Community microgrids raise questions about the role of the utility franchise, versus the free market.
An emerging model for green power.
charged by the local utility. The solar developer can afford to design, finance, install, operate and maintain the solar system because it would receive the SRECs generated by the project, along with a 30-percent federal investment tax credit, accelerated depreciation, and the PPA price paid by the applicable local government.
New Jersey counties are finding that the turnkey approach tends to favor the party providing the financing, and therefore the savings off the retail tariff rate accrued to their local government constituents have been modest, notwithstanding the potentially high internal rate of return for the private developer.
County Regional Hybrid
In light of the possible downside of the first two options, Morris County has taken the lead—and other New Jersey counties are following—in developing a hybrid approach where the county would provide the financing through a bond issuance. A conduit county agency would issue bonds supported by the full faith and credit of the county, thereby significantly lowering the cost of capital for these projects. The solar project then would be using a turnkey approach, with one material difference: The financing being provided at the lower cost of capital would be obtained by government. Not only does this provide cheaper financing for the solar development community, increasingly including utilities, but it preserves their capacity to borrow from their private capital lending sources for other projects. While some electric utilities in New Jersey have developed their own solar program for local governments, there’s no reason why a parent or subsidiary entity couldn’t participate, as solar developer, in this hybrid program in order to both take advantage of the federal tax benefits, plus garner the SRECs required in order to meet New Jersey’s RPS requirements.
This hybrid approach requires each participating local government to provide roof access through a license and access agreement with the county improvement authority implementing the program. Improvement authorities are a creature of New Jersey law created by roughly half of the counties in the state with conduit bond-issuing authority, for among other purposes, to provide solar systems for local governments. Any other improvement authority can create the same hybrid program in the remaining counties, so the hybrid program has applicability state-wide. In the case of Morris County’s pilot program, the Morris County Improvement Authority (MCIA) will be entering into seven such license and access agreements, one with each participating local government. Under these agreements, the MCIA, or its assignee ( e.g., the solar developer), shall be allowed roof access to implement a solar program on the roofs of the participating local governments.
Under what is known as a competitive contracting process under state procurement law, the MCIA solicits proposals from the solar development community to design, acquire, construct, install, operate, and maintain solar systems for the designated local government buildings. Among other things, the proposals set forth the PPA price that would be charged by the prospective solar developer to the MCIA, which in turn passes on such cost directly to the participating local governments through the license and access agreements. MCIA then selects the solar