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Archive for the ‘Project Finance’ Category

The Department of Energy Resources (DOER) has released an Emergency Regulation with respect to the SREC program in Massachusetts.

On June 28, 2013, DOER filed an Emergency Regulation to establish rules by which the current RPS Solar Carve-Out program will be complete.  As an Emergency Regulation, the rules become effective upon filing, thus they are now in effect.  DOER has posted the Emergency Regulations on its website.

The emergency regulations expand the 400 MW cap of the current program to accommodate those projects that are well along in the development cycle, and to allow for small projects to continue moving forward in development.

Available on the DOER website is a list of projects that have been determined to be qualified or that submitted an administratively complete application, under the 400 MW cap.  Additionally, there is a list of projects that have applied outside of the 400 MW capacity limit.  If any projects that have qualified under the 400 MW cap have their applications withdrawn or revoked, project capacity from outside the 400 MW capacity limit will not be transferred under the cap.  Projects falling outside of the 400 MW capacity limit will be subject to the rules of the emergency regulations summarized below.

  • Units under the 400 MW capacity limit, as determined by DOER with a Statement of Qualification or an application deemed administratively complete by DOER that are greater than 100 kW, must meet the following construction timelines to maintain qualification in the current solar program.
  • Units that are outside the 400 MW capacity limit, as determined by DOER, and are greater than 100 kW must have an Interconnection Service Agreement fully executed by the customer and utility dated on or before June 7, 2013. They must meet the construction timelines below to be awarded a statement of Qualification under the current program.
  • Construction Timelines for Projects greater than 100 kW:
    • Receipt of Authorization to Interconnect from its local distribution company by December 31, 2013.
    • Units that do not receive an Authorization to Interconnect by December 31, 2013 may receive an extension to June 30, 2014 only if it can be demonstrated, to the satisfaction of DOER, that the Unit has expended at least 50% of its total construction costs by December 31, 2013.
    • If a Unit is not in receipt of the Authorization to Interconnect as of June 30, 2014 but can demonstrate, to the satisfaction of DOER, that the missing Authorization is due to delays of the local distribution company or due to remaining steps required by other parties for safe and reliable interconnection, the Statement of Qualification will be extended until the Authorization is received or denied.
  • Units equal to or less than 100 kW, or designated as a Community Solar Garden by MassCEC, regardless of their placement in the 400 MW capacity limit, will be qualified under the current program provided they submit a Statement of Qualification Application to DOER and have an Authorization to Interconnect by December 31, 2013 or prior to the effective date of the new solar program, whichever is later.
  • Units failing to meet construction timelines will have their Statements of Qualification revoked.
  • The effective date of all Statement of Qualifications issued by DOER under the current program will be no later than December 31, 2013. This provision will ensure that the compliance obligation of the current solar program will not be extended an additional year, at additional ratepayer cost.
  • The compliance obligation formula of the program as of the effective date of the regulation and after the program reaches its program cap will be revised from 400 MW to the new Program Capacity Cap announced by DOER in July 2014, to accommodate actual supply. DOER will provide exemption to the additional compliance obligation, once the obligation reaches the new cap, for load under contract prior to the effective date of the emergency regulation.

Continuing Regulatory Procedure

While DOER is confident in the Emergency Regulation as written, in accordance with administrative procedure laws (M.G.L. ch. 30A), the regulation will remain in effect for 90 days, with the opportunity for the Department to make the regulations permanent. DOER will soon schedule and announce a Public Hearing and comment period, in accordance with administrative procedures, and move to quickly promulgate the final regulation so as to keep the regulations in effect throughout the construction timelines and until the new Solar Carve-Out Program has started. Given the importance of timely business decisions being made based on the rules of the Emergency Regulations, DOER recognizes the prudence of completing the regulatory process quickly.

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New funds for energy conservation are available in Massachusetts.

The Department of Energy Resources (DOER) has released a solicitation to expand the Qualified Energy Conservation Bonds Program (QECB).

A QECB is a tax credit bond for which the borrower pays back the principal on the bond, and the bondholder receives federal tax credits in lieu of traditional bond interest payments.

