Innovative financing for this Mosier, Oregon, town house development allows investors and homeowners alike to share in the incentives and financial benefits of harnessing solar energy.
Would home buyers pay a premium to have renewable energy integrated into their new town homes? Peter Erickson, owner of Urban Fund Inc., a Pacific Northwest development company, was pretty sure of it. “The public is very aware of and concerned about the rising costs of utilities. If a prospective buyer can purchase a home that consumes less energy than a typical home and produce a portion of its own energy,” says Erickson, “then it’s not a tough business decision.”
So he worked with his architects and a solar consulting firm to integrate photovoltaic and solar hot water systems into his 34-unit development in Mosier, Oregon. After some preliminary number-crunching, he wasn’t confident that homeowners would be willing to front the large $28,000 per unit initial expense that the two RE systems would require. But some savvy financial planning saved the day, allowing Erickson to realize his plans to add a strong renewable energy component to high-performance housing.
Erickson tapped into the talents of solar consultant Doug Boleyn of Cascade Solar Consulting, to figure out an attractive financial strategy for incorporating renewables into the development.
In Oregon, financial support for both residential and commercial solar systems is strong. The state offers generous tax credits for both home and business owners of qualifying grid-tied systems, and the nonprofit Energy Trust of Oregon offers additional cash incentives. Adding in federal tax credits for residential and commercial solar energy made the decision to install renewable systems a sound financial move.
Boleyn compared private and commercial solar incentives and laid out two possible scenarios, based on a goal of producing about half of the development’s electricity and hot water with solar energy.
One approach was to leverage federal incentives available to private individuals for residential solar installations. Each homeowner would qualify for a maximum $6,000 Oregon state PV tax credit, plus a one-time $2,000 federal solar tax credit. Although this would take care of a chunk of the up-front cost, the combined credits represented less than 30% of the total capital cost of the solar equipment on each home. Plus, Mosier is a vacation destination, with Washington State right across the river. Washington residents who purchased a town house as their second home wouldn’t be able to use Oregon’s tax credits.
The second option was to arrange for the solar equipment to be commercially owned by a subsidiary of the development company. Business owners of solar installations qualify for much higher incentives than do individuals under both the state and federal programs. With no caps, the state and federal business tax credits have potentially higher value, and businesses can also depreciate the solar equipment, a tax write-off not available to individuals.
In addition to the tax breaks, the Energy Trust of Oregon offers incentives to property developers who install solar-electric and solar thermal systems on buildings. The result: The combined business incentives would be enough to offset 70% of the systems’ installed costs, a savings Erickson couldn’t pass up—and would be able to pass on to the homeowners.
To capitalize on the largest incentives, Erickson formed a subsidiary, Mosier Creek (MC) Solar LLC, to own and operate the systems for a minimum of five years. This third-party investment group bought the solar equipment and took all the utility and tax credit incentives. In addition, they took accelerated depreciation for the improvements over a five-year period.
In effect, MC Solar became its own solar utility, selling the solar electricity generated by the rooftop systems to the homeowners at about 15% less than the local utility’s retail rate, a significant savings. Each homeowner has a net-metering agreement with the primary utility (Pacific Power) and can offset with solar up to 100% of their electricity use at the same rate that the utility charges.
The addition of Btu meters would have made it possible to meter the energy produced by the solar water collectors as well, but the investors were satisfied with their return on investment without having to claim the water heating savings. So the approximately 2,500 kilowatt-hours equivalent annual energy from the solar water heating system on each town house is provided to the homeowner at no additional cost.
At the end of five years, homeowners who wish to purchase their rooftop solar systems will be able to buy them at a fraction of their initial cost from MC Solar. Owning the systems will mean that homeowners get low-cost solar energy from their systems, helped by renewable energy credits (green tags) and other available incentives.
Erickson and his team, including Cascade Solar, Surround Architecture in Portland, and local green building certification agency Earth Advantage, have broken new ground for renewable energy with Mosier Creek Homes. “This is a first-off model for this sort of arrangement—a developer selling power that’s produced right there on the building,” says Boleyn. “The utilities no longer have a monopoly on supplying power. Mosier Creek Solar is doing it, and at lower electric rates.”
Boleyn says they checked Oregon utility law to make sure that MC Solar would not be considered a public utility and subject to regulation, and acknowledged that the utilities were “quite cooperative in setting everything up, including the net metering agreements.”
Erickson is pleased with the outcome and says that high-performance housing offers “distinct marketing advantages that protect the developer in a down-market cycle. In fact, we came online having received our final occupancy permits this past June in the middle of a national slowdown in real estate and have sold ten of our thirty-four units to date.”
“The public is very concerned about the rising costs of energy. If a prospective buyer can find a home that is LEED-H certified and produces 50% of its energy needs, then it’s an easy decision,” says Erickson. “I wouldn’t have engaged in the process if it didn’t pencil for both us and the home buyer.”
Denis Du Bois was hooked on solar energy in 2001 when he installed a PV system at his off-grid summer home. He is CEO of P5 Group Inc., a Seattle firm that helps energy-related companies market successfully. Du Bois founded Energy Priorities magazine and hosts the popular “Energy Minute” podcast series.
Cascade Solar Consulting • 503-655-1617 • www.cascadesolar.com • RE planning
Common Energy LLC • 541-308-0988 • www.commonenergy.com • PV systems
Mr. Sun Solar • 503-222-2468 • www.mrsunsolar.com • Solar thermal systems
Mosier Creek Homes • www.mosiercreek.com
Surround Architecture • 503-224-6484 • www.surroundinc.com • Architect
Urban Fund Inc. • 206-623-1234 • www.urbanfundinc.com • Developer
PV & Solar Thermal Systems Components Manufacturers:
PV Powered • 541-312-3832 • www.pvpowered.com • Inverters
Rheem • 334-260-1525 • http://waterheating.rheem.com • SHW storage tank
Sol-Reliant • 888-765-7359 • www.solreliant.com • Solar thermal collectors
Sharp Solar • 800-765-2706 • www.solar.sharpusa.com • PVs
UniRac • 505-242-6411 • www.unirac.com • PV mounts