Final Report for the Indiana University Office of Sustainability
Financing Renewable Energy Internship
Spring 2014
Christopher Round
Table of Contents
Executive Summary
Introduction
The Regulatory and Incentive Ecosystem For Solar Energy
Finance Study
Relevant Case Studies
Potential Projects and Financial Structures
Conclusions
Executive Summary
Background: This report examines the preliminary feasibility of financing the development of a
large-scale solar photovoltaic project for the IU Bloomington Campus. A solar power analysis was
previously considered utilizing building-integrated solar photovoltaic collectors as part of the
Integrated Energy Master Plan. (8760 Engineering, 2012) This report builds upon the goal outlined
in the Integrated Energy Master Plan of moving toward a carbon-neutral campus. (8760
Engineering, 2012) It was estimated that approximately 493,000 square feet of roof space was
available for solar collectors, potentially providing up to 10,000,000 kWh of electricity per year. The
payback at the time on such a project was determined to exceed forty years without the
consideration of incentives and the regulatory ecosystem. (8760 Engineering, 2012)
Regulatory Ecosystem: Indiana is a regulated state. Duke Energy provides energy for the
Bloomington area. Duke energy at this time provides a utility rebate plan for geothermal heat pumps
for non-residential renewable energy sources. (North Carolina Solar Center, 2012) Duke Energy is
developing a solar energy incentive plan that will not be announced until later in the spring.
(Chapman, 2013). The state of Indiana has three sets of incentives that may be relevant to the
project. There is a net metering program in place for investor-owned utilities with a system capacity
limit of 1 megawatt. (Hunter, 2013) The aggregate capacity limit is 1% of utility’s most recent peak
summer load. (Hunter, 2013) Net excess generation is credited to the customer’s bill at the retail rate
and is carried over indefinitely. (Hunter, 2013) Solar wind, hydropower, and geothermal systems and
their affiliated equipment are exempt from property taxes. (Hunter, 2013) There is a grant available
providing between 25,000 to 125,000 dollars for community conservation projects and can be
applied to solar energy installation. (Hunter, 2013) The city of Bloomington itself offers fee waivers
for energy projects. (City of Bloomington) The federal government provides incentives in the form
of corporate depreciation, tax credits, grants, and loan programs. (North Carolina Solar Center)
Proposed routes to financing: Solar prices have dropped dramatically in the last few years. This
combined with government incentives, and the correct financial structure could enable IU to build a
large-scale project for the Bloomington campus. There are three routes to financing: direct buy,
philanthropy, and 3rd party financing. In a direct buy program, Indiana University would directly buy
the solar panel installation. A philanthropic strategy could harness IU’s substantial alumni base to
partially or fully fund a solar structure. A third party program would enable IU to take advantage of
government incentives for solar projects. A vendor has suggested that such a project using this
method could be feasible for Indiana University, with a payback period of less than ten years. With
the costs of photovoltaics having fallen dramatically and when government incentives are taken into
consideration, this likely a legitimate estimation. Even using the same assumptions utilized by the
Integrated Energy Master Plan, a project using government incentives would likely have a payback
period of 13 years or less. As these systems are warrantied for 25 years, this would mean 12 plus
years of savings for IU.
Introduction
The university currently spends approximately $18,677,297 per year on electricity, which
produces the largest share (62.2%) of its carbon emissions. (8760 Engineering, 2012) Best case
scenarios computed under the Integrated Energy Master Plan computed a 40-year payback for solar
without government incentives or any form of financing structure. The financing renewable energy
internship was started to find a path for Indiana University to build a large-scale renewable energy
project. After the “Integrated Energy Master Plan” (IEMP) suggested that a direct buy program for
solar energy would be far too expensive, it became necessary to explore the incentives available to
the university. The estimate in the IEMP was a 40 year payback period. As part of the research into
incentives, the solar company Telamon was contacted. Telamon came to the university on February
28th and April 22nd to present their ideas on how the university could build a large scale array. Thus
this report has the objective of assessing the claims of both the IEMP and Telamon.