There’s just over $4 million available for the fourth round of QECB, and at least 70% of the funds being allocated must be used for governmental-purpose bonds.

The Commonwealth will make allocations to public projects only according to the following priorities:

  • Projects that promote or expand economic opportunities, including job creation.
  • Projects that meet critical energy needs and/or statewide energy-conservation goals.
  • Projects that demonstrate readiness and feasibility.
  • Projects that ANF and EOEEA determine will enhance the public good and general welfare of the Commonwealth.

Of the available funds, 100% must be used for a qualified conservation purpose, such as reducing energy use in public buildings by 20%, research and development of non-fossil fuel technologies, mass transit facilities that reduce consumption of energy and pollution from automobiles, and public education campaigns to promote energy efficiency.

You can read the solicitation from DOER, see a full list of qualified projects, and get instructions on how to apply at www.comm-pass.com, under solicitation number PON-ENE-2013-070. Applications will be accepted from until 5:00 p.m. on August 16, 2013.

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The Massachusetts Department of Energy Resources (DOER) has announced up to $1 million in grant funding available for renewable thermal projects at state facilities.

DOER is seeking proposals for on-site renewable thermal projects that are hampered by economic constraints. (The grant funds are not intended to fund projects that can be effectively funded through other available incentives or financing mechanisms.) Projects must show that, if funding is available, the project can begin installation during fiscal year 2014. The $1 million in available funding will be awarded to up to approximately eight projects, with awards estimated to range from $100,000 to $500,000. Projects of greater or lesser value can be awarded funds based on energy, environmental, and cost impacts.

Eligibility

Any executive agency, state institution of higher education, or quasi-public state entity is eligible to submit a proposal to receive funding. Eligible agencies must be pursuing clean-energy projects using at least one of the following technologies for producing thermal energy for heating and/or hot water consumed on-site:

  • Biomass
  • Solar
  • Air source heat pumps
  • Water source heat pumps
  • Ground source heat pumps
  • Biogas
  • Advanced biofuels.

Eligible projects must be initiated (design, study, etc.) by October 1, 2013, with construction beginning by March 1, 2014. Projects must be complete by September 30, 2014. Agencies or campuses may apply for funding for multiple projects, technologies, and sites.

Proposals will be evaluated on the following criteria:

  • Energy and environmental impacts
  • Cost-effectiveness
  • Cost-share
  • Schedule
  • Project feasibility
  • Diversity of sites and technologies
  • Extent of energy-efficiency measures undertaken or planned on-site
  • Other project elements that advance Leading by Example and Commonwealth clean energy goals, including thermal storage.

To apply, submit applications via e-mail to maggie.mccarey@state.ma.us.  Applications will be accepted until October 15, 2013 or until all funds have been awarded, whichever comes first.

Click the link below for the application form and rules for eligibility.

DOER LBE Grant Funding Application

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On April 18, 2013 Cadmus staff attended the American Solar Energy Society (ASES) conference in Baltimore, MD. Featured at the conference was a panel discussion of net metering and new finance and policy approaches. Cadmus associate, Erin Sweet, was one of three panelists in this session. Her presentation, entitled “The System of Assurance of Net Metering Eligibility: Early Experiences and Lessons Learned,” drew from Cadmus’ experiences as the developer and administrator of the Massachusetts’ System of Assurance, commonly called the “net metering queue.” Ms. Sweet highlighted distributed generation stakeholders’ historic concerns regarding the availability of net metering services at the time of a project’s interconnection and how 2012 Massachusetts regulations help increase transparency and investor confidence.

Cadmus’ Erin Sweet on the Net Metering and New Finance and Policy Approaches panel at ASES’ Solar 2013

Cadmus’ Erin Sweet on the Net Metering and New Finance and Policy Approaches panel at ASES’ Solar 2013

Working collaboratively with DG stakeholders, the Massachusetts Department of Public Utilities’ (DPU) developed the System of Assurance of Net Metering Eligibility. This net metering queue ensures that businesses, communities, and other entities developing these facilities will be eligible for net metering services when their projects are complete, assuming they can meet and maintain certain requirements. This web-based application system is now located at www.MassACA.org.
This unique system represents a means to smoothly and efficiently approach a cap on an important incentive. Following the presentation, conference attendees shared positive feedback on the Commonwealth’s approach, and speculated on the applicability of such a system to other, similar capped incentive programs. With 43 states in the U.S. having already established some form of net metering, it may not be long until stakeholders in other states are looking for certainty that their project will receive this important incentive; and the System of Assurance provides a window into one state’s solution.

