Table of Contents

Introduction.................................................................................................................................................3

I. Overview of Solar.....................................................................................................................................3

A. Solar Photovoltaic Basics.....................................................................................................................4

B. Solar Water Heaters............................................................................................................................5

II. Case Studies.............................................................................................................................................8

Santa Barbara County Housing Authority................................................................................................8

Denver Housing Authority.....................................................................................................................10

El Paso Public Housing...........................................................................................................................12

Savannah Public Housing Authority.......................................................................................................14

Annapolis Housing Authority.................................................................................................................16

III. Cost-Effectively Financing Solar Projects..............................................................................................18

A. Solar Investment Tax Credit (ITC)......................................................................................................18

B. The Future Energy Jobs Bill and Illinois Affordable Solar for All Program..........................................18

C. Bringing It All Together to Cost-Effectively Finance Solar..................................................................20

About the Authors.....................................................................................................................................20

2

IntroductionA number of public housing authorities (PHAs) in the state of Illinois are exploring the use of solar energy. As the cost of solar photovoltaics (PV) have fallen dramatically, the ability for PHA’s to use solar energy has become far more financially feasible. In addition the ability for PHA's to partner with tax investors to share in the benefit of the 30 percent investment tax credit and depreciation deduction available for solar can allow PHAs to both significantly reduce the costs of solar and to potentially implement solar projects without incurring upfront capital costs. Finally, the Future Energy Jobs Bill (SB 2814), which was enacted into law on December 7, 2016, as Public Act 99¬090 (the “Act”) creates the "Illinois Solar for All Program," which prioritized the use the funds from the Renewable Energy Resources Fund to help develop low-income and other publicly beneficial solar PV facilities. These funds together with the above tax benefits can further drive down the effective cost of solar and potentially allow PHAs and the low-income residents they serve to substantially reduce their energy costs through the development of new solar facilities.

Solar energy also offers PHAs a number of other important considerations including:

Decreasing electricity use and costs without increasing monthly household expenses. Increasing awareness and the appreciation of solar benefits among residents Providing potential solar related job training and employment for residents Improving the overall quality of life for public housing residents through the use of clean

energy

The purpose of this report is to provide Illinois PHAs with the following:

Overview of solar energy Case studies of PHA’s that have embraced solar Financing options to implement solar projects

I. Overview of SolarMost individuals believe that solar energy is a fairly new phenomenon. However, solar energy actually dates back to 1839 when Alexandre Becquerel discovered the photovoltaic effect and that electricity could be generated from sunlight. In fact, solar power technology was frequently used from the mid 1800’s to the industrial revolution. Solar energy plants were developed to heat water that created steam to drive machinery.

In the context of a renewable energy system, solar power is the harnessing of radiant heat and light from the sun directly, and converting it to electrical power or heat. Solar energy is converted to electrical energy through crystalline or amorphous silicon photovoltaic panels. The most popular of the

3

two are the crystalline silicon panels due to their higher output per square inch. They are the most commonly used for solar power and are doubling in popularity every two years.

Solar energy can also be used to heat water through solar thermal collectors that move water heated by the sun into a collection tank or an existing hot water heater. Some systems have a separate pump that moves fluid containing a type of antifreeze into a heat exchanger, which then transfers the heat into the household hot water supply. These are more suited to wintertime applications. Solar lighting has become more popular of late--especially for walkways and entrances to buildings. The lights contain a solar panel on the top and a small battery to store the energy throughout the day. The lights, which usually contain LED bulbs, then activate at night to provide lighting well into the nighttime hours. This method saves energy and eliminates the need to turn outdoor lighting on and off. It also adds an attractive nighttime appearance and is an increased safety feature in the common grounds of a public housing authority.

Solar shingles are shingles composed of photovoltaic cells, and are dark purplish in color to give them a similar appearance to regular roof shingles. They are installed by stapling them to the roofing cloth. They capture the sunlight and convert it into electrical energy. They can be installed alongside regular shingles or they can cover the entire roof. They are more expensive than regular solar panels, but are aesthetically more pleasing to the eye. Solar attic fans operate like regular attic fans except they are powered by a solar panel affixed to the top of the fan assembly. They work well to remove heat from your attic on the days when the sun is most likely to be shining. Removing heat from the attic reduces the load on your air conditioning system and extends the life of your roof shingles.

