Nonprofits face unique challenges when it comes to scaling solar energy. For one, 501(c)3 organizations like homeowners or businesses cannot take advantage of the investment tax credit.
Solarize campaigns, also known as solar aggregation programs, help reduce the upfront costs of solar by allowing local governments and nonprofits to purchase a large number of installations together at discounted rates.
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Table of Contents
Tax Credits
Nonprofits are usually working with tight budgets, and the upfront costs of solar may make it seem unaffordable. But several financing options can reduce or eliminate these initial expenses and help nonprofits go solar and save money. These options include power purchase agreements (PPA), property-assessed clean energy programs (PACE), and third-party ownership.
In addition to making solar more affordable, these solar financing options enable nonprofits to access a number of federal and state incentives that can further lower the cost of going solar. These incentives can include tax credits, rebates, and discounts on equipment, installation, operational expenses, etc.
A common barrier to scaling solar for low-income and communities of color is obtaining the necessary financing to get started. The current solar development and financial system works well for large, utility-scale projects, homeowners with good credit, and groups who can pay upfront cash. But it doesn’t work for many other stakeholders, including non-profits, who face higher transaction costs, real or perceived credit risk, limited technical knowledge, and inadequate sites.
To address these issues, the U.S. Department of Energy’s National Renewable Laboratory recently launched a new funding initiative focused on helping community-led organizations overcome barriers to equitable adoption of solar. One of the three recipients of the grant is RE-volv, a non-profit that partners with houses of worship to facilitate their solar energy initiatives. Other local partners that have received support from the grant include Interfaith Power & Light and Green The Church.
Additionally, the federal Investment Tax Credit has been made refundable for nonprofits. This will allow nonprofits to monetize the credit directly and use it toward the cost of installing a system. The refundable credit can also be used for storage and other technology that increases the capacity of the solar energy system.
Another key to lowering the cost of solar is the availability of long-term, flexible debt that does not require collateralization by real estate. One resource that enables this type of financing is Pathway Lending, which offers loans specifically for Energy Efficiency & Renewable Energy.
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Loans
Nonprofits exist to help people and the environment, but the day-to-day costs of running these organizations can sometimes be a drain on budgets. Switching to solar energy can give these organizations more financial breathing room to fulfill their missions while reducing their electricity rates and corresponding emissions.
For nonprofits looking to make the switch, several financing options are available. One option is to work with a solar development company, like CollectiveSun, that will provide a prepaid power purchase agreement (PPA), which locks in energy prices at a discounted rate for the first six years of the PPA. By doing so, CollectiveSun can take advantage of the investment tax credit and pass half of those savings on to the nonprofit organization.
The other financing option is for a nonprofit to secure a loan from a bank or another financial institution, which they would then use to pay for their system over time. This is a great option for those who want to own their system and benefit from the investment tax credit but don’t have the upfront capital needed.
Other financing options include property-assessed clean energy (PACE), a financing program that allows local governments to lend money for solar systems that are repaid through a county assessment of the property over the system’s life. Another popular option is crowdlending, which involves a third-party platform that pools small donations to fund large projects, such as a solar installation for a community center or church.
Another key reason why nonprofits need to access these financing options is that they offer a way for the nonprofit to get the benefits of solar without putting up any upfront capital. These financing options can also be used to create new sources of revenue that align with a nonprofit’s mission and values.
Besides the financial benefits of going solar, it can also positively impact the image and visibility of a nonprofit organization. Being seen as an environmentally conscious business can help them gain more donors and volunteers and increase the value of their properties.
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PPAs
Nonprofits, like schools and places of worship, are increasingly installing solar panels and battery storage to increase their resilience and bolster their energy efficiency. However, a wrinkle in the law continues to make it difficult for nonprofits to leverage available tax credits and rebates. Because they are 501(c)3 organizations, they cannot directly benefit from the Investment Tax Credit (ITC) that incentivizes homeowners and businesspeople to invest in renewables. This has limited the scale of solar energy for these organizations.
To overcome this limitation, nonprofits can utilize PPAs. PPAs are contracts that give a buyer the right to purchase a certain amount of energy from a renewable generation project for a fixed price and length of time. This provides a financial hedge against rising electricity prices.
For a buyer, it allows them to diversify their electricity portfolio and avoid a large, potentially risky upfront capital expenditure. A PPA can be structured in a variety of ways. For example, one option is a fixed-escalator plan that increases the cost of the power purchased over time, which can save customers money if utility prices are projected to rise in the future.
Similarly, a fixed-price PPA locks in the power price for a set period, giving businesses hedging against volatile electricity prices that can threaten their viability. The ability to lock in a long-term price for electricity is particularly valuable for businesses tied to their operations’ location.
These kinds of energy contracts have become more popular as government subsidies have diminished. They offer a way for lenders and investors to secure income from a renewable project by proving that the project has a committed buyer for its energy at a fixed price for an agreed-upon term.
In the absence of subsidies, lenders and investors must have a new way to secure income from renewable projects. The PPA model offers a new form of income for investments in renewables and helps create stability for businesses that rely on a steady supply of clean energy.
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Asset-Based Financing
An asset-based loan is any financing secured by the value of a company’s own assets, such as accounts receivable, inventory, and machinery. A key feature of these loans is that they are often used to cover short-term funding gaps, such as payroll and raw material purchases. However, they can also be used to help a company grow by providing working capital that would otherwise be unavailable.
Because the company’s own assets secure asset-based loans, they are generally less risky than unsecured debt. As a result, they often carry lower interest rates than traditional loans. They can be used to provide working capital for a variety of purposes, from acquiring new equipment to covering the costs of a large expansion or even buying another company.
The key to maximizing an asset-based loan’s benefits is choosing the right lender. Many financial institutions specialize in this type of financing and can offer customized solutions that meet the unique needs of a business. When choosing a lender, it is important to understand the terms and conditions, including the amount of leverage that can be obtained and whether any restrictions or covenants must be met.
In addition to working with a lender specializing in asset-based financing, companies should invest time and effort in building internal expertise and systems that will make it easier for them to manage their credit facility effectively. This will ensure that they remain in compliance with the loan’s terms and conditions and avoid falling behind on their debt capital or covenant requirements, which can lead to reduced (or blocked) access to credit.
While nonprofits need to have access to capital, it is also important to find ways to minimize costs and maximize the impact of their investments. Solar power is an excellent way to do this, and a number of organizations are making impressive strides in the sector. The Binghamton Regional Sustainability Coalition is launching six community and shared solar projects to serve low-income households in New York, while Black Rock Solar is developing 1 MW of PV for rural communities, Native American tribes, schools, and low-income housing in Nevada.