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The Massachusetts Clean Energy Center in conjunction with the Massachusetts Department of Energy Resources has announced the 10 communities that will participate in Round 1 of the 2013 Solarize Mass program. The Solarize Mass program is designed to increase the adoption of solar and drive down the overall cost through widespread participation. The more people in a particular community who participate, the greater the savings for everyone in that community.

The following cities and towns are participating in Round 1 of the 2013 Solarize Mass program: Bourne, Brookline, Carlisle, Chelmsford, Lee, Medford, Medway, Newton, Northampton, and Williamstown; with Carlisle and Chelmsford participating as a group.

In the 2012 rounds of Solarize Mass, 17 communities participated with nearly 750 residents and businesses signing contracts to install solar PV systems for a combined capacity of 4.8 megawatts (MW). Last year participants saved an average of 20 percent when compared to the statewide average cost of installing solar PV, all while creating 32 new jobs. Due to state incentive programs, such as Solarize Mass, installed costs of residential solar PV dropped by more than a quarter in 2012; helping the state reach its goal of achieving 250 MW of solar PV by 2017, with 243 MW installed to date.

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The Department of Energy Resources (DOER) has published a new resource for those seeking to learn more about solar PV on landfills. This publication, The Guide to Developing Solar Photovoltaics at Massachusetts Landfills, is a 40-page guide intended to  help local officials identify, evaluate, and pursue opportunities to use undeveloped landfill space to generate electricity. The guidebook speaks to the physical requirements of PV systems, project economics, landfill considerations, procurement details, and the PV development process.

For The Guide to Developing Solar Photovoltaics at Massachusetts Landfills, click here.

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Cadmus staff presented key challenges and best practices for community renewable energy projects at the MMA annual conference and trade show on January 20th. In a panel entitled “Making Money While the Sun Shines,” Cadmus answered specific questions from community representatives about current or planned solar PV projects.

If your community has lingering questions about solar PV or solar Power Purchase Agreements (PPAs), the slides presented at this panel may be a great resource. A copy of the slides can be downloaded here: Cadmus_MMA 2012 Annual Conf_011912

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The state Department of Energy Resources (DOER) has posted a new program opportunity notice for Qualified Energy Conservation Bonds (QECBs). In summary, these tax credit bonds can be used to help public entities fund the capital costs of energy conservation projects, including renewable energy projects (i.e., solar, wind, biomass, geothermal, small irrigation power facilities).

 To date, the state has committed $20 million in QECBs to public projects in Massachusetts. An additional $15.5 million is available to public projects in Massachusetts.

 More details are available on Comm-PASS (solicitation number PON-ENE-2012-001).

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In a typical solar power purchase agreement (PPA), a community hosts solar PV on public rooftops or land and enters into a long-term contract for the purchase of electricity from the PV system(s). This third-party ownership model is the most common way in which Massachusetts communities procure solar PV systems (as opposed to outright ownership, for example).  While 2010 and 2011 saw a significant number of public solar PPA projects in the state, interest from solar developers has slowed in recent months. As a result, those communities just releasing RFPs for their solar project or reviewing bids from a recent solicitation may not see as many responses or as attractive prices as their predecessors, leaving many to wonder –what is going on in the Massachusetts community solar market?

Concern over Renewable Energy Incentives

Solar Renewable Energy Credits (SRECs) generated by PV systems (which communities typically give over to solar developers in PPAs) are an important revenue stream in a developer’s financial model for a PV project. Due to recent analyses of and concerns about the state’s SREC market, some developers are struggling to secure SREC contracts at sufficient prices. Without adequate SREC contracts, developers cannot offer attractive PPA rates to communities. Many solar developers active in Massachusetts have slowed or stopped activity in the state.