A. Solar Photovoltaic BasicsSolar cells, also called photovoltaic (PV) cells by scientists, convert sunlight directly into electricity. PV gets its name from the process of converting light (photons) to electricity (voltage), which is called the PV effect. The PV effect was discovered in 1954, when scientists at Bell Telephone discovered that silicon (an element found in sand) created an electric charge when exposed to sunlight. Soon solar cells were being used to power space satellites and smaller items like calculators and watches.

Traditional solar cells are made from silicon, are usually flat-plate, and generally are the most efficient. Second-generation solar cells are called thin-film solar cells because they are made from amorphous silicon or nonsilicon materials such as cadmium telluride. Thin film solar cells use layers of

4

semiconductor materials only a few micrometers thick. Because of their flexibility, thin film solar cells can double as rooftop shingles and tiles, building facades, or the glazing for skylights.

Third-generation solar cells are being made from a variety of new materials besides silicon, including solar inks using conventional printing press technologies, solar dyes, and conductive plastics. Some new solar cells use plastic lenses or mirrors to concentrate sunlight onto a very small piece of high efficiency PV material. The PV material is more expensive, but because so little is needed, these systems are becoming cost effective for use by utilities and industry. However, because the lenses must be pointed at the sun, the use of concentrating collectors is limited to the sunniest parts of the country.

B. Solar Water Heaters1. How Solar Water Heaters Work

Solar water heaters use the sun's heat to provide hot water for a home or building. Solar water heating systems include storage tanks and solar collectors. Solar water heaters use the sun to heat either water or a heat-transfer fluid in the collector. Most solar water heaters require a well-insulated storage tank. The tank can be a modified standard water heater, but it is usually larger and very well insulated. Solar storage tanks have an additional outlet and inlet connected to and from the collector. In two-tank systems, the solar water heater preheats water before it enters the conventional water heater. In one-tank systems, the back-up heater is combined with the solar storage in one tank.

2. Types of Solar Collectors

Solar collectors gather the sun's energy, transform its radiation into heat, and then transfer that heat to water or solar fluid. Three types of solar collectors are used in solar water heating systems:

a. FLAT-PLATE COLLECTORS

A typical flat-plate collector is an insulated metal box with a glass or plastic cover (called the glazing) and a dark-colored absorber plate. Unglazed flat-plate collectors—typically used for solar pool heating—have a dark absorber plate, made of metal or polymer, without a cover or enclosure.

b. INTEGRAL COLLECTOR-STORAGE SYSTEMS

Integral collector-storage systems, also known as ICS or "batch" systems, are made of one or more black tanks or tubes in an insulated glazed box. Cold water first passes through the solar collector, which preheats the water, and then continues to the conventional backup water heater.

c. EVACUATED-TUBE SOLAR COLLECTORS

Evacuated-tube collectors can achieve extremely high temperatures (170°F to 350°F), making them more appropriate for cooling applications and commercial and industrial application. The collectors are usually made of parallel rows of transparent glass tubes. Each tube contains a glass outer tube and metal absorber tube attached to a fin. The fin is covered with a coating that absorbs solar energy well,

5

but which inhibits radiative heat loss. Air is removed, or evacuated, from the space between the two glass tubes to form a vacuum, which eliminates conductive and convective heat loss.

3. Types of Solar Water Heating Systems

There are two types of solar water heating systems: active, which have circulating pumps and controls, and passive, which don't.

a. ACTIVE SOLAR WATER HEATING SYSTEMS

There are two types of active solar water heating systems:

DIRECT CIRCULATION SYSTEMS

Direct-circulation systems use pumps to circulate pressurized potable water directly through the collectors. These systems are appropriate in areas that do not freeze for long periods and do not have hard or acidic water.

INDIRECT CIRCULATION SYSTEMS

Indirect-circulation systems pump heat-transfer fluids through collectors. Heat exchangers transfer the heat from the fluid to the potable water. They are popular in climates prone to freezing temperatures. Some indirect systems have "overheat protection," which is a means to protect the collector and the glycol fluid from becoming super-heated when the load is low and the intensity of incoming solar radiation is high. The two most common indirect systems are:

Antifreeze. The heat transfer fluid is usually a glycol-water mixture with the glycol concentration depending on the expected minimum temperature. The glycol is usually food-grade propylene glycol because it is non-toxic.

