Solar Energy for Community Associations – Funding

If you have volunteered for (or been assigned) the task of arranging for the installation of a solar alternative/renewable energy system for a California community association, you are a trailblazer.  That is because, with the exception of new construction and MASH (Multifamily Affordable Solar Housing) Program projects, I am not aware of any community association solar power installations having been completed in California to date.  If I have anything to do with it, however, there will soon be several under development. 

The first step a community association must take in order to obtain its own solar energy system is, of course, to determine how the purchase, installation, maintenance and monitoring of the system will be funded.  As discussed below, multi-unit residential communities which are community associations face particular issues when it comes to funding such a project.  I strongly believe, however, that we have reached a “tipping point” here in California at which these issues can be overcome. 

 The good news is that solar energy systems for multi-unit residential projects here in the United States have, indeed, been successfully funded.  For example, a 1,200 unit apartment co-op recently installed solar panels atop an older 20-story building in Manhattan, to become the largest multi-family residential solar array in New York City.  You can read about the project here.  With respect to funding the project, however, the story notes that the community, Kips Bay Towers, received financial incentives both in the form of a 50% rebate from the State of New York, and via tax credits, neither of which are available for non-profit community associations here in California. 

 Here in Southern California, our state’s first solar-powered apartment community was completed in 2007.  Solara is comprised of 56 fully solar-powered apartments.  As with Kips Bay Towers, however, funding for the project came from a variety of sources which are generally not available to community associations (again, unless they qualify as affordable housing).         

In contrast, Canada encourages all condos and co-ops (not just those qualifying as affordable housing) to install renewable energy projects via government incentives which include grants in addition to tax credits and rebates.  Federal and local government assistance to subsidize the cost of feasibility studies is also provided.  And, in general, Canadian government incentives in the form of rebates for installation costs to encourage alternative/renewable energy projects for industrial, commercial and institutional buildings (schools and hospitals) are made equally available to MURBs (multi-unit residential buildings).  Not so in the United States, unfortunately.  Here, neither the incentives offered to single family residential consumers nor those offered to commercial building owners are of any assistance to community associations, since they are all tax credit based.  In fact, the American Recovery and Reinvestment Act of 2009, which gives the Treasury Department the power to make grant payments in lieu of tax credits to persons and entities putting “specified energy properties” in place, specifically excludes tax exempt organizations from its purview (in fact, the involvement of a tax exempt entity as a partner eliminates eligibility for the payment).   

In addition, community associations in California face funding barriers in their own governing documents and by statute (the provisions of the Davis-Stirling Act).  A capital expenditure of the magnitude required for a community association to fund the installation of a solar system of sufficient size to be financially viable would require a special assessment, a loan, or both, and membership approval of both the installation of the solar system and the special assessment or loan.

There are funding alternatives to address all of the issues described above.  They are either a Power Purchase Agreement (PPA) or a lease.  With a PPA, a separate entity finances the installation of the solar system, maintains and operates it, and sells the electricity it generates to the property owner (in this case, the community association) at negotiated rates.  A lease is similar, but more suited to a smaller project, in which the association would lease the system from the third party system owner (the financing entity).  Under either funding model, membership approval would be required, because either would require a long term contract (15-25 years).  There would be relatively minimal up-front costs (a feasibility study and legal costs to negotiate the contract), and the long-term nature of the contract would provide a substantial benefit to the association and its members, stabilizing an operating cost which would otherwise be unpredictable, and fixing electricity costs by agreement as a hedge against rising utility tariff rates.  The incentive for the third party purchaser/owner of the system is the ability to take advantage of the tax incentives, including credits and accelerated depreciation allowances, which the association cannot make use of, and the certainty that, unlike the owner of a commercial building, barring a cataclysmic event the community association is guaranteed to continue to exist for the duration of the contract.  

Some single family residential solar installers are offering PPAs and leases to their customers.  That is not what I am talking about here, though.  (And that brings me to another, related, topic.  If you have been trying to find a residential solar installer for a common area energy system for your community association, stop.  A community association’s system is going to need the size, scope and sophistication of a commercial solar installer.  It is more likely that a solar installer with commercial project experience will be willing and able to participate in a PPA, as well.)  I am talking about a contract like the PPAs used to fund the installation and operation of solar power systems for large commercial and institutional (hospitals, schools) complexes.     

So, are there third party investors who are interested in funding solar power installations for community associations?  Until fairly recently I was not sure, so focused my attention on smaller commercial PPAs and took a wait and see attitude.  Every so often over the past year and a half or so I would revisit the issue to see if I could generate interest in funding for community associations, and there were some nibbles here and there.  Then, about a month ago, Governor Schwarzenegger signed AB 920, which requires utilities to roll over net metering credits or pay for excess power consumption, into law effective January 1, 2011, and the interest level increased a bit.  I have also heard through the grapevine that a national bank expects to announce its own funding program for community associations next Spring (I am told to expect the “launch date” to be in March 2010).  Based on all of this, I believe that now is the time for community associations interested in solar power for common area consumption to pursue it.

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4 CommentsLeave a comment

  1. My brother recommended I might like this web site. He was totally right. This post actually made my day. You can not imagine simply how much time I had spent for this information! Thanks!

    • You are more than welcome. Thanks to your brother for recommending my site!

  2. I’m VP of our HOA (San Diego area) and was so happy to find this article! Every other article I found on energy and HOAs appears to be HOAs trying to block people from using solar, where we have the opposite problem–we very much want to install community solar or wind power and can’t find a way to do it. We’ve run into the issue you describe above of not being eligible for any incentives. With 175 homes in the community and an average community electric bill of $2000 per month, we’re very interested in exploring our options. Are there any updates since you wrote the article above re: funding and incentives?

    • Thank you for your comment, Barbara. I have no new information to pass on regarding incentives, but if your association funds a solar system through a Power Purchase Agreement (PPA) or lease the association’s eligibility for incentives is not an issue. If installed pursuant