Development Options for Municipal Renewable Energy Projects

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Development Options for Municipal Renewable Energy Projects
Briony Angus
Tighe & Bond

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  • Potential revenue & avoided energy costs Financial and Regulatory Incentives Participation in Green Communities Program Enhance the viability of under-utilized land Meet community goals related to clean energy and sustainability
  • Not focusing on projects developed by c. 164 entities
  • Municipal ownership: ie. Muni owns the project and realizes savings in electric bills or net metering credits. Benefits: access good MassCEC grants, low interest loans, payback period not as critical. Potential costs – cannot access ITC/PTC. Private/Third Party Ownership: Can a municipality achieve lower costs by having a private party construct and operate project? Possible benefits: Income tax benefits, Access to ITC/PTC, New Market Tax Credits, Sharing of risk. Possible costs: Net metering limits, Potential higher capital costs, Tax payments on profits Joint ownership/flip: A model designed to help project owners with minimal tax appetite pair up with a larger entity that has a more substantial tax burden. Because the tax credits available to project owners are proportional to their level of ownership I the project, the tax motivated entity is the majority owner in the first ten yrs of production, and pays a “management fee” to the local owner in lieu of production payments. Once the tax incentive period ends after year 10, the majority ownership of the project “flips” to the local owner, and the tax-motivated investor takes a minority share in the project. Cash benefits include revenue from the sale of power and RECs, and Section 1603 federal tax grants. Tax benefits include tax losses from accelerated depreciation deductions and tax credits from the PTC or ITC. Once the tax equity investor has achieved an agreed-upon IRR, both the cash and the tax allocations flip to the favor of the local sponsor. Need to compare impact of model on: Project costs and revenue, Access to grants/financing/tax incentives, Net metering, RECs, Complexity of Agreement, Risk, Procurement and permitting
  • Municipal ownership: ie. Muni owns the project and realizes savings in electric bills or net metering credits. Benefits: access good MassCEC grants, low interest loans, payback period not as critical. Potential costs – cannot access ITC/PTC. Private/Third Party Ownership: Can a municipality achieve lower costs by having a private party construct and operate project? Possible benefits: Income tax benefits, Access to ITC/PTC, New Market Tax Credits, Sharing of risk. Possible costs: Net metering limits, Potential higher capital costs, Tax payments on profits Joint ownership/flip: A model designed to help project owners with minimal tax appetite pair up with a larger entity that has a more substantial tax burden. Because the tax credits available to project owners are proportional to their level of ownership I the project, the tax motivated entity is the majority owner in the first ten yrs of production, and pays a “management fee” to the local owner in lieu of production payments. Once the tax incentive period ends after year 10, the majority ownership of the project “flips” to the local owner, and the tax-motivated investor takes a minority share in the project. Cash benefits include revenue from the sale of power and RECs, and Section 1603 federal tax grants. Tax benefits include tax losses from accelerated depreciation deductions and tax credits from the PTC or ITC. Once the tax equity investor has achieved an agreed-upon IRR, both the cash and the tax allocations flip to the favor of the local sponsor.
  • Fixed: equipment, warranty Variable: engineering, design, permitting, legal, procurement, installation, labor, interconnection
  • Need to consider changes in variables that could make project IRR < than municipal interest rate: c onstruction costs, electricity prices, changes in net metering rates/REC values
  • Development Options for Municipal Renewable Energy Projects

    1. 1. Development Options forMunicipal Renewable EnergyProjectsMAPD Annual Conference,June 10, 2011New BedfordBriony Angus, AICPTighe & Bond
    2. 2. Goals of Session■ Start with high-level overview of relevantconcepts■ Summary of alternative development andownership models – impacts to cost, benefit,risk, and process■ Examples from two communities: Lancasterand Dartmouth■ Questions and Discussion■ Not going to get into financial weeds!
    3. 3. Tighe & Bond Overview■ Full-service engineering and environmentalconsulting firm■ Involved in all aspects of renewable energyprojects from planning, economic analysis,design, permitting, to construction■ 100 year history – now assisting numerousmunicipal clients to bring renewable energyprojects from concept to construction
    4. 4. Ownership Structures/Development ModelsMunicipalityOwns &OperatesPrivate/Third PartyOwnershipJointOwnership/”Flip”Multiple versions of these models
    5. 5. Economic Drivers - Cost■ Fixed capital costs■ Variable capital costs■ O&M Costs■ Interest rate for debtfinancing
    6. 6. Economic Drivers -Revenue■ Capacity factor■ Electricity generation price■ Net Metering■ RECS/SRECs■ Land Lease Payments■ Financial Incentives, Grants– Tax exempt financing– Federal ITC/Grant– Accelerated Depreciation– Grants and Low Interest Loans
    7. 7. Risk and Complexity■ Consider changes invariables that could skewIRR:– Construction Costs– Permitting Costs– Electricity prices– Changes in net meteringrates/REC values■ Other potential concerns:– Interconnection queue– Net metering limits– Changes to financial incentives
    8. 8. Simple Municipal Ownership
    9. 9. Municipal Ownership with Other Off-Taker
    10. 10. Public/Private Partnership
    11. 11. Decision Making forMunicipalitiesIn the end – what drives decision making? Ability to leverage funds Access to tax benefits Appetite for risk Desire for project involvement Economics and project scale
    12. 12. Questions or Comments?Founded 1911Creative Engineering Solutions for 100 YearsShelton, CT • Middletown, CT • Portsmouth, NHWestfield, MA • Worcester, MA • Pocasset, MABriony Angus(413) 875-1302bangus@tighebond.com

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