Drainback systems, which use pumps to circulate water through the collectors. The water in the collector loop drains into a reservoir tank when the pumps stop. This makes drainback systems a good choice in colder climates. Drainback systems must be carefully installed to assure that the piping always slopes downward, so that the water will completely drain from the piping.

b. PASSIVE SOLAR WATER HEATERS

Passive solar water heaters rely on gravity and the tendency for water to naturally circulate as it is heated. There are two basic types of passive systems:

INTEGRAL COLLECTOR-STORAGE PASSIVE SYSTEMS

Integral-collector storage systems consist of one or more storage tanks placed in an insulated box with a glazed side

6

facing the sun. These work best in areas where temperatures rarely fall below freezing. They also work well in households with significant daytime and evening hot-water needs. They do not work well in homes or buildings with predominantly morning draws because they lose most of the collected energy overnight.

THERMOSYPHON SYSTEMS

Thermosyphon systems rely on the natural convection of warm water rising to circulate water through the collectors and to the tank (located above the collector). As water in the solar collector heats, it becomes lighter and rises naturally into the tank above. Meanwhile, the cooler water flows down the pipes to the bottom of the collector, enhancing the circulation. Some manufacturers place the storage tank in the house's attic, concealing it from view. Indirect thermosyphons (that use a glycol fluid in the collector loop) can be installed in freeze-prone climates if the piping in the unconditioned space is adequately protected.

7

II. Case StudiesA number of public housing authorities have implemented innovative solar projects. These projects have dramatically reduced energy costs for residents of public housing. The following case studies highlight solar projects at public housing authorities from different regions of the United States.

Santa Barbara County Housing AuthorityI. Project Summary:

The Housing Authority of the County of Santa Barbara (HACSB) has successfully implemented a portfolio-wide renewable energy strategy offsetting 100% of the electrical consumption at 21 properties and HACSB’s administration buildings. The 1.7 MW project involved the installation of over 7,200 solar photovoltaic panels on 250 buildings serving 863 dwelling units located in 6 permitting jurisdictions served by 3 different utility companies and is the largest and arguably the most complex renewable energy project undertaken by a public housing authority to date.

A key impetus for the project was the confluence of California renewable energy incentives, federal grants and renewable investment tax credit provisions enacted by the American Recovery and Reinvestment Act, and HUD’s Energy Performance Contract (EPC), which facilitated complementary investments in energy efficiency measures.

About 50 percent of the project funding was provided from federal sources. Federal resources provided a foundation for the development and execution of an innovative financing strategy that was achieved through a captive energy company, Surf Solar, and Power Purchase Agreements with HACSB properties.

This structure enabled HACSB to capture and leverage tax benefits that might have been lost because of the PHA’s tax status, and capture a portion of the value of the power generated by the system to cover investment debt not offset by grants or other incentives.

Another complexity was the added coordination required in working with three separate utility districts, which different requirements and institutional practices, to accomplish the reviews, inspections, and utility interconnections.

II. Project Details - RETROFIT

System Coverage: Common areas and tenant units - 21 properties - 250 building - 863 units

Size/Rating: 1.7 MW; 7,200 panels On Site Generation: 2.6 million KWh/ yr. Offsets 100% of tenant electric use

Cost Savings: $300,000 (@$0.15/kWh)

8

Completion Date: September, 2011III. Financial Details

Cost: $12.25 million Project Financing: - Power Purchase Agreement (PPA)

- $0.08/kWh- 20 year term w/ Buyout Option

Leveraged Sources: - CA MASH Rebates,- Federal ITC (1603)- ARRA – HUD Energy Grant- Energy Performance Contract

9

Denver Housing Authority I. Project Summary:

The Denver Housing Authority (DHA) had a problem: it wanted to expand its portfolio of renewable energy sources, but it had little available capital to invest in the project. In addition, DHA was also looking to decrease utility expenses and implement the project across their existing multi-family and single-family properties throughout the Denver area. The solution was an innovative Power Purchase Agreement (PPA) that enabled the installation of a 2.5 megawatt solar project across 387 different DHA buildings. Because of the structure of the PPA, the project was implemented at minimal upfront cost to DHA, and the project actually provides revenue for the housing authority from the lease agreements on its roof space. Across the United States, there are approximately 3,300 public housing authorities, many of which could emulate this project, not to mention the thousands of other organizations with solar-ready roof space, so this project has amazing potential for scalability and replicability.

