by Sarah Wochos
Borrego Solar is an IMA B2B Partner
A solar energy boom is coming to Illinois and it’s bringing new opportunities for companies that want to save on energy costs. On June 1, 2017, a new law went into effect in Illinois that incentivizes solar development in the state. In this article, I’ll explain how businesses can go solar in Illinois and take advantage of new solar programs to save on energy costs and thus lower operating costs.
Businesses that have a large, unobstructed rooftop space or unshaded adjacent land can offset a significant portion of their energy costs. Our project development and engineering team can assess whether your energy demand and the structure of your facility or land makes you a good candidate for solar and help you take advantage of the programs.
Adjustable Block Program
The primary program that will drive the installation of new solar is the Illinois Adjustable Block Program (ABP). The ABP will open in late fall and is structured so that a new solar system receives a front loaded 15-year contract to sell Solar Renewable Energy Credits (SRECs) to the electric utility. Every 1,000 kilowatt hours of generation will create one SREC. The system owner sells the utility all the SRECs created from the operation of the system over a 15-year period. The price for the SRECs is at a predetermined price for all systems in a given block, so there is no risk to SREC price fluctuation once a project is accepted into the program. The total 15-year SREC contract value is paid equally over the first five years.
The blocks are sized to allow for a large group of projects to qualify, with the intent of creating a continuous and sustainable market. Nonetheless, there is an advantage to being in the first block, as the price for SRECs will decline 4% as blocks are filled. Below are the SREC prices for the first block (Group A includes projects in Ameren’s territory, Group B includes projects in ComEd’s territory):
This SREC contract revenue is critical to project economics. A typical 1,000 kW (1 MW DC) rooftop project in Northern Illinois might produce 17,000-19,000 MWh in the first 15 years, resulting in more than $800,000 in SREC value based on the prices above. This significantly reduces the payback period of the investment.
For projects to qualify for the program, they need to reach major milestones. Namely projects will have to possess an interconnection agreement with the utility and any discretionary local permits. Both the interconnection agreement and the local permit can take several months to obtain, so companies should begin the process as soon as they are able to ensure their place in the first block.
Smart Inverter Rebate
Once a solar project reaches operation, the system owner is eligible for a one-time $250 per kilowatt lump sum rebate from the utility. The rebate is in exchange for the system having a smart inverter, so companies should make sure their inverters are on the list of eligible equipment. In the example above, the 1 MW DC system would receive another $250,000 through the rebate, which further impacts the payback of the system.
Federal Tax Credit
Commercially owned systems are also eligible for a federal tax credit worth 30% of the system cost for systems constructed through 2019. The credit, called the Investment Tax Credit, can be used for all costs except interconnection costs, and can be carried back one year and forward 20 years on eligible federal tax liability. The Investment Tax Credit steps down to 26% for systems constructed in 2020, 22% for systems constructed in2021, and 10% for systems constructed in 2022 and thereafter.
Depreciation
Solar systems are now eligible for 100% bonus depreciation. Prior to the passage of the new federal tax law, companies using solar used MACRS to depreciate the asset. Asset owners are now allowed to deduct the entire cost of the system in the first year of operation, which increases the return on investment in the project.
Financing Options
Power Purchase Agreement: Your company can choose to own the system and as a result will directly receive all the tax benefits and incentives listed above. Another option is a Power Purchase Agreement. Through a PPA, you’re able to deploy solar without any capital outlay over the system’s lifetime. A third-party owns the system and sells the power to you over a 20 or 25-year contract. The cost for the energy is usually locked in at the start of the contract, so you do not need to worry about the fluctuating costs of energy, and the rate is usually below the current energy rates, which results in a considerable energy savings.
Property Assessed Clean Energy (PACE): PACE financing provides a mechanism for paying for a solar system via property tax. It functions like a loan, except it is not traditional debt and does not affect future borrowing capacity or credit score. It’s also paid back annually as part of the tax assessment on the property. A key advantage of this approach is that the system stays with the tenant/building owner, or whoever is paying the property tax. That means if you vacate the building in the future, the solar payment will transfer to the next tenant/owner. In Illinois, PACE for commercial properties was authorized in 2016. Local municipalities and counties must sponsor a PACE program, and several counties are embarking on the process right now. Check with your county to see if this is available in your area.
Operating Lease: Operating leases allow a third-party owner to capture the federal tax credit and depreciation tax benefits and pass on the subsequent savings to the lessee in the form of reduced energy costs. The lessor owns the solar producing asset and an experienced installer like Borrego Solar will design, permit, construct, operate, and maintain it for the system owner for the term of the loan. With a typical term of 7 or 10 years, operating leases offer a shorter term than other financing options, resulting in larger annual payments. At the end of the term, customers have the option to purchase, renew the lease or return equipment. Operating leases are subject to credit approval and do require a review of the customer’s finances.
Whichever financing path your company chooses, rest assured that making the choice to go solar is a smart investment. But you’ll have to move fast. The programs above won’t last forever. If you haven’t already done so, ask for quotes from experienced solar developers and installers in your area. Before you reach out, though, do your homework. Not all solar companies are alike; some focus on the residential and small commercial market, and therefore may not have experience with larger systems. Borrego is a leading, 40-year-old commercial solar company with deep experience designing and building high quality solar projects at an excellent price enabling our customers to achieve substantial savings. Check the Illinois Solar Energy Association for more information.
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