Behind-the-meter energy threatens the utility business model. Does history offer a lesson for crafting a response?
An emerging model for green power.
Certain New Jersey counties have undertaken a regional, public-private partnership approach to developing renewable energy projects for local government buildings. Local governments generally include municipalities, school districts, counties, and municipal or county or other regional sewerage or water utilities, depending on applicable state law. The regional renewable energy pilot program for Morris County, New Jersey is nearing its implementation phase, with proposals having been submitted by the end of November 2009, while several other New Jersey counties are actively pursuing similar endeavors ( e.g., Passaic, Somerset and Union), and it is possible that the program could expand state-wide. It is also conceivable that, under certain circumstances, the program could be modeled in other states. This form of county regional hybrid program presents significant opportunities for the electric utility industry.
Local governments desiring to finance renewable energy projects, for example the installation of a roof-mounted solar array and inverter system to supply a portion of the electricity for a government building, have in the past in New Jersey utilized one of two primary transaction structures, the local government-owned option and the turnkey solar developer-owned option. These financing structures are utilized in other parts of the United States.
In the local government-owned approach, governments that want to own the system, and to retain all the benefits of ownership other than the federal tax benefits outlined below, have issued debt, typically repaid over the useful life of the project. This adds to the debt burden of local government, and usually requires some sort of procurement process to design, acquire or install the solar project. Financing, under this approach, can be obtained at tax-exempt rates, and the local government can earn solar renewable energy certificates (SRECs). These credits in turn can be sold to utilities for their use in satisfying renewable energy portfolio standard (RPS) requirements imposed by the New Jersey Board of Public Utilities.The sale of SRECs lowers the overall cost of the solar system project.
In the turnkey solar developer-owned approach, local governments lacking knowledge or experience with developing a solar project, may engage a turnkey, private developer to build and own the project. Under this scenario, the solar developer gains access to the roof of the local government building through a license and access agreement. The solar developer further agrees to design, finance, install, operate and maintain a solar system on the roof, and then sells the renewable energy back to the local government through a power purchase agreement (PPA) at an agreed-upon price, or set of prices, including an escalator for pricing over time, to the extent local law permits the private solar developer to enter into a multi-year contract with the local government.
Using this approach, the local government incurs no added debt burden, and would enter into this transaction only to the extent the PPA price is lower than that otherwise paid under the tariff