Unlike many other large-scale solar installations, the DHA solar project would need to be installed across a wide range of existing multi-family properties and single-family homes peppered throughout the city. In comparison to projects implemented entirely on one location or during the construction of new buildings, this could lead to complications in siting, installation, maintenance and monitoring the panels once installed.

For DHA, the goals of the project were to purchase energy production from a renewable source, create green jobs, establish long-term financial sustainability and create opportunity for long-term ownership and operation of energy-efficient systems. Also, as part of the Department of Energy’s Better Buildings Challenge, DHA set a goal to achieve a 20 percent reduction in its energy use intensity (EUI) within 10 years. This goal was to be achieved in part through this renewable energy PPA, and also through other energy conservation initiatives and resident engagement programs.

In early 2012, DHA began in earnest to seek a viable PPA partnership with a Request for Proposals. DHA received a total of three responses to its Request for Proposals and after a thorough selection process selected OakLeaf Energy Partners as their partner. The proposal that was selected was a landmark renewable energy project with the installation of 666 solar electric systems on 387 DHA resident buildings, totaling 2.5 megawatts. Utilizing over 10,000 240-watt panels, these collective arrays could reduce CO2 emissions by 3,400 tons per year. This proposal stood out above the rest due to the revenue DHA could make from leasing its roof space for the solar panels. On top of being able to purchase the electricity generated by the panels for a slight per kilowatt hour discount, this proposal enabled DHA to receive payments for leasing the roof space the solar panels occupy. Because of the environmental benefits, revenue generation opportunity and discounted long-term energy pricing included in the PPA, in June of 2012, DHA signed the contract, and installation of the panels began.

II. Project Results:

10

Now installed, the systems are anticipated to collectively generate an average of 3.4 million kilowatt hours of electricity per year, which is an annual reduction of around 3,400 tons of carbon dioxide. Outside of reduced carbon emissions, the project resulted in several benefits. This project spurred the generation of 40+ green jobs in the Denver area for workers hired to install the panels. Also, this PPA supports commitments by HUD to sustainability, including clean renewable energy.

For DHA there are a number of resulting benefits. This project enabled the housing authority to expand its portfolio of renewable energy sources without dedicating funding. Also, DHA actually receives revenue from leasing its roof space and is able to purchase this renewable energy at a slight per kilowatt hour discount. Both of these aspects of the PPA provide DHA with additional revenue streams that can be used for other improvements. These energy costs are also long-term and predictable, which is something HUD encourages. Lastly, through an accompanying resident engagement program, DHA has been able to communicate about the solar project, which provides residents with an additional reason to take pride in their homes.

11

El Paso Public HousingI. Project Summary:

A 73-unit affordable housing development for very low-income seniors in El Paso, Texas is helping establish a new standard for sustainable affordable housing in Texas and throughout the United States. Developed by the Housing Authority of the City of El Paso (HACEP), the Paisano Green Community combines passive and active design to help the building attain net-zero energy consumption and a Leadership in Environmental and Energy Design (LEED) Platinum certification for Building Design and Construction in the New Construction category. The project, which was funded through the American Reinvestment and Recovery Act (ARRA), is one of the first public housing projects in the country to meet these standards and was recognized in 2013 with an Award of Excellence from the National Association of Housing and Redevelopment Officials. Located in western Texas just north of the Mexican border, El Paso is one of the hotter and sunnier cities in the United States. The community of approximately 674,400 residents receives more than 300 days of sunshine each year, with average monthly high temperatures approaching 95 degrees in the summer.

The design for the Paisano Green Community responds to the challenges of the site and the broader desert environs. Surrounded by civic and industrial uses, the project consists of a series of buildings organized along the length of the rectangular-shaped parcel’s north-south axis. A community building, with two large meeting rooms, residents’ mailboxes, a communal kitchen, and a rooftop terrace, frames the northern edge of the site. Forming the western side are 4 three-story buildings with one- and two-bedroom apartments. The site’s eastern edge consists of a linear townhouse building with two stories containing 9 single-room occupancy units and 9 one-bedroom apartments.

