How Cities Can Scale Onsite Photo voltaic with New Federal Incentives

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San Antonio, Texas, will quickly be one of many first main US cities to leverage the brand new “direct pay” mechanism to construct one of many largest on-site photo voltaic initiatives for native governments.

Final 12 months, San Antonio set a brand new report of 75 days at or above 100°F. An progressive photo voltaic undertaking accredited by the Metropolis in November is not going to solely present an answer for beating the warmth within the type of shaded photo voltaic canopies on parking heaps, but additionally highlights how cities of all styles and sizes can harness a brand new federal mechanism to cost-effectively spend money on extra clear vitality.

The Metropolis of San Antonio has made historical past by approving a serious deal with native photo voltaic developer Huge Solar Photo voltaic to place an estimated 13 megawatts (MW) of photo voltaic on 42 city-owned services and parking heaps. Most importantly, these initiatives will offset about 11 % of the electrical energy consumption for Metropolis operations, accruing a web financial savings of $7–$11 million over the 25-year lifetime of the panels. These advantages and extra present that clear vitality just isn’t solely good for lowering air pollution, however may also end in more healthy, safer, and extra financially resilient cities.

An Progressive Take care of Recreation-Altering New Incentives

Not solely is that this one of many largest multi-site on-site photo voltaic offers within the nation, however San Antonio may also be one of many first cities to reap the benefits of the direct pay mechanism (additionally known as Elective Pay) made attainable by the Inflation Discount Act (IRA). Direct pay permits cities like San Antonio and different tax-exempt entities to reap the benefits of tax credit to cut back upfront undertaking prices, one thing that was not attainable earlier than the IRA handed in August 2022.

In 2019, San Antonio adopted its SA Local weather Prepared plan with objectives of net-zero vitality for municipal buildings by 2040 and carbon neutrality by 2050. Previous to the IRA, the Metropolis was exploring sophisticated third-party constructions as a result of it couldn’t buy the photo voltaic panels and declare the clear vitality tax credit as a tax-exempt entity. Nevertheless, direct pay opened up a brand new pathway of funding for initiatives like this, permitting the Metropolis to personal these photo voltaic initiatives, quite than contract with a 3rd occasion. This finally allows the Metropolis to seize extra of the monetary advantages of the undertaking whereas assembly its local weather and vitality objectives.

4 Classes for Cities Trying to Study from San Antonio

1. Make small initiatives into an even bigger deal: First, the great thing about this photo voltaic deal is that it is going to be made up of a number of small initiatives, unfold out throughout the town and in a number of districts. Quite than one giant photo voltaic farm on a area, this distributed method demonstrates how renewable vitality can productively use already developed rooftops and parking heaps — all whereas capturing higher economies of scale with a much more streamlined procurement than pursuing websites one-by-one.
2. Fastidiously think about which necessities are related: Having a number of smaller websites provides San Antonio one other benefit: as a result of the initiatives are all individually underneath 1 MW, they’re not required to fulfill new home content material necessities to obtain the total Funding Tax Credit score. As well as, among the metropolis’s services will be capable of reap the benefits of tax credit score bonuses — extra credit initiatives can obtain for being positioned in a qualifying vitality group or low-income group. General, IRA tax credit are anticipated to cowl 30–40 % of the upfront price.
3. Thoughts the hole (and plan for it): Cities contemplating utilizing direct pay to seize IRA tax credit ought to anticipate that the “refund” equal to the tax credit could not arrive for greater than a 12 months after the undertaking is positioned in service. On this manner, direct pay capabilities extra like a reimbursable grant — the place the preliminary prices are nonetheless paid by the town. Accordingly, cities ought to be certain that they will finance all of the upfront capital prices initially, even when they pay again a considerable portion of that debt upon receiving the direct pay credit score. Just like how San Antonio funds different infrastructure initiatives, the town is financing the capital prices with a mix of taxable bonds and a low-interest mortgage particularly for vitality saving initiatives from the Texas State Power Conservation Workplace.
4. Enable for strategic flexibility in procurement: Specifically, cities and different native governments could think about issuing requests for proposals, like San Antonio did, that permit for flexibility within the variety of websites and contract sort. Whereas this could add extra complexity upfront to the procurement course of, this method could end in more cost effective proposals and additional perception into the monetary affect direct pay. As an illustration, in San Antonio’s case, permitting builders to suggest a number of eventualities allowed the Metropolis to guage the economics of including photo voltaic at totally different services and whether or not it might favor to straight personal the photo voltaic services or leverage a third-party mannequin (i.e., an influence buy settlement or lease). To constantly examine throughout a variety of monetary constructions, the Metropolis assessed the web current worth of every proposal’s prices and advantages. This helped San Antonio determine which undertaking would end in the very best worth over 25 years, not simply the bottom price upfront.

Charting Uncharted Territory

Regardless of the justifiable enthusiasm for the clear vitality tax credit and direct pay, they’re nonetheless uncharted territory. Whereas it’s a game-changing mechanism, direct pay isn’t any panacea. For initiatives higher than 1 MW in capability, home content material might be required to seize the tax credit score after 2025. And the foundations of your vitality market could affect how one can purchase or promote electrical energy.

Early examples like San Antonio’s 13 MW deal can spotlight how native governments and different tax-exempt organizations can pragmatically issue the IRA straight into its planning, procurement, and analysis. And such progressive native photo voltaic offers tangibly reveal how transformative federal clear vitality incentives might be in each day life and encourage extra initiatives in San Antonio, in Texas, and throughout the US.

High picture: Photo voltaic canopies put in at Delicacies Options in San Antonio by Huge Solar Photo voltaic, the corporate contracted by the Metropolis to deploy photo voltaic at 42 metropolis services. Picture courtesy of Huge Solar Photo voltaic, 2023.

Initially revealed on RMI. By Jackie Lombardi, Hannah Perkins, Matthew Popkin