Solar Energy: Do Your Homework First

written by SitelogIQ , a PSBA Alliance Partner

Interest in solar projects has been exploding as new tax credits, grants and proposed funding incentives gain traction and receive media attention, garnering local, regional and national discussion.

To address this interest, the Inflation Reduction Act (IRA) of 2022 includes a direct pay provision allowing tax-exempt entities, such as schools, to benefit from clean energy tax credits. A Solar for Schools grant is receiving bipartisan support in Pennsylvania. These programs present opportunities for school districts to educate students, save money on energy bills and reduce carbon footprint.

The first step in the decision-making process is a school community discussion about “why solar?” Is the impetus to pursue solar driven by a desire to increase energy cost savings to improve financial stability, to go green to decrease the carbon footprint, to educate students about the benefits of renewable energy, or all three?

To make an informed solar decision, school districts should conduct a facility conditions assessment audit to examine its building(s) infrastructure and systems energy usage. By assessing the school's age, layout and location, the property footprint determines the solar suitability as a land or roof project. Teachers can use solar projects as a firsthand learning tool by leading students in exploring STEAM, energy, climate, and sustainability subject matter, or develop a renewable energy career pathway.

To determine the solar energy-saving potential a solar project can offer your school, three steps need to occur. First, measure the school’s energy consumption and costs over a 1- to 3-year period by reviewing past utility bills. Second, use the energy-saving assessment to estimate the solar project size. Third, use the size estimate to determine estimated project costs.

An evaluation should be performed for each of the assumptions used in the cash flow projections. Determine the reasonableness of annual increases to energy rates (aligned with trend), borrowing rates (historic bond rates, issuer credit rating, issuance costs), and the value of SRECs (Solar Renewable Energy credits) and tax credits. The district should structure the debt to meet their needs for district-owned solar arrays. Potential funding sources could include school capital budgets, federal and provincial grants and incentives, and private donations from individuals or foundations.

In conclusion, a district should proceed with caution by doing their homework. The cost-benefit analysis is complex, potentially containing key assumptions that influence the projected success of the project. Predatory agreements may include language that creates a considerable risk for school districts and the likelihood of unforeseen, costly consequences. A comprehensive legal review, completed by an experienced and knowledgeable solicitor in renewable energy contract(s), is highly recommended.

Questions to consider about Power Purchase Agreements (PPAs) and Lease Agreements include:

• Are there provisions that allow for key assumptions in the financial projections to be altered (price per kilowatt hour, baseline consumption)
• Are there terms that give the contractor future decision-making authority (renovations, land improvements, etc.)?
• Is it a fair agreement that shares the risks and the rewards (SRECs, tax credits, site lease rent, district resources, excess energy generation)?
• What will happen at the end of the agreement (demolition, value of property)?

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