Regulatory Context
With the nascent Local Laws 94 and 92, the sustainable rooftop laws, and Local Law 97, the building-based carbon cap, an immediate need has arisen for property owners to understand how to approach solar projects in New York City. The following primer provides background on the situations in which a property owner may wish to self-finance a project, and how Community Solar can be a fruitful form of 3rd party finance and ownership. Lessons can apply within and beyond New York City.
Solar Financing Structures
There are two general approaches to financing a solar on a building: a self-financed project vs. a third-party financed project, typically structured as community solar. For self-financed projects the property owner needs to be able to efficiently utilize available incentives, including the Federal Solar Investment Tax Credit, or ITC (an income tax credit of 26%), and accelerated depreciation (up to 100% bonus depreciation in Y1). Additional incentives to consider are the NYSERDA NY-Sun grant (a minimum of $0.40/ watt, or around 15-20% of project costs in ConEd territory), and the NYC Property Tax Abatement (20% of project costs for eligible properties). These incentives diminish or disappear over time. For example, the ITC reduces to 22% in 2021 and 10% thereafter for commercial projects, and the Property Tax Abatement is set to sunset after this year. With a self-financed project, the owner reaps all of the economic benefits of the solar project, and is also responsible for all operations and maintenance costs.
3rd party Financed Community Solar
Third-party financed projects are sensible where a property owner cannot take advantage of the tax credit structure, or does not have or wish to spend the cash on a project. With Community Solar, a third party finances and owns the project, while the property owner benefits from a lease payment and discount on electric bills. Community solar projects have the added benefit of sharing a portion of the energy cost savings with residential tenants or other owners of smaller electric accounts.
Community Solar projects are connected in front of the meter, though all coordination with utilities is handled by the third party. There is no cost to the property owner for the financing, construction or operations & maintenance, or insurance for these projects.
Conclusion
While in some instances it may be self-evident whether a property owner should self-finance a project (for example, property owners who cannot utilize tax credits), in other cases a property owner may wish to compare the benefits of the two strategies. The good news is there are many ways to meet regulatory requirements and generate returns using solar today.