Opinion: Solar investment needed in county
In response to your news article dated Feb. 2 and headlined, “Backers see solar as moneymaker”:
I am CFO for Green Lantern Development in Waterbury, a small, growing solar developer. We focus on the public sector. We develop and finance solar arrays for customers unable to use tax credits: towns, schools, hospitals and nonprofits.
Instead of owning the solar arrays, these “customers,” or “power off-takers,” receive guaranteed savings on their electric bills from our solar power, and there is no up-front cost to them. We use a combination of in-state and out-of-state financing for our projects, which support the Vermont Comprehensive Energy plan. Our business model brings efficiency to the process, and value to all stakeholders: customers, landowners, municipalities (tax revenue), local contractors and consultants, and investors. We deliver savings to customers, and sensible returns to capital partners who are investing in Vermont and taking all of the financial risk.
To get projects built, we need to find 3 sources of capital: a cash investor (gets cash from the revenue streams), a tax investor (gets the 30 percent tax credit), and a lender.
It is hard to find capital partners in Vermont who can invest at scale. For example, on a solar project with a budget of $2 million, an investor needs a $600,000 federal tax bill to use the 30 percent tax credit. In addition, the investor needs other tax liabilities to use the depreciation losses. We welcome Vermont investors who can do this.
It also takes a lot of effort to educate investors on how net-metered solar works, and to understand the risks associated with their investments. They need comfort with the credit risk of the customers, the Vermont regulatory environment, and the financial model. Ultimately solar projects have a finite economic value, and that value must be distributed fairly between the customers and the investors. Customers receive significant annual savings on their utility bill and the opportunity to own systems long-term. (Note: The percentage of savings that customers receive on their utility bills is much higher than the annual rate of return that investors receive on their investments.)
Local banks are routinely used to finance solar projects, including Merchants Bank, Northfield Savings Bank, VEDA, among others. This means local lenders essentially own a large share of these projects, keeping dollars local as well.
Some believe that investors are making disproportionately large returns. In reality, the tax credit comprises the largest source of return. Investors take the tax credit early in their investment which makes it seem like the tax investor is getting a great “IRR” (Internal Rate of Return), but the actual ongoing “ROI” (Return on Investment) is much smaller.
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