Small-Scale Solar Comes to Light with Unique Financing

MP2 Capital is a San Francisco firm that develops, finances and invests in distributed generation and small-scale utility solar projects throughout North America, selling the electricity produced by its projects to commercial, government and utility customers under power purchase agreements and feed-in tariffs.

Its latest project is a 445-kilowatt solar photovoltaic array in Winsted, Connecticut. MP2 Capital has entered into a power purchase agreement to sell all of the electricity generated to the Regional School District No. 7 for 20 years under a grant from the Connecticut Clean Energy Fund.

The system, which sits atop multiple rooftops of the school district, was built by groSolar and is composed of 1,937 photovoltaic panels from Canadian Solar. It is expected to produce approximately 492,000 kilowatt hours of clean solar electricity and save the school district $26,000 in energy costs during the first year of operation. Over the term of the agreement, the system is expected to produce approximately 9,380,000 kilowatt-hours to offset the school’s energy use.

Brad Bauer, co-founder and managing director of MP2  Capital, talked with CleanTechies about the project.CleanTechies:  Is a backup system still required?

Brad Bauer: The school remains connected to Connecticut Light & Power (the local utility) service. Should the solar array not produce energy for whatever reason (e.g., weather, system malfunction, nightfall, etc.) the school simply purchases kilowatt hours from the local utility.

CleanTechies: Is there any out-of-pocket cost to the school system?

Bauer:  No, the school district incurs no up-front or ongoing expenses related to construction or operation of the solar array.  MP2 bears the cost of construction and operation in exchange for the district’s agreement to purchase the output of the system under the terms of a long-term power purchase agreement.

In this instance, because of a generous grant from the Connecticut Clean Energy Fund and MP2 Capital’s ability to fully monetize the available federal tax incentives, the District was able to achieve significant cost savings in the first year, an estimated $26,000 in savings, which it expects to multiply over time.

CleanTechies:  What are the opportunities and limitations for these types of solar power projects?

Bauer:   Power purchase agreements (PPAs) are efficient and economical ways for commercial and government entities to produce and consume renewable energy without incurring the up-front and ongoing expenses otherwise associated with a distributed generation renewable energy project.

When structured correctly – which requires full monetization of the available federal tax benefits, state and local incentives – a power purchase agreement will oftentimes allow a host customer to purchase electricity at a lower effective rate per kWh than if they had purchased the same kilowatt hours from the local utility or purchased the generating asset themselves.

Principal limitations on distributed generation solar power purchase agreement projects run from:

• economic (constantly evolving state/local incentive landscape, undercapitalization of the downstream market and scarcity of legitimate PPA providers with access to capital);
• to regulatory (need fair, low cost interconnection rules and net metering rules that allow some scale and do not discriminate against on-site power);
• to utility pricing practices (need to decouple utility profits from kWh sales in order to address the business disincentive that many utilities face when customers install distributed generation systems and need to have utility pricing reflect the on peak value of solar power).

CleanTechies:  Where are the other projects going on similar to this?

Bauer:  We sell electricity to customers a wide variety of customers from coast-to-coast – including WGBH Educational Foundation Trust in Boston, Massachusetts; Newington Public Schools in Newington, Connecticut; Denver International Airport (Denver, CO) and Santa Cruz City Schools (Santa Cruz, CA).  We recently started construction of solar arrays on 18 schools in the Denver Public School District (Denver, CO) with Namaste and Oak Leaf Energy Partners; are nearing completion on a project at a wastewater treatment plant in northern California; and are slated to begin construction on a small scale utility solar project where we will sell electricity and solar renewable energy credits to Progress Energy Carolinas (Charlotte, North Carolina) under a long-term power purchase agreement.

While a different sort of market, we are also quite active in the Ontario, Canada Feed-in-Tariff market where we are acquiring rooftops, building solar arrays and selling electricity to the Ontario Power Authority under long term power purchase contracts.

CleanTechies:  What qualifies a school or business for this type of agreement?

Bauer:  At some level, anyone with a utility meter qualifies for a distributed generation power purchase agreement.  That said, there are practical limitations in that the customer location needs to have attractive incentives:

• the customer’s kWh needs need to be sufficient to absorb embedded transaction costs;
• the customer needs to have adequate space to site the generating asset; the customer needs to be willing to make a long-term commitment to purchase power generated on-site; and maybe most importantly in today’s market,
• the customer’s credit needs to be strong enough to support an investor making a capital commitment based in no small part on their agreement to buy power from the generating asset over a long period of time.