The buildings have a highly efficient envelope to minimize heat loss in the winter and heat gain in the summer. The building walls are insulated to R-28, exceeding the minimum recommendations for the climate, and the roofs are insulated to R-30. The building envelope includes air-sealing measures such as caulking and vapor barriers to minimize energy losses through infiltration. The mechanical systems, including hot water and heating, ventilation, and air conditioning, were also specified with energy efficiency in mind. Each apartment is equipped with a ductless mini-split air source heat pump with a seasonal energy efficiency ratio (SEER) of 16 — more efficient than the SEER 13 minimum for air conditioners established by the U.S. Department of Energy. An air-source heat pump water heater that uses renewable energy meets the community’s full demand for hot water.

The project’s renewable energy systems include a roof-mounted, 182-kilowatt photovoltaic array and two 10-kilowatt wind turbines. This onsite production capacity, coupled with the building’s energy-efficiency features, will help Paisano achieve net-zero energy performance measured over the course of the year. A model of the buildings’ energy consumption before occupancy estimated that the annual energy demand for a one-bedroom unit at Paisano would be only 14.9 percent of that of a one-bedroom unit built to meet the standards of the 2009 International Energy Conservation Code (IECC); the estimated energy cost of $191 per year is nearly $700 less than the cost for a comparable IECC unit. For a very low-income household of two people in El Paso earning 50 percent of the area median income of

12

$44,800, this $700 savings represents 3.5 percent of annual income. Because estimating electricity use related to plug loads and other resident behaviors is challenging, Paisano has been designed to accommodate additional solar panels in the future to help bring annual utility costs to zero.

II. Project Financing:

The $14.8 million project was made possible by a substantial capital grant through HUD’s Capital Fund Recovery Competition program (table 1). The $8.25 million ARRA grant was matched by $2.78 million from HUD’s Capital Fund Program, $3.3 million in HACEP reserve funds, and a $500,000 loan provided by the city of El Paso.

Table 1. Paisano Green Community Financing

American Recovery and Reinvestment Act, HUD Capital Fund Recovery Competition grant $8,248,000

Housing Authority of the City of El Paso unrestricted reserves 3,295,000

HUD Capital Fund Program 2,784,000

City of El Paso loan 500,000

Total $14,827,000

Although the per-unit cost of approximately $203,150 was nearly twice the construction cost of a typical El Paso apartment, a life-cycle analysis showed that over a 50-year lifespan, the full cost of the Paisano Green units is 20 percent less than that of typical El Paso apartments when utility and building maintenance costs are considered along with capital costs. The $1.22 million invested in the renewable energy systems is expected to save $1.45 million in operating costs over a 30-year timeframe and $3.7 million over a 50-year span.

13

Savannah Public Housing AuthorityI. Project Summary:

Savannah, Georgia is widely recognized for its historic architecture and distinctive approach to city planning. In recent years, Savannah has garnered new attention with the redevelopment of the Fellwood Homes public housing development into the first LEED for Neighborhood Development (LEED-ND)-certified project in Georgia. Located approximately one mile west of historic downtown Savannah, Sustainable Fellwood is a result of partnerships forged by the Housing Authority of Savannah, private and nonprofit developers, and the city. The project raises the bar for affordable housing developed throughout Savannah and the state of Georgia by demonstrating the considerable benefits of sustainable design.

The design of Sustainable Fellwood invokes the historic plan for the original Savannah established by James Oglethorpe in 1733. The Oglethorpe Plan is maintained in the form of the country’s largest national historic district, which includes pedestrian-scaled blocks and public and private buildings organized around a series of public squares. Sustainable Fellwood follows a similar design, with 220 mixed-income housing units, a 100-unit senior housing complex, and 13 single-family homeownership units organized around a 4-acre park at the center of the site. Mature oak trees were preserved throughout the 27-acre parcel, and the pedestrian-scaled street network is designed to promote continuity and connectivity for various types of transportation. These design features, combined with its redevelopment status and proximity to public transit, helped the project earn a Silver rating as part of the LEED-ND Pilot Program.

In addition to setting standards for neighborhood design, LEED-ND also requires that buildings be designed and constructed to promote resource efficiency and sustainability. The housing at Sustainable Fellwood exceeds these standards. The first phase of the project, consisting of 110 mixed-income units, was the first affordable housing in the state to receive a LEED for Homes Gold certification (phase two is also LEED Gold-certified), while the third phase of the project, a 100-unit senior housing complex, recently became the first LEED Platinum-certified affordable housing in the city.

