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First Report on Multifamily Solar with Storage Shows Positive ROI

Until this year, no research had been published about how multifamily building owners across the United States can profitably install solar power and energy storage to make it possible for senior citizens and low-income apartment residents to survive extreme weather.

Now, a new study from Clean Energy Group, “Resilience for Free: How Solar+Storage Could Protect Multifamily Affordable Housing from Power Outages at Little or No Net Cost,” has revealed that these installations are promising candidates for investment in three major cities: Chicago, Washington, and New York City. [[{"type":"media","view_mode":"media_large","fid":"2118","field_deltas":{},"attributes":{"alt":"Chicago","height":"300","width":"450","style":"float:right","class":"media-image alignright size-medium wp-image-17914 media-element file-media-large","data-delta":"1"},"fields":{}}]]

The extent to which this study is breaking entirely new ground has not been emphasized by the news media. Large-scale investment in solar-plus-storage projects for this market has not taken place in the United States yet. Research organizations have not generally prioritized examining the ROI for these projects so far.

It appears that there is a massive potential for investor involvement and further research in this arena.

“I don’t know of any states that have targeted low-income communities in particular for solar plus storage,” said Rob Sanders, senior finance director at Clean Energy Group. Solar-plus-storage programs, which would combine photovoltaic panels with batteries, have not been set up with a focus on low-income communities yet in the United States.

So far, the state that has been most forward-thinking in setting up related programs is California, Sanders said. The existing program there that most closely matches this concept is the Multifamily Affordable Solar Housing program. The New York Green Bank also announced a low-income solar program this week.

Survival during Blackouts

Providing resilient power for people who have financial and health difficulties isn’t just a solid investment – it also can be a matter of life and death. It is also important for legal reasons. A lawsuit took place in New York City after people with disabilities were unable to leave their apartments during Hurricane Sandy.

“I know that people who are wheelchair-bound will not be able to get out of buildings without elevators or get downstairs without power,” Sanders said. “The elderly who are living in assisted-care facilities will also need to have reliable power.”

Reliable electricity is also necessary to keep refrigerated medications at an appropriate temperature, Sanders said.

According to the report, multifamily affordable-housing owners usually size resilient-power systems to cover critical energy loads for a certain period of time. They do not expect them to supply 100 percent of the power that the grid ordinarily provides.

These energy loads can include cell phone charging stations, water booster pumps, elevators, other mobility and accessibility devices, security cameras, common-area lighting, telecommunications equipment, and computers. They can also include air conditioning for rooms where people can take refuge during hot weather.

According to an article Clean Energy Finance Forum published last spring, lower-income apartment residents often attempt to shelter in place during weather emergencies rather than leaving their homes. So providing resilient power for these apartments makes sense.

Investment across Cities

These solar-plus-storage projects also make sense from an investment perspective. This cost justification was the focus of Clean Energy Group’s research.

“We’re only going to see more-economic systems going forward,” Sanders said. “This is the most expensive it will ever be.”

In all three cities the report examines, the financial models showed the investment would be productive.

In New York City, where there are many obstacles that limit profitability, the project payback time for a solar-plus-storage system with a lead-acid battery was 14.2 years.

In Chicago, where the financial and regulatory environment is more favorable, the project payback times for two alternative systems with solar power and lithium-ion batteries were 11.8 years and 6.2 years.

And in Washington, which has a very supportive environment for solar power, the payback time for a solar and lithium-ion combined system was only 3.5 years.

Variations among Regions

Cities located within the PJM Interconnection Territory, such as Chicago and Washington, can take advantage of the regional grid frequency regulation market to generate profits for developers. Developers can take this opportunity into account when they size their batteries.

Washington has a strong solar mandate that provides valuable solar renewable energy credits to projects like these. Other cities with similar policies will find that project developers can leverage this capital and perhaps increase the sizes of the systems they install.

There are some cities where markets are not set up to effectively support projects like these. In New York City, regional frequency regulation markets and wholesale electricity markets are not structured so that developers can economically benefit from these markets. This is due to the design of the New York ISO frequency regulation market, which has a 1-megawatt capacity threshold for participation, the report said.

