As most in the energy industry are aware, Oregon has developed a reputation for nurturing sustainably focused corporate and consumer environments over the years. Renewable energy has recently played a big part of that equation, most notably in wind energy generation and solar energy.

In the words of a friend living in the Hood River area, it seems as if turbine blades have been going east on I-84 every ten minutes for the last ten years. While it might be a slight exaggeration, the statement does demonstrate the renewable energy industry has set strong roots in the Northwest over the last decade. 

In 2007, Oregon Gov. Kulongowski signed into law new Oregon Business Energy Tax Credit (BETC) legislation that could help create the same exponential growth in solar energy systems that the wind industry has enjoyed in recent years. Along with recent adjustments to incentives provided by the Energy Trust of Oregon, the BETC completes an incentive package strong enough to fuel expansive growth in solar today.

The incentive breakdown is approximately as follows on 100-kilowatt commercial solar systems:

30%                  Federal Tax Credits

50%                  Oregon BETC

30%                  Accelerated Depreciation

12.5–22.5%    Energy Trust of Oregon
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122.5–132.5% of System Costs

Based on such impressive numbers, Oregon arguably has the best incentives in the country for solar energy development, which has sparked a frenzied push for financing solutions that make the comparative high costs of installation a feasible reality for large companies, small businesses and tax-exempt entities alike. So what can you do to make solar energy make financial sense for your organization?

Tax liability
To fully utilize the available incentives, your organization must have sufficient tax liability to offset with the BETC and federal tax credits. The challenge has been finding customers that have both a significant tax liability and could make the budgetary concessions necessary to pay for the system upfront in order to realize the four- to five-year payback. While this worked for some companies, it didn’t address the need for solar energy solutions for tax exempt entities such as municipalities, school systems, churches or other nonprofits. 

The Holy Grail of the solar energy industry in Oregon is finding a solution that helps reduce or eliminate upfront costs and still creates the opportunity for organizations to invest in solar, have a positive impact on the environment, and make the project pencil out financially. The great news is we’ve found three models that work (see “Making sense of solar,” nwcurrent, November 2007).

Financing models
The first model applies to the corporate client with tax liability they wish to offset. Many investors offer leasing programs that will match the system size and payment amount to projected quarterly tax payments with a modest buyout at the completion of the lease term. 

As such leases can be structured so that they do not count as debt against the company ledger and the cash flow matches their tax payments, it allows the company to have an immediate impact on energy savings, stakeholder value and brand identity with its customers with minimal upfront costs. The Oregon Department of Energy also offers the SELP loan at a 6.95 percent interest rate for up to $10 million.

The second model, primarily suited for nonprofits, is the “flip” model. In the flip model, an investor with large tax liabilities forms an LLC with a for-profit subsidiary of the nonprofit host for the system purchase. The investor realizes all of the tax benefit from the purchase, along with cash flow from the sale of the energy produced to the host. Once the tax benefits are realized, the ownership flips to the host. They realize the long-term energy savings created. The host has ownership within six to seven years, but potentially incurs substantial legal fees and requires forming a partnership with outside investors and possibly requires up front capital investment. 

The third model, called a Power Purchase Agreement (PPA), is considered by some the least complicated and perhaps the most effective solution with absolutely no upfront costs. It is the fastest-growing solution for financing solar energy systems in the country.  Renewable NRG is excited and proud to be pioneering the solution in Oregon.

Here’s how it works: Investors purchase the system and install it on the nonprofit host’s roof. The host purchases the energy produced at a rate typically lower than current rates with a two to three percent escalation per year. The terms of the contracts are typically eight or more years. The investor monetizes the tax credits and covers all insurance, maintenance and servicing. 

The investor also provides an Internet-based monitoring system to show live and historical energy production data, which can be customized to tie-in to proprietary marketing strategies. At the end of the PPA term, the host can purchase the system based on a residual value of 15 to 25 percent or can renew the PPA for five years with no additional costs for ownership. 

The bottom line is any organization can have an immediate, positive environmental impact while creating dramatic long-term savings without paying any upfront costs. The current climate in Oregon means 2008 will be a benchmark year not only for the state’s solar industry, but for the organizations that move quickly to take advantage of the state’s unique financing opportunities. 

Russ Wright is the CEO of Renewable NRG, a solar energy systems integrator based in Portland, Ore.