Building to LEED standards did come with additional costs, but those were balanced by savings achieved elsewhere on the project. For example, the cost of high efficiency heat pumps and cellulose and spray foam insulation — approximately $1,400 to $1,600 for each unit — was offset by savings realized through efficient unit design, reductions in off-street parking, and eliminating outdoor balconies on the mixed-income housing units. As a result, the inclusion of sustainable features amounted to a fraction of the total project costs (approximately $200,000 or about 0.25%). Importantly, the investments made in efficiency provide considerable financial benefits to residents. The housing units are 21 to 30 percent more efficient than a typical ASHRAE baseline building. Increased efficiency will reduce operating costs and thus lower the cost of living for residents.

14

The project features an 85kW photovoltaic array included on the senior housing complex. The solar panels helped the project secure its platinum rating, and were made possible in part by the building’s large flat roof and the affordability of the technology.

II. Project Financing:

Securing the financing for Sustainable Fellwood presented its share of challenges. The first phase of the project was financed primarily with $10 million in low-income housing tax credits (LIHTC). The second and third phases of the project were nearly derailed by weakened LIHTC market. The Tax Credit Assistance Program (TCAP), a provision of the American Recovery and Reinvestment Act, played a critical role in keeping the project on track by providing approximately $5.9 million in grants to make up for the financing gap caused by the shortfall of LIHTC investment. In addition to the TCAP funds and $26.2 million in tax credit financing, the city of Savannah provided approximately $3.5 million in Special Option Local Sales Tax funds toward infrastructure improvements, and the Housing Authority of Savannah contributed approximately $7 million in replacement housing capital funds. Thirty-five percent of the units are reserved for those earning less than 30 percent of area median income (AMI), forty-five percent of the units for those earning up to 60 percent of AMI, and the remainder are market-rate units.

15

Annapolis Housing AuthorityI. Project Summary:

This project features the turnkey installation of 11 separate roof-mounted, closed loop solar domestic hot water systems (10 systems of 196 panels and 1 system of 32 panels). The project was completed while the buildings were fully occupied. The system is actively monitored for performance and solar energy delivered to the buildings’ domestic hot water systems.

Through the shared savings model, the customer earns a portion of the ongoing savings for ten years. After ten years, the customer owns the asset and receives 100% of the savings from solar. No capital investment was required from the customer. The economics of installing solar panels – particularly the more efficient type that converts sunlight into heat for water – have changed over the past few years as technology has made the panels cheaper and tax credits have made it more affordable to install them.

The solar panels were installed by a Skyline, private company that specifically seeks out public housing.

The Washington D.C.-based company was looking for big buildings with flat roofs and shared hot-water systems. Two of Annapolis’ older complexes fit what the company needed, including the desire to cut bills today and not invest any money upfront. The company installs what amounts to a small solar utility on the roof of the building, then sells the solar energy back to the housing authority for 30 percent less than the cost to heat water by traditional means.

The panels on the roof of Harbour House apartments and those installed earlier on the Morris H. Blum senior high-rise together cost about $650,000. Skyline, which secured financing from the parent company, Washington Gas, owns and maintains the panels for a decade while the housing authority sees lower energy bills. Then the housing authority owns the panels. Meanwhile, Skyline collects renewable energy credits it can sell. Maryland recently expanded its definition of what qualifies for a solar energy credit to include panels that heat water along with those that create electricity, Skyline officials said. The business model to leverage public housing needs into solar energy credits appears to be a new take on other strategies to lower the upfront costs of installing solar panels.

II. Project Specifications:

The Site | Design + Construction

The site is owned by the Annapolis Housing Authority and was constructed in 1964. This community consists of 273 units and 475 residents. SES and Developer completed site visits to assess all viable rooftops relative to the thermal load in each building.

Installation Date: May 4, 2012 - Annapolis, MD

System Size: 228 Solar Thermal Panels - 502 KW equivalent

16

Annual Output: 20,500 therms per year (602 MWh/year Equivalent)

Equipment: (192) Schuco Flat Plate Collectors, (32) Solene Aurora Flat Plate Collectors, (1) 9500 gallon unpressurized tank and (10) 950 gallon tanks

System Manufacturer Warranties: Tanks and Panels - 10 years

Installer Workmanship Warranty: 2 Years

Return on Investment: The property owner participates in shared savings for 10 years and then owns the asset to obtain full savings

Financing: Project was financed for 10 years by the project developer, no capital was required from the building owner

17

III. Cost-Effectively Financing Solar ProjectsLow-income housing finance is complicated and relies on a complex layering of state and federal tax credits, grants, and investments. Solar finance is also complex, often relying on a combination of grants and other incentives, tax credits and depreciation benefits, debt, and other financing. However, like low-income housing financing, solar financing can make solar energy affordable for PHAs and the low-income residents they serve and potentially can allow PHAs and low-income residents to substantially and permanently lower their energy costs and therefore the overall cost of low-income housing.

