"Equity Flip" for Alternative Energy on Campus
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Have any educational institutions used the “equity flip” to provide and ultimately own alternative energy generation systems?
The “equity flip” is a methodology whereby tax equity partners - people or corporations with a hearty tax appetite provide capital for an alternative energy system which is later purchased by the institution at an extremely low cost. It has been previously done by public utilities, who like public institutions cannot receive tax rebates or incentives. I am looking for successful “equity flip” models from institutions of higher education.
A typical photovoltaic project would look something like this. A university provides 1% of the cost of the system usually in land or rooftops. The tax equity partner (TEP) provides 99% of the financing for the project. The first year the TEP receives 30% federal tax rebate (either the Production Tax Credit or the Incentive Tax Credit). For the next five years the TEP can take and write off accelerated depreciation on the system-20% per year. If there are state or local incentives or increased value for the sale of electricity, the TEP receives that as well. The TEP can also sell, trade or own the Renewable Energy Certificates. The TEP can also enter into a Preferred Power Agreement to sell electricity to the institution.
After six years, when the tax breaks and incentives have provided an appropriate return on investment, the equity flips and the TEP now owns 5% and the institution owns 95%. At this point the institution can buy out the TEP for 5% of the market rate of the project, taking over and utilizing the energy for the remaining life of the system.
JR Fulton, RA, LEED AP
HFS Capital Planning & Sustainability Manager
University of Washington
(206) 221-7468
Thanks for taking the time to write up your experience, Carol. That is a great case study that I'm sure will be helpful to a lot of people!
-Sam
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Sam Hummel
Database Administrator
AASHE
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At CSU we did a third party site lease/PPA deal with a company called Fotowatio Renewable Ventures (out of San Francisco, CA). It is a 2,000 kW, 15 acre plant. FRV owns and operates the plant for 20 years. There is an early buy out option after they have realized all the tax credits and accelerated depreciation (at 10 years I think). At the end of 20 years we can either purchase the system for the "fair market value" or have them remove it at no cost to us.
We just came on line in Dec09, so don't have a lot of data yet. However, early data shows performance even better than we expected. The system made a dramatic decrease in our peak demand at that site (from 4,000 kW to 3,300kW in Jan) which made the economics even better than we expected. We anticipated the costs to be close to break even or even a little higher at first, but since we locked into a rate with a very small escaltor, we anticipated saving over $2 million over the 20 year contract. If these early results hold, we will save a lot more than that.
Note that the local utility rebates play a huge part in these efforts. Colorado has a Renewable Energy Standard (the first one passed by voter initiative) which "motivates / mandates" the utility into purchasing solar. They get the RECs, but also pay 2/3 of the kWh cost from the plant. The RECs will revert to us at the 20 year buyout.
I won't pretend this was easy. From the first seed of an idea to power production was a three year process. There is a lawyer here at the university who gets most of the credit for the long contract negotiations. In the end it is a great deal for the university. We get to "lock in" our electric costs on the power produced from the plant for 20 years, we have zero risk on production (we only pay for what they produce) and we did it all with no capital outlay.