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Builder Expands Solar Incentives by Creating a Renewable Energy Business

Mosier Creek Homes are expected to produce about 40 percent of their energy needs through renewable solar energy. The developer found an innovative way to make solar work out financially. Instead of tapping residential solar tax credits, he set up a solar energy business -- and qualified for incentives equal to 70 percent of the cost. The townhomes will sell at a premium, and owners will pay the developer for their solar power.

Home buyers will pay a premium to have renewable energy integrated into their town homes. Peter Erickson, owner of Pacific Northwest developer Urban Fund Inc., was sure of it. So he worked with his architects and a solar consulting firm to design photovoltaics and solar thermal into his 34-unit development in Mosier Creek, Oregon.

The $28,000 capital outlay per unit could have stopped that plan in its tracks. Would buyers pay such a large premium?

Mosier Creek Homes are expected to produce about 40 percent of their energy needs through renewable solar energy. The first of the townhouse units will be completed in October, 2006.

Photovoltaics produce electricity from the sun, and solar thermal produces hot water -- in that sense these innovations work. Erickson and his team found an innovative way to make them work financially, too.

"It seemed obvious after talking to my solar consultant. When I asked him about state or federal incentives he provided two scenarios," Erickson explains.

The consultant, Doug Boleyn of Cascade Solar Consulting in Gladstone, Oregon, compared private and commercial solar incentives and laid out the facts for Erickson.

SUMMARY
The Mosier Creek Homes formula for making solar financially appealing to both developer and buyer:
  • Install solar power and water heating systems on each unit.
  • Set up a separate business to own the solar equipment.
  • Use business tax incentives and other subsidies to cover as much as 70 percent of the cost.
  • Sell the units at a premium, because of their renewable energy features.
  • Sell the solar power to the homeowners, and let them sell the excess to the utility.
  • Consider offering the equipment for sale or lease to the homeowners. Remember, you paid only a fraction of the original cost, so here's another potential source of profit.

One possible 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 U.S. federal solar tax credit. The combined credits represent less than 30 percent of the total capital cost of the solar equipment on each home.

The other option was to arrange for the solar equipment to be commercially owned. Business owners of solar installations qualify for much better incentives than do individuals. In fact, the combined business incentives would be enough to mitigate 70 percent of the cost. The state and federal business tax credits have potentially higher value and no maximums. Businesses also can depreciate the solar equipment, a tax write-off not available to individuals.

On top of the tax incentives, the Energy Trust of Oregon offers incentives to property developers who install solar on buildings.

Erickson structured a novel business model to capitalize on the highest incentives. He formed a subsidiary, Moser Creek Solar LLC, to own and operate the solar systems for a minimum of five years. MC Solar will sell the solar power to the homeowners at about 15 percent less than the local utility's rate per kWh. The installer, Common Energy, will take care of maintenance. Each homeowner will have a net metering agreement with the utility and sell excess solar power at the retail rate, currently about 6.5 cents per kWh.

INCENTIVES

Mosier Creek Solar LLC found three sources of business incentives for solar electric and hot water systems:
  • State tax credit -- 35% of system cost, no limit.
  • Federal solar investment tax credit* -- 30% of system cost, no limit.
  • Depreciation -- five-year accelerated.

* Passed in 2005 for 2006-07; could be extended by Congress for 10 years.

In addition, the Energy Trust of Oregon kicked in $35,000 (the per-project maximum) through two incentives:

  • $1 per watt of rated PV.
  • $0.30 to $0.40 per kilowatt hour of electricity saved, or $6 per therm of gas saved, for hot water.

Eventually, MC Solar may decide to sell the equipment to the homeowner for a fraction of the initial cost. If the homeowner opts to buy the equipment, they would then get the solar energy free; they would also directly benefit from any further incentives, such as green tags.

Erickson and his team, including Cascade Solar's Boleyn, Surround Architecture in Portland, and local LEED 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," claims Boleyn. "The utilities no longer have a monopoly on supplying power. Mosier Creek Solar is doing it, and at lower electric rates."

"What surprised me most was how smoothly the process went, after everyone was with the program," says Erickson. That didn't happen right away. "LEED should develop a simple residential handbook for contractors. They're the ones carrying out the program, and they go in kicking and screaming because of their fear of the unknown. But, by two months into the project, everyone was working together seamlessly."

"The utilities no longer have a monopoly on supplying power. Mosier Creek Solar is doing it, and at lower electric rates."
-- Doug Boleyn, Cascade Solar Consulting.

Mosier Creek Homes will open next month, and Erickson hopes it's the first of many projects of its kind.

"The perception of difficulty in high-performance housing development is false, in spite of the numerous forms all the 'green' agencies require," he says. "One good consultant is all that's needed."

Power Homes
What's on the roof?

Each town home at Mosier Creek Homes has its own 3 kW PV array, 56 square foot thermal solar collector, inverter and meter. Each array is expected to produce over 3,000 kWh per year. Mosier Creek Solar reads a dedicated solar meter once a year and bills the homeowner for the energy used. Each homeowner will have a contract with Mosier Creek Solar for the energy produced by their unit's discrete solar system. If the home doesn't use all of the solar electricity, the owner sells the excess to the local energy utility, PacifiCorp. The solar thermal energy to heat water is free to the homeowner, and will save roughly 2,500 kWh per year in water heating cost.

"The utilities were quite cooperative in setting everything up, including the net metering agreements," Boleyn says. "We checked Oregon utility law to make sure that we weren't considered a public utility and subject to regulation."

"The high-performance home has distinct marketing advantages that protect the developer in a down market cycle," says Erickson. "The public is very concerned about the rising costs of utilities. If a prospective buyer can find a home that is LEED-H certified and produces 40 percent of its energy needs, then it's an easy decision. I wouldn't have engaged in the process if it didn't pencil for us or the home buyer."

Erickson believes that LEED should be part of the building code, and that policymakers should offer incentives to developers:

"A LEED home saves the energy infrastructure 30 percent over the standard home. Quantify the savings and share them with the party taking the risks -- the developer."

Related article:
"Guide to On-Site Renewable Energy Incentives in the Energy Policy Act"
Related EnergyBlog:
"Energy Bill: What's In It for You"

Comments

Does Minnesota have a simular program?

I always believed that Bellevue would glimmer in the NW Solar Industry. Solar is completely in the face of this new modern city and the vision of the east awakening is all but the truth soon told. Nice presentation. Intelligent goal. Where do I sign up?

Do you have any information you can point me to about how the ownership was structured for Mosier Creek and how the incentives apply?

Solar incentives are explained more in the article about Mosier in Home Power magazine, October 2007.

Start here:

http://energypriorities.com/entries/2007/09/mosier_creek_solar.php

Beyond that, you'll need a tax accountant or tax attorney who knows renewable energy incentives.

when will it be available in wv.