An important issue PHAs face is that they are not taxable entities. Therefore, they must partner with tax investors and utilize innovative financial structures to share in the significant value of the tax incentives available for new solar facilities. The Department of Energy recognizes these complexities and offers technical assistance to public housing authorities for renewable technology adoption. The following is a discussion of the major tools for PHAs to finance solar projects. The economics of the solar market are driven by two federal tax incentives: a 30% investment tax credit (ITC) and a five-year depreciation. Combined these incentives potentially can be about 50% of the total cost of a solar project. In addition, the recently created Illinois Solar For All Program, which prioritize the use the funds from the Renewable Energy Resources Fund to help develop low-income and other publicly beneficial solar PV facilities, together with the above tax benefits, can drive down the effective cost of solar and potentially allow PHAs and the low-income residents they serve to substantially reduce their energy costs through the development of new solar facilities.

A. Solar Investment Tax Credit (ITC)The Investment Tax Credit (ITC) is currently a 30 percent federal tax credit claimed against the tax liability of qualifying investors in solar thermal and electrical energy property. A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government. The ITC is based on the amount of investment in solar property and is equal to 30 percent of the eligible property basis for solar projects that commence construction by the end of 2019. The ITC then steps down to 26 percent for projects that commence construction in 2020 and 22 percent for those that commence construction in 2021. After 2021, the ITC will drop to a permanent 10 percent. It is important to note that projects must only commence and need not necessarily complete construction by the above dates to qualify for the 30, 26 or 22 percent ITC. Depreciation of Solar Projects.

In addition to the ITC, the tax benefits from depreciation can significantly lower the net costs of solar installations. The U.S. tax code allows for a tax deduction based on the cost of tangible property over its useful life. Qualifying solar energy equipment is eligible for a cost recovery period of five years. This relatively short depreciation period makes the tax benefit more valuable to investors, since they can receive the tax deductions sooner. In addition, the Modified Accelerated Cost Recovery System (MACRS) is the current depreciation method for most property and allows investors to receive substantially more depreciation benefits in the first year of operation than they would under straight line depreciation, again making depreciation more valuable to investors. Owners of solar facilities that receive the 30 percent ITC must reduce their basis in the solar property by one half of the amount ITC. This typically means that an investor is able to receive tax deductions over time for 85 percent of his or her tax basis. Even with this reduction in basis, the depreciation benefits can be very valuable to investors.

18

B. The Future Energy Jobs Bill and Illinois Affordable Solar for All ProgramThe Future Energy Jobs Bill (SB 2814) was enacted into law on December 7, 2016, as Public Act 99¬090 (the “Act”). The Act keeps in place Illinois' previous target of having 25% of retail energy to come from renewable energy sources by 2025. The Act also creates new interim renewable energy goals for utilities essentially as follows:

• 13% of each utility’s load for retail customers to come from renewable energy in 2017;

• 14.5% of each utility’s load for retail customers to come from renewable energy in 2018;

• 16% of all retail customers load to come from renewable energy in 2019;

• Increases by 1.5% per year thereafter to 25% by 2025, and then continuing at a minimum of 25%.

The interim goals are to be met by the Illinois Power Agency's (the “IPA”) procurement of renewable energy credits (RECs) from new facilities in amounts corresponding to the renewable energy requirements for each given year. The RECs are be procured using funds from Alternative Compliance Payments and from a charge on customers’ electric bills.

The above creates an approximately $200 million per year budget to be divided among new wind and solar projects. Fifty percent of the new funding for solar is to be used for distributive generation projects that serve one customer (25% of the budget) and larger community solar projects that provide billing credits to multiple customers (25% of the budget). The IPA is to create a list of published REC prices by category:

Systems below 10 kW in size Systems between 10 kW and 2,000 kW in size, with a possible subcategories Community solar systems Systems located on brownfields

With respect to residential systems, the payment for the RECs will be provided on the 15 year contract with full upfront payment. For commercial facilities, the 15 year REC contract will have 20% payable in year 1 and the balance paid over the next four years. The REC payments for community solar are received over time, but the facilities can also receive a $250 per kilowatt incentive.