A solar structure becomes financially feasible when the cost of solar energy over time is less
than what can be purchased from the utility. Costs are based on what type of installation, the
distance between the installation and the interconnection, as well as the operation, maintenance, and
insurance of the structure itself. The energy bated by the solar array is what produces the cost
savings, which is determined by: consumption ($kWh), demand ($kW), solar production, demand
shedding, energy inflation, and any Solar Renewable Energy Credits received and sold from the
project. This all works under the assumption the solar energy purchased remains at a fixed price, and
thus immune to the ups and downs of the energy market and inflation. An example of such a change
in price occurred in Indiana recently. The Indiana Court of Appeals just ruled unanimously to allow
Duke Energy to raise electricity rates to pay for its 3.5 billion dollar Edwardsport coal-gasification
power plant. The Indiana Utility Regulatory commission had capped construction costs that Duke
could pass onto its customers at 2.6 billion dollars.(Wilson, 2014) This increases the cost of
electricity for Indiana University. According to physical plant, electricity has been going up at an
average rate of 7.5% for the last three years.There are three common structures for solar
installations. Ground mounts are usually the cheapest option with the easiest maintenance and are
highly visible. Roof mounts have difficult maintenance and are not as visible, and canopy mounts are
the most expensive option but have easy maintenance and are highly visible. Telamon estimated that
the average cost per watt for each of the three most common structures are: 2.00, 2.50, and 3.00
dollars per watt.
Telamons Claims
Telamon estimated the potential revenue from the structure (revenue defined as savings on
energy, see the graph below). Telamon estimated that the total current electric charges for the
university came out to $1,210,081.93. This was computed using an estimated consumption cost of
$0.039 per kilowatt hour and a demand cost of $22.38 per kilowatt hour. Revenue was calculated
assuming that the university would utilize solar renewable energy certificates (known as SRECs). A
simple payback period was estimated for each major type of installation at 5.4 years, 10.9 years, and
17.6 years for a ground, roof, and canopy structure respectively. A general anylsis with an estimated
internal rate of return of 30% predicted a simple payback (without the use of any advanced financial
structures) of 8.1 years.
Checking the Validity Telamon and IEMP Claims
Solar panels have seen a dramatic drop in price since the production of the IEMP. Weighted average
PV system prices fell 15% in 2013, reaching a new low of 2.59/W in the fourth quarter. Between
2011 and 2013 prices fell by almost half. (GTM Research and SEIA, 2013). This dramatically cuts
down the payback time estimated by the IEMP.
Figure 2: U.S. PV Installations and Average System Price, 2000-2013 (GTM Research and SEIA,
2013)
Indiana University does already have several small solar installations. The chart below
demonstrates that the solar panels are performing as predicted based on local insolation, climate,
and installation. This lends credibility to projections in solar energy output. Basically these things
will work at the project capacity, lending credibility to cost savings projections.
Figure 3: Solar Energy Generation at IU
Panel
Location
Startup
Date
2010-11
Array
Est.
kW
Annual
Max.
Rating
kWh
kW kWh
%
Max.
kW
kWh
%
Max.
kW
kWh
%
102%**
1.60
2,639
109%
1.60
2,410
99%
4/29/2011
1.88
2,425
Briscoe
07/27/2011
(S. Tower)
03/23/2012
(N. Tower)
20.68
27,734
20.15
15,904 101%**
20.44
26,798 97%
Tulip
Tree
2/14/2012
5.38
7,298*
4.98
3,495
124%**
5.03
6,570
90%
EHouse
11/27/2011
4.00
5,161*
3.60
2,805
99%**
3.60
4,630
90%
31.94
42,618
Max.
kW
Rated
kW
535
2012-13
IMU
TOTAL
1.59
2011-12
535
24,843
40,408
Definitions
Maximum observered output (kW). A max. kW decrease of 2% or more indicates panel cleaning and/or
system maintenance is needed.
kW total of the combined panel nameplate DC output ratings. Does not include derate factors such a
invertor losses.
Calculated annual kWh (energy output) for the total system, allowing for the following factors:
a. Typical annual solar energy (kWh/sq. m.) in Bloomington
Est.
Annual
kWh
b. Losses due to partial shading at specific location.
c. Losses due to high roof/panel temperatures at location.
d. Losses for inverters & cables before metering.
e. Gains due to manual or automatic tracking.
Annual
kWh
%
Readings for July 1 through June 30.
Calculated annual "availability" factor: Annual kWh / Est. Annual kWh
If a PV system experiences a % change that is ≥ 5% lower than the change of the other PV systems, a
Service Request should be initiated to identify the problem.
