Solar Basics for Non Profits in MassachusettsBethany A. BartlettSherin and Lodgen LLP

November 18, 2016

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Agenda

Net metering

Federal tax incentives

Massachusetts SREC Program

Key documents

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What is net metering?

Allows customers of certain electric distribution companies to generate their own electricity in order to offset their electricity usage.

All customer classes are eligible for net metering. Common examples of net metering installations include solar panels on a home

or a wind turbine at a school. These installations are connected to a meter, which will measure the net quantity

of electricity that the customer uses (“retail meter”). The retail meter spins forward when the customer uses electricity from the

distribution company, and it spins backward when the customer generates excess electricity (thereby “exporting” electricity to the electric grid).

A special retail meter (also called the “net meter”) is required to allow for the “netting” of usage and generation, especially when there may be exporting of electricity.

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What is net metering?

Solar array converts energy from sunlight into electricity for use1

Energy used in business, school, home, etc.

2 3Meter measures net quantity of electricity that customer uses

Energy used by your business from the electric grid

Energy produced by solar array

Excess energy not used by business goes back to electric grid

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Why would I want to get involved in net metering?

Lower electricity bill by reducing the amount of electricity customer buys from distribution company.

Allows customers to receive credits for excess electricity created but not used.

Renewable energy is good for the environment.

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System of Assurance

If you plan to use net metering, you need to submit an Application for Cap Allocation (ACAs) to System of Assurance of Net Meter Eligibility.

You do not need to register with the System of Assurance if you are offsetting your load on site and never plan on exporting electricity to the grid.

To learn more about net metering eligibility visit massaca.org.

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Federal Tax Incentives – 30% Solar Investment Tax Credit

Phases-down the 30 percent renewable energy investment tax credit (ITC) over five years for facilities where construction has commenced before Jan. 1, 2022.

2017-2019

The bill provides extension of the 30% ITC

2020 26% ITC

2021 22% ITC

2022 30% ITC will expire, leaving 10% ITC ongoing

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ITC Summary

ITC based on 30% of costs, which can be based on an appraised value.

100% of the ITC is earned by the owner of the facility on the date the project is Placed in Service.

ITC has a 5 year recapture period of 20% per year and occurs if the taxpayer disposes of the property or the facility ceases to be an investment credit property.

ITC eligible costs – do not include roof replacement or land purchase (but lease is OK) because these are not directly tied to the energy producing property investment.

No ITC is allowed for organizations exempt from Income Tax by IRS.

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Bonus Depreciation

Extends bonus depreciation for five years through 2019, at 50% for the first three years and phased

down over the next two years.

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How will Trump administration affect ITC?

Limited incentive to repeal the ITC because its renewal in December 2015 was based on a stepped down plan with definitive expiration dates (ITC will drop by 10% by 2022).

President has no authority to repeal ITC. An act of Congress is needed to change ITC because it is part of the tax code.

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What are Trump’s options? Change to ITC extension by Act of Congress Trump and Congressional Republicans can go after tax incentive or other

renewable energy supports and use budget reconciliation procedure to get around a Democratic filibuster (Republicans could push budget with only 51 votes).

Change to ITC extension by IRS Trump can avoid public political battle against solar and could have IRS

revise its interpretation of the “commence construction” provision so that the tax credits sunset sooner.

With a Corporate tax rate cut, ITC becomes less valuable If Trump administration cuts corporate tax rate to 15%, then it would

dilute the effect of ITC because there would be less taxes to offset with tax credits.

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Massachusetts SREC II Program

SRECs are the largest source of income for MA solar projects and start at an auction price of $285 which declines over time and can be pre-sold on the spot market.

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Massachusetts SREC II Program

The Massachusetts financial incentive program, Solar Renewable Energy Certificates (SREC), provides credits that solar system owners sell to electricity suppliers to fulfill the suppliers’ requirement under state law to generate a certain percentage of electricity from renewable energy sources.

– SRECs can also be sold or pre-sold on the spot market– 1 Megawatt hour of solar power = 1 SREC– 10 Kilowatt system produces about 12 SRECs annually

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Massachusetts SREC II Program

SREC I program completed with 656 MW qualified as of 12/9/14 and total allowable solar is capped at 1600 MW.

SREC II is currently filled and projects have a construction deadline of January 2017.

Currently there are four different Market Sectors and each are allocated an SREC Factor to be applied during the 10 year production eligibility period (40 quarters).

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Post SREC II

Currently DOER is having weekly stakeholder meetings to develop the next Massachusetts solar incentive.

New program may be a feed in tariff regulated by the utilities, with capacity block allotments for each of the Commonwealth's five utilities.

Current Market Sectors will be replaced by Tariff Adders (community solar, rooftop, parking canopies, affordable properties).

Massachusetts is trending toward solar and storage. Obstacles for next program include timing (potential dead

zone following SREC II) and siting for ground mounted projects.

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Key Documents

Lease – Property owner to provide long term rights to developer to property or rooftop

Lease should contain provisions/restrictions relating to construction, access, site security, etc.  

Power Purchase Agreement – Provides for purchase of electricity or net metering credits

Generally the term of each is for 20 years Potential cross default/termination language

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Structure and Financing Considerations

Existing Mortgage on property? Need Lender consent for facility and a Subordination, Non-Disturbance and Attornment Agreement

Forbearance Agreement with a tax equity investor during 5 year recapture period

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Questions?

Bethany A. Bartlett

babartlett@sherin.com617.646.2038