Also, in New York, fast-response frequency regulation resources are not structured to allow advanced energy storage systems to compete with natural gas and hydropower.

New York City does not have incentive programs that support resilient solar power projects that include storage, the report said.

Some fire-safety regulations and permitting requirements about battery storage in New York City discourage developers from using lithium-ion batteries and other advanced energy-storage systems. These regulations are currently under review.

Opportunities in Other Metro Areas

What about other cities in the United States – like Baltimore or Detroit?

“We have not studied them,” Sanders said. “I don’t want to say anything definitive.” The financial landscape looks different from state to state, so each project should be evaluated individually. Some states have a “well-designed wholesale electricity market that rewards fast grid-response services like frequency regulation.”

Profits from projects will look different depending on whether the buildings are located within the PJM territory. This territory covers Pennsylvania, Virginia, Kentucky, Indiana, New Jersey, Ohio, Michigan, Delaware, Illinois, Maryland, North Carolina, West Virginia, Tennessee, and the District of Columbia.

Within this territory, Sanders said, owners of solar-plus-storage systems will get paid for the frequency regulation their installations provide to the grid. “That’s why the economics are so good in Chicago and Washington.”

Outside of PJM, affordable housing owners can look at how these projects will alter demand charges on their utility bills to see what benefits they will receive, Sanders said. Municipal or state solar incentives may be available. Some states, such as California, may have additional incentive programs.

Market Growth through Policy and Regulation

Most states do not have well-aligned incentives to support this market for solar power and energy storage, Sanders said.

The report said states should set budgets for incentives for solar projects that include energy storage and prioritize low-income neighborhoods.

States should set capacity-based incentives that are sufficient to encourage project development. These incentives can decrease as markets mature, the authors said.

In general, the report said, regulators should allow systems to discharge at any time. Time requirements for discharge should be based on the average peak duration for each building.

Federal policies also play an important role in making projects viable.

“Any support at the federal level would be most welcome,” Sanders said. “Some continued federal policy on the investment tax credit would be helpful over a five-year period.”

The report said that the Obama administration should follow through on proposed carbon pollution reduction requirements for new power plants, existing power plants, and oil refineries.

Improving infrastructure resilience is also valuable. The authors said reauthorizing the National Dam Safety Program and improving dams and levees would reduce public health risks. Flood insurance for middle-to-low-income homeowners could also improve communities’ financial stability.

The report also said several measures to support lower-income communities could be valuable. These included continuing support for the Supplemental Nutrition Assistance Program and funding the Low Income Home Energy Assistance Program at a level of $5 billion per year.

The report recommended that policymakers consider strengthening the Pre-Disaster Mitigation Program fund, which serves local communities that may experience weather emergencies.

Scoping Studies under Development

Clean Energy Group is attempting to kick-start the innovation process by offering a limited amount of funding for technical analyses of individual projects.

“We’re working with around a dozen projects in New York, Chicago, Massachusetts and Newark,” Sanders said. “We’re trying to find project developers. We’re trying to find early adopters and help them come to a decision.”

The technical analyses usually cover critical loads, incentives and revenues, Sanders said. “It’s to spec and size a system and then to see how it might be paid for from its operation.”

The initial funding is from foundation grants. “It’s not a lot of money,” Sanders said. “We hope to expand it in the next year.”

Criteria for the Analysis

According to the report, the financial model focused on multifamily and senior housing complexes with multiple floors and 100 to 300 apartments.

The researchers assumed that the solar power and the energy storage were both installed at the same time with no other onsite power sources. They also assumed that inverters would be replaced at year 10, lithium-ion batteries would be replaced at year 10, and lead-acid batteries would be replaced at year seven.

The analysis took the 30-percent investment tax credit into account. Projects involving adding batteries to existing solar installations are not able to take advantage of this credit.

The model incorporated the modified accelerated cost recovery system to allow capital depreciation deductions.

The cost model covered warranties, insurance, management software, system removal, and system maintenance. The revenue and savings were based on utility bill savings estimates. These savings stemmed from offsetting grid electricity with solar energy combined with managing peak demand costs. Frequency regulation markets and solar renewable energy certificates also contributed to the profits.

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