total electric needs of a typical three-bedroom, two-bath house) should be about $40,000, meaning a monthly lease payment of about $105. Consumers each month will make their lease payment plus pay their regular utility bill, but the latter should be much lower since the homeowners will be drawing down less electricity from the “grid.” Stern, who noted Connecticut is probably in the upper 25% of states in electric rates, said homeowners should shortly reach the point where their combined monthly lease payment and utility bill is less that what their normal electric bill would have been without the solar installation.
Various funds – including rebates and other dollars from the state, and equity through US Bancorp CDC – will buy down the size of the monthly lease payments by homeowners.
“The advantage to the homeowners is that they don’t have to pay for anything upfront for the [solar] panels, they get to buy the electricity at a good price, and they are shielded from future rises in electric prices,” said Washington, DC attorney Herbert Stevens, a partner in the law firm of Nixon Peabody LLP who worked on the transaction.
Darren Van’t Hof, of US Bancorp CDC, said his group has been authorized to pursue solar investments on behalf of the parent bank, and has previously made one solar investment. He said the Connecticut initiative “seemed – from a corporate level – a good fit for our group to do.” He said US Bank through the CDC has been an active investor in federal low-income housing, historic rehabilitation, and new markets tax credits.
Van’t Hof declined to disclose the expected yield to US Bank from its equity investment in the Connecticut initiative, but indicated it is similar to that on historic credit investments. He said his group is actively looking to made additional solar investments through programs or initiatives in other states, or in individual transactions. “We’re looking at everything that comes to us in terms of solar investments,” Van’t Hof noted.
Alabama Property
Fyffe, AL developer Lowell Barron II, president of Vantage Development, has dipped his toes in solar by incorporating a fiber optic lighting system in a new 40-unit low-income housing tax credit (LIHTC) property for seniors he built in Guntersville, AL nearly a year ago. He said the 30% federal solar tax credit, plus additional housing credits, are being claimed on the solar system, but no state or utility incentives were received. Barron said a single equity investor is expected to buy both the housing and solar tax credits.
Barron noted the installed system utilizes rooftop dishes and other equipment to power a fiber optic lighting system that illuminates the building’s interior corridors and common spaces during the day, such that the conventional lighting system is used for these areas only at night. “We burn the [conventional] interior lights less than half the time we otherwise would have,” said Barron, who said the energy cost savings have been “significant.”
“This was our initial foray into using alternative energy credits,” said Barron, whose firm develops LIHTC projects in Alabama, Georgia, Tennessee, and South Carolina.
He said his original motivations for exploring solar included a desire to learn more about alternative energy, a belief that alternative energy is the wave of the future, and an observation that federal energy tax credits are neither subject to the federal alternative minimum tax nor to annual volume caps, unlike the federal housing credit.
Boston Property
A new public housing redevelopment project being undertaken by for-profit developer Trinity Financial, Inc., in conjunction with the Boston Housing Authority, will feature the installation of solar photovoltaic (PV) panels on a mid-rise building containing ground floor community space and 58 upper-floor apartments, according to Trinity Financial project manager Kenan Bigby.
Trinity will be developing Franklin Hill Phase II, to contain 152 new housing credit units constructed in two sections in the Dorchester section of Boston, MA. The first section, 2A, will include 114 new apartments in the five-story mid-rise building and eight townhouse buildings; all but four units will be LIHTC units.
Columbia, MD-based Enterprise Community Investment, Inc. has announced a tax credit equity investment of $36 million in Section 2A and $9 million in Section 2B, from the syndication of housing credits for both sections and the syndication of the federal solar tax credit in Section 2A.
Bigby and Enterprise executive Scott Hoekman said the deal has been structured to anticipate receipt of the 10% federal solar tax credit on the solar equipment, rather than the current 30% solar credit, because installation isn’t expected until 2009 and because of uncertainty about whether the 30% solar credit rate will be extended beyond 2008.
Hoekman said Enterprise has previously syndicated the solar and housing credits in “several” affordable housing projects. He noted Enterprise’s equity investors have a favorable view toward investing in solar credits. But he pointed out that solar tax credits and the amount of equity generated by them is typically just a small part of the total mix when combined with federal housing credits in affordable housing projects. For example, he said the expected solar tax credits in Franklin Hill section 2A are just $60,000, compared to about $40 million in housing credits.
Bigby said Trinity previously installed a solar PV system on one mid-rise building in Franklin Hill Phase I, but didn’t claim the solar tax credit. “That was something that we decided to do on the second phase, in an effort to just try and bring as much value to the table for the syndicator/investor” he noted. “The market was considerably tougher this time around, so we were just brainstorming creative ways to get additional benefits to the investor, so that we could get the best price for our credits.”
Bigby said Trinity has installed solar panels on two additional LIHTC projects in Boston, but didn’t claim the 30% solar credit.
He noted Trinity has received soft debt, through a grant program operated by the Massachusetts Technology Collaborative (MTC), to help defray the costs of several of the solar systems it has installed on housing credit projects.
Bigby said the use of solar energy helped Trinity receive extra points in applying for allocations of housing credit from Massachusetts’ housing credit agency. He noted Trinity included the costs of the solar systems in LIHTC eligible basis.
California Properties
Chelsea Investment Corp., of Carlsbad, CA, a for-profit developer and owner of LIHTC properties, has incorporated solar PV systems providing electricity for common areas in a handful of its housing credit properties in Southern California, said John Koeber, a consultant to the company.
Koeber said the reason for turning to solar has been to try to reduce common area electric costs. He noted the size of the solar systems installed at the properties has varied, as have the level of energy cost savings. Koeber said savings have ranged up to 95% at one property.
In addition to use of solar photovoltaic, he said solar energy has been used at one property to heat water, thereby reducing the load on the building’s boiler, and to heat the swimming pool at another apartment community.
London Project
In London, England, a 66-unit mixed-use building called Ramsgate Street has been designed to incorporate the use of wind power in an urban setting.
The single building, to contain a mix of affordable apartments, market-rate housing units, and commercial space, will be thin and shaped like an airplane wing, with wind turbines helical in shape integrated into the leading edge (i.e. one end) of the high-rise building. These turbines, due to their shape and composition, are quieter than normal wind energy turbines, and are expected to generate electricity to meet more than 15% of the building’s total needs.