Also, especially important for PHAs, the Act creates the "Illinois Solar for All Program," which prioritizes the use the funds from the Renewable Energy Resources Fund to purchase RECs to help develop low-income and other publicly beneficial solar facilities in accordance with an approved procurement plan that is to be developed prior to June 1, 2017. The Solar for All Program includes incentives for low-income distributed generation and community solar projects. The Solar for All Program includes the following incentives:

•Low-Income Distributed Generation Incentive: 22.5% of funds must be allocated to providing incentives for low-income customers, either directly or through solar providers, to increase participation in solar on-site development.

•Low-Income Community Solar Project Initiative: 37.5% of funds must be allocated to incentives that increase participation of low-income subscribers of community solar projects.

19

•Non-Profits and Public Facilities: 15% of funds must be allocated to provide incentives for solar projects that serve non-profits and public facilities.

•Low-Income Community Solar Pilot Projects: 25% of the funds, but not more than $50,000,000, must be allocated to entities that could include utilities that propose potentially larger pilot community solar projects.

C. Bringing It All Together to Cost-Effectively Finance SolarThe above financial incentive incentives could significantly benefit PHAs that develop solar facilities that service their own facilities and/or their low-income residents. In fact, by developing solar facilities that can qualify for the Solar For All Program and working with tax investors that can utilize and share the significant tax benefits described above, PHAs may be able to build new solar for their residents and their own operations with little or no upfront capital expenses and provide significant long-term energy cost savings for their residents and themselves. However, PHAs need to be able to act relatively quickly before the solar investment tax credit reduces in value and while Illinois is working aggressively to meet its significant renewable energy goals.

Because of a tax investor's ability to receive both the 30% ITC and valuable depreciation benefits, investors may be willing to provide most or all of the benefit of the ITC to PHAs. In addition, PHAs or low-income residents should be able to receive the full value of the solar incentives from the IPA under the Illinois Solar for All Program. Tax investors can then potentially finance the remaining cost of the solar facilities and provide energy to residents and or PHAs under a power purchase agreement (a "PPA").

A PPA is a financial agreement where the tax investor sells the power generated at a cost that may be lower than the local utility’s retail rate. This can allow PPAs to be used to finance solar facilities from energy savings. Under tax rules, the investor must remain an owner of a project for at least five years or risk recapture of the tax credit. However, once the tax investor has been repaid and has received its required return on investment, the PHA may be able to obtain full ownership of the system. Depending on the value received from the IPA under the Solar For All Program and the cost of energy under the PPA, this could potentially occur sometime relatively soon after the end of the five-year recapture period.

Given the already substantially reduced cost of solar facilities, the valuable tax incentives presently available and the important incentives under the Act, including the Illinois Solar for All Program, that will be available in the near future, it is very important for PHAs to start evaluating the solar opportunities available for themselves and their low-income residences. It is also important that PHAs fully understand how these incentives work and their value, so that they can help ensure that greatest potential cost savings occur for both themselves and their residents.

20

About the Authors

Kevin Fitzgibbons, Principal at Fitzgibbons and Associates: Overview of Solar and Case Studies

He provides a wide range of housing and economic development services to Tribal governments and their housing entities and to other governmental entities including state and local governments, public housing authorities and nonprofit entities. Kevin served as Administrator for HUD’s Eastern Woodlands Office of Native American Programs for a twelve year period and worked closely with Indian Tribes in implementing a variety of sustainable housing projects.

John Clancy, Godfrey & Kahn, S.C.: Cost-Effectively Financing Solar Projects

John is an environmental and energy attorney who has assisted clients in developing and addressing legal issues associated with numerous renewable and other energy projects. He has worked with Housing Authorities and other public and not-for-profit entities to cost effectively finance solar, taking advantage of financial benefit of tax credits and depreciation, often in combination with nontax incentives, including Federal and State grants and other incentives. He can be reached at jclancy@gklaw.com or 414-287-9256.

For more information contact:

Kate Brown, Efficient Living Illinois Public Housing Authority Energy Program, University of Illinois Urbana-Champaign: cbrown4@illinois.edu, 217-244-6769.

21