Like a physician with her stethoscope at the outset of a check-up, astute shareholders and directors should use the level and trend of a utility’s market-to-book ratio (MtB) as one of the first...
An emerging model for green power.
developer under a number of evaluation criteria, including lowest PPA price charged to the local governments, ability to perform, financial strength, and the degree of security offered back to the MCIA and the county under the program.
Note that the solar developer isn’t required to finance these solar projects. The MCIA issues bonds in an amount set forth by the solar developer in its winning proposal to finance the renewable energy projects, along with any incidental capital improvements ( i.e., cost to maintain or extend roofing warranties and electrical upgrades that might be needed). By issuing the bonds, the MCIA owns the solar panels for New Jersey law purposes, but structures a lease purchase agreement whereby the benefits and burdens of ownership are passed on to the winning solar developer with the intent that the lessee solar developer qualifies as the owner for federal tax purposes. If the lease purchase agreement is structured properly, the solar developer, as lessee of the panels for state law, but as owner of the system for federal tax purposes, is entitled to take the 30-percent investment tax credit and advanced depreciation. The license and access agreement, along with the lease purchase agreement, also provide that the solar developer receives all SRECs generated by the program.
In return, the solar developer will make lease payments under the lease purchase agreement in an amount sufficient to amortize the MCIA’s bond issue. The MCIA bonds carry a low cost of capital because they are guaranteed by the county, which in this case is a AAA rated local government. Along with the lease purchase agreement, the solar developer enters into a PPA with the MCIA, setting forth the PPA price or prices applied to the electricity MCIA sells to the participating local governments under the license and access agreements. Should the solar developer walk away before the end of the transaction—state law permits a 15-year deal—the MCIA, as the direct party to the license and access agreements, receives what the solar developer was previously entitled to ( i.e., the PPA price and the SRECs). Note again, that governments can’t receive any federal tax benefits. Consequently, solar developers also are required to put up some sort of security to cover the deficiency between the residual value to the MCIA in such a potential walk-away situation, and the county guaranty, so the county recovers, to the fullest extent possible, any draw on its guaranty.
To the extent all parties perform, the MCIA raises the funds for the solar project, drawn down by the solar developer to design, construct and install the project within the allotted construction period ( i.e., approximately one year in the MCIA pilot program, with the queue of projects on the 19 buildings left up to the winning solar developer). Once the solar project is installed and operational, the solar developer is entitled to the federal tax benefits, and to sell the energy produced from the solar panels through the MCIA to the participating local governments at the PPA price, paid monthly. The solar developer also