(Bushnell, Matson, & Hendon, 2012)
Regulatory Ecosystem
State and Local Regulatory Ecosystem
Indiana has a regulated energy market. Duke energy is the primary energy utility for
Bloomington and in turn IU. It is important to note that a major aspect of the incentive playing field
is expected to change. Duke Energy in a recent settlement with the Sierra Club agreed to either
implementing a 30-megawatt feed-in tariff or construct/contract for 15 megawatts of wind and solar
generation. (Protogere, 2013) Their choice is expected to be delivered in later this year. Duke energy
is currently one of the largest utility providers in the country. Duke currently offers a rebate for
geothermal projects. (North Carolina Solar Center, 2012) Indiana state law restricts planning and
zoning authorities from prohibiting or unreasonably restricting the use of solar energy. Indiana’s
solar easement does not create an automatic right to sunlight, but they do allow parties to enter into
solar easement contracts. (North Carolina Solar Center, 2012)
The State of Indiana offers a net metering program. The net metering program is available to
investor-owned utilities with a limit of 1 megawatt in size unless all power is used on site. If a
potential IU project used all power on site, this limit would not apply. The aggregate capacity limit is
1% of the utility’s most recent peak summer load. The net excess generation is credited to the
customer’s bill at the retail rate and is carried over indefinitely. (Hunter, 2013) Net metering is
offered to nonprofits, government, and schools, meaning that IU is likely to qualify for a net
metering agreement. (North Carolina Solar Center, 2013) The city of Bloomington offers fee waivers
for different building projects as long as they meet the requirements laid by their sustainable
development initiatives. (City of Bloomington)
Federal Regulatory Ecosystem
The federal government offers a variety of incentives for renewable energy technology. A
corporate tax credit of up to 30% for solar, fuel cells, small wind and PTC-eligible technologies is
available. (North Carolina Solar Center) While a 10% tax credit for geothermal, micro turbines, and
CHP is also made available under the same program. The tax credit for solar and small wind
turbines has no maximum credit. It should be noted that after December 31st, 2016 this credit is
expected to decrease to 10%. (North Carolina Solar Center) The federal Modified Accelerated CostRecovery System (MACRS) allows businesses to recover investments through depreciation
deductions. The accelerated depreciation is on a five-year schedule. There is a 50% bonus first year
depreciation but that expired on the 31st of December 2013 and it is unknown if it will be extended.
(North Carolina Solar Center, 2013)
Finance Study
Utilizing the AASHE Campus Solar Photovoltaic Installations Database, a survey was
performed looking at how solar photovoltaic structures were financed. The survey focused on
projects larger than 1 megawatt. There are 53 such structures on 42 campuses in the database. Of
the 53 projects: 31 utilized a solar power purchase agreement or a lease versus 3 that were owned
outright by their respective institutions. The rest either did not report, or had other financing
structures. In the vast majority of cases, third parties were involved in the development and funding
of solar structures. Occasionally funds for construction were provided by the 2009 federal stimulus.
Rarely were large structure directly bought.
Rutgers
Source: Rutgers today
While the Rutgers project is located in New Jersey, and thus subject to a different set of
incentives and regulations, it utilized a potentially interesting project for IU. They built an 8.01 MW
solar canopy array over 32 acres of parking lots on its Livingston campus. The array provides
approximately 50% of the power for the Livingston campus. (AASHE, 2013) The array was built on
a canopy system, which allowed Rutgers to keep valuable parking space. The canopies used Yingli
photovoltaic systems. (AASHE, 2013) The canopies provide winter shelter and summer shade to
keep for cars and parking patrons. The project was started in September 2011 and completed in
January 2013. It was financed through a 3rd party lease with the leaser taking advantage of the 30%
tax grant and 5 year accelerated depreciation, while the university owns the power and the SRECS.
(AASHE, 2013) The SRECs are valued at $180 a credit, with a 15-year lease. (Kornitas, 2013)
IUPUI
Source: IUPUI
The IUPUI project was funded by a qualified energy savings project. The installation of the
solar panels was part of a larger energy savings project. The project cost $245,000 and will generate
43 kilowatts of electricity a day from 164 panels. The solar photovoltaic project has an estimated
payback around 18 years. The project will utilize a feed-in tariff at $0.245 per kilowatt hour. Some of
the funding for the project came from Indianapolis Power and Light. (Kamman, 2013)
Indianapolis Airport
Source: Indiana Public Media
The Indianapolis airport project used over 44,000 panels and is the largest airport-based
solar farm in the country. (Swiatek, 2013) It was built utilizing a third party structure, leasing the land
on which the project is installed. Indianapolis Power & Light (IPL) will purchase the electricity
generated. The airport will receive around $315,000 a year in lease payments. The farm will generate
16.5 megawatts of power per year. This will be enough to power 1800 homes, and prevent 10,700
tons of carbon dioxide from being released into the environment each year (equivalent to taking
2000 cars off the road). (Telamon, 2014) It is run by the Taiwanese company, General Energy
Solutions. (Swiatek, 2013) It was developed by the companies Telamon and Melink.
