Guidance: State legislatures can unlock ongoing revenue streams to make these small-scale solar projects truly sustainable.
The federal government has seen a number of bipartisan victories to promote our country’s sustainable future, most recently with the passage of the Inflation Reduction Act (IRA). The IRA is a landmark piece of legislation to combat climate change. Together with the Infrastructure Investment and Jobs Act, this gives our country a once-in-a-lifetime opportunity to modernize our electricity grid, create a distributed energy future, and put money in the pockets of everyone who wants to participate.
There are two types of solar programs that play a critical role in achieving these goals. One is feed-in programs, where solar energy is sent to the grid and purchased by utilities. Then there’s community solar, which allows any customer to sign up to power their homes and buildings with renewable energy and lower their monthly utility bills without installing an on-site solar project.
These small-scale programs allow solar projects to be capitalized not only with investment tax credits administered by the IRS, but also with loans from financial institutions willing to lend against stable cash flow from utilities. The country must use multiple forms of debt, equity and subsidies to build a sustainable Distributed Energy Resources (DERS) industry for decades to come. As it stands, about half the country is left behind by state legislatures that have not directed Civil Service Commissions to open these programs.
Currently, 22 states — from South Carolina to Maine, California to Minnesota — have policies on the books that encourage the creation of feed-in or community solar projects. Rhode Island, in particular, has created a model worth exploring and replicating in the United States
My company in West Warwick, Fairstead, completed the installation of solar panels on the rooftops of Echo Valley, a 100-unit affordable housing complex, and entered Rhode Island’s Community Remote Distributed Generation (CRDG) program. It was the first affordable housing development in the state to participate.
Although this project was completed before the IRA, equity returns provided by our partner National Grid allowed us to finance this project through tax credits and the private debt market.
Residents participating in the program save 8-12% on their bills. This means the community saves money on utilities, freeing them up to spend on other needs like food, education and transportation. It also addresses a longstanding problem in America where solar projects and renewable energy benefits disproportionately favor wealthy communities.
The reason we can make this a reality is because Rhode Island requires utilities to pay for the clean energy we produce. This creates a sustainable model that incentivizes the creation of solar energy that can be supported by the private and financial sectors.
An IRA is the first step to start building solar projects. It offers a 30% tax credit for all solar installations, which is a great way to get people moving and cover the initial cost of installation. But this is a one-time loan.
Technologies evolve, costs increase, systems fail. If you develop your program, but years later the solar project needs significant maintenance and there’s no way to pay for it, the systems can be degraded or abandoned.
The real opportunity to use IRAs for solar generation exists in the model created by Rhode Island: Creating long-term statewide contracts for providers to sell electricity at fair prices, allowing banks to lend against it. This creates a steady stream of income to maintain the solar installations that will undoubtedly be sparked by the IRA.
This can also benefit individual homeowners. In many states, homeowners benefit from solar energy only to cover their personal energy use. But if a homeowner has the chance to generate passive income from additional solar power generation, many will take advantage of that opportunity. This will usher in a new era of solar projects.
This will require turning our one-way energy system – power plants to consumers – into a two-way street. Yes, infrastructure upgrades need to be planned accordingly, but it’s worth it. We cannot miss the opportunity to use the IRA to create a self-sustaining industry for clean energy. We can all have a stake in energy production, not just consumption.
Civil Service Commissions that have not yet established these programs and the legislatures that oversee them must recognize the benefits of these programs to create a thriving solar energy market and reduce our dependence on fossil fuels.
Given the urgency of the climate need and the magnitude of the challenge before us, this is an opportunity we simply cannot afford to miss.
Tyler McIntyre is the Managing Partner of Design and Construction at Fairstead, a national developer of affordable housing with a presence in 28 states.