United States Wants Local Banks to Invest in Community-Shared Solar

The United States Department of Energy (DOE) announced this July that it plans to host an event to bring together local bankers and regulators to discuss expanding community-shared solar nationally.

With only a few months remaining in 2016, the federal administration is taking small actions that may last long after President Obama leaves office.

Elaine Ulrich, program manager at the DOE, said she believes community-shared solar is worth supporting. The government and local banks can play important roles.

“Our goal is for a community solar project to be as easy as a car,” Ulrich said. “You should be able to go to any bank, not just the one that figured it out.”

The Potential of Community-Shared Solar

National Renewable Energy Laboratory defines community-shared solar as a “system that provides power or financial benefit to multiple community members.”

Community-shared solar spreads the benefits of clean electricity to lower-income United States citizens. It can also drive economic growth.

A federal study shows that less than 25 percent of the combined residential rooftop area is eligible for onsite solar systems. Community-shared solar projects can expand that market.

Ulrich said one area that is prime for growth is the MUSH market. This market includes municipalities, universities, schools, and hospitals. Many MUSH customers lack financing options.

According to Ulrich, minor government activity can spur investment. In theory, a convening could encourage banks to make more cash available.

A Financing Challenge

Financing is the main barrier for community-shared solar, Ulrich said. Three underlying factors drive this lack of financing: complexity, size and misinformation.

The challenges of the MUSH market illustrate how these factors slow growth.

As nonprofit organizations, MUSH customers cannot use the investment tax credit without tax equity. But only a few banks offer this financing. Typically, these companies are unwilling to finance projects under $10 million. As a result, most MUSH projects are too small for investment.

According to Ulrich, local and regional banks are “very well-positioned” to provide a natural solution to this problem. The government’s challenge is to help them develop the expertise to lend comfortably. 

Ulrich said smaller banks are not there yet. “As soon as you start talking about tax equity and power-purchase agreements, bankers get glazed looks and decide the projects are too risky.”

The Federal Plan

The administration wants to commoditize community-shared solar financing. If more banks offer financing, their financial products will become more efficient and competitive. Loans will become less expensive. 

Ulrich said she hopes a convening can advance this agenda. It could educate local banks about the risks of community-shared solar, signal regulator support for community solar, and raise awareness of incentives.

Banks make loans after evaluating risks, so information about these risks is important. According to Ulrich, local banks will finance community-shared solar projects if they understand the risks.

Ulrich said she hopes that local banks will learn enough at this event to start financing projects. Over time, banks will collect data on community-shared solar loans and improve their processes.

Local banks also consider how regulators will respond to new lending categories. Banks prefer lending for conventional projects rather than innovative ones.

The DOE will communicate during the event that financial regulators support community-shared solar.

Finally, Ulrich said she would like to see this event make local bankers more aware of incentive programs available for community-shared solar. Federal and state incentives exist, but most are underutilized.

Between property-assessed clean energy (PACE) funding programs, the $228 million Clean Energy Savings for All Initiative, and federal tax incentives, Ulrich believes local banks have reason to support community-shared solar projects.

According to Ulrich, disseminating information is an important DOE responsibility. This convening will teach banks about resources available for community-shared solar.

“As more capital becomes available, there is a learning curve,” Ulrich said. “Our job at the Department of Energy is to accelerate that learning curve.”

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