What does that mean for my community’s hopes for a solar PPA project?

Some developers and analysts believe that Massachusetts SREC prices will recover in six to nine months and that the pace of development will pick up again at this time. In the interim, communities may not see as much interest from the development community or receive attractive PPA rates (e.g., less than 10 cents) on proposed projects.

In order to take advantage of federal incentives that apply to solar projects developed in 2012, community solar project teams should use this period to prepare for a summer 2012 RFP (or RFQ) release, should the SREC market turn around at that time. Proactive teams can use online tools such as the National Renewable Energy Lab’s In My Backyard tool or PVWatts for preliminary resource assessments and to narrow down potential project sites. Using the results of these analyses, as well as details about the sites, solar project teams should begin preparing language for a RFP or RFQ. If more detailed site assessments are conducted, finding should also be included in the RFP.

If and when Massachusetts SREC market projections improve, the most proactive project teams will be first in line to do business with an eager solar industry.

What if we are currently negotiating a solar PPA?

Local officials and staff in Massachusetts are constantly contacted by interested solar developers. If your community is executing a PPA project at this time, be sure to get as much information as possible as possible about the SREC assumptions used in the developer’s financial model for your project. If a developer assumes more than $285 per megawatt-hour (28.5 cents per kilowatt-hour) for 10 years worth of SRECs, tread cautiously. Make sure that your PPA does not contain, for example, a “Change in Law” provision that allows the developer to renegotiate the PPA price with you during the contract term if their SREC assumptions do not hold (e.g., if the assumptions about SRECs used to price your project were out of date or overly optimistic). Also, if the solar developer will use SREC brokers to sell the SRECs from your project, encourage them to get regular updates from their brokers on available SREC contracts.

 

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Power Purchase Agreements (PPAs) are appealing to cities and towns for several reasons, and frequently because they require no upfront investment by the community. Rather, cost to the community (in addition to non-price factors) is the per kilowatt-hour (kWh) rate for electricity generated by the renewable energy system –the PPA rate. Different developers may propose significantly different PPA rates when responding to the same solicitation. However, PPA rates proposed that are noticeably lower than other bids received may be too good to be true. Inappropriate pricing can compromise the economic viability of these projects and increase risk to the community.

This diagram shows the relationship between parties in a typical, community-scale solar PPA in Massachusetts. Not all PPAs are structured in this manner.

When considering PPA price proposals, it is important to consider both the cost in cents per kilowatt-hour and how financeable the project is at the given PPA rate. PPA projects with PPA rate that is too low may suffer from significant delays as the developer seeks financing from financing parties looking for some return on their investment. Such delays and false starts waste the significant time investments that proponents make to introduce renewable generation in their communities.  In addition to lost momentum, incentives and other benefits (e.g., 30% U.S. Treasury Grant) that may be critical to a project’s economics may expire while the developer seeks financing.  Ultimately, if the developer is unable to secure financing, the project will likely fall apart.

 When examining PPA rates in cents per kilowatt-hour, bid evaluation teams should weigh the benefits of low PPA rates with potential risks:

  • Extremely low PPA rates and subsequent narrow margins can prevent conservative lenders from investing in the project.
  • In contract years 11 and beyond, the PPA rate should be high enough to fund operations and maintenance costs. That is, the PPA provider should have a financial incentive to continue to operate and maintain your system. PPA rates less than $0.02/kWh in years 11-20 should be considered cautiously.  If your community entered into such a contract, and the PPA provider abandoned the system, would your community be able to fund maintenance or decommissioning costs?

Low PPA rates may be workable in the context of large projects that will generate significant revenue for the developer, for example, through solar electricity sales to the community and SRECs. However, small and moderately sized projects –especially those with relatively high installed costs (e.g., lengthy interconnection runs, tree stumping required), may not be financeable at a low PPA rate.

Finally, many PPAs contain language that allows for developers to exit the contract prior to commercial operation if they are unable to find financing. Therefore, selecting a PPA rate that makes financial sense to your community, the developer, and their financing partners is important to helping all parties efficiently realize the benefits of renewable energy.

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