Potential Projects and How to Pay For Them
The 40-year payback for solar may be significantly reduced due to the substantial drop in panel
prices and innovative financing that allows tax incentives to be factored into the payback analysis.
Available government incentives are substantial for corporate entities that pay taxes. A 3rd party lease
agreement utilizing the 30% tax credit with a depreciation plan is an option. After this point, a
buyback program may be in the best interest of the university. A direct buy program through a
revolving loan fund or alumni donation solicitation is an option as well. The panels are warrantied
for approximately for 25 years, so a payback period of less than 25 years is crucial for solar to be
even on the table.
An additional options exists in light of the recent court case between Duke Energy and the Sierra
club over the Edwardsport plant. Duke energy is required by the court to either build 15 megawatts
of solar or wind infrastructure, or purchase 30 megawatts of solar power. The university could seek
to negotiate with Duke over getting involved with either of these programs.
Direct Buy program
A direct buy program would entail that the university directly purchases the panels and does
not utilize a third party. This would preclude IU from taking advantage of the solar incentives,
including a thirty percent tax credit.
Green Revolving Loan Fund
Revolving loan funds have become an increasingly common solution for higher educational
institutions to meet sustainability goals. One such example is the Harvard Green load fund.
The Harvard green loan fund is a 12 million dollar fund that has supported nearly 200
projects that have yielded 4 million in energy savings annually. Harvard has used this
financial mechanism to fund renewable energy, metering, and cogeneration projects.
Massachusetts previously ran a program to aid communities in establishing their own
revolving loan funds. The state of Georgia has a green revolving loan fund that provides
low-interest loans to businesses to be used for energy improvements. These include solar
water heaters. According to the Association for the Advancement of Sustainability in Higher
Education (AASHE) there are 84 revolving loan funds active in higher education. At this
time they contain over 118 million dollars. (AASHE, 2014) Green revolving loan funds work
by lending money to finance sustainability projects, and are paid back within an allotted time
period. A green revolving loan fund could be used not just to aid in the development of a
large-scale solar project, but other sustainability projects on campus. They provide an
opportunity for sustainability minded alumni to make donations for green projects.
Considering the sizable number of SPEA alumni and other potentially environmentally
conscious alumni of IU, this might be welcome.
Alumni solicitation
The solicitation of alumni donations to build a solar structure may be a legitimate strategy. In
the event a parking structure is considered, this could be especially attractive to alumni as
their names could be readily recognized and there may be attractive tax advantages. Though
it should be noted this has not been tested with IU Alumni. A parking structure contains
other advantages (security cameras for the parking lot, outlets for tailgates, etc) that make it
worthy of consideration. Alumni donations can play a role regardless of whether or not a
direct buy program is implemented, as it could help to increase the available capital going
into a third party program. Telamon suggested the possibility of financial structure on the
leased land that would allow alumni to take advantage of tax incentives. This all remains
speculation however.
Conclusion
If we take the original proposed 40 year payback period and take into consideration a
roughly 50% drop in price for solar photovoltaics (from 4.25 a watt to just above 2 dollars), and the
30% federal tax credit you get a payback period of around 13 years. This is without considering the
impacts of SRECs. These structures are usually warrantied for 25 years, so you can expect at least 12
years of payback. Telamon utilizing additional incentives and through thorough cost savings
calcuations estimated an even earlier payback time. When this is taken into consideration a large
scale solar structure (especially through third party financing, alumni philanthropy, or a combination
of the two) is feasible for the university. The structure would provide power at a fixed cost that
would be immune to inflation and the ups and downs of the energy market. This would save money
in the long term and introduce increased stability to the energy budget of the university. A large scale
structure could aid in recruiting efforts for students and faculty. This is pertinent as IU has been
recognized for having some of the environmental and scientific programs in the country. These
programs attract both top students and top faculty. This use for the solar structure is currently being
proposed by Purdue for their airport. The solar structure could also provide research opportunities
for faculty and students. It is my recommendation that university seriously consider the
development of a large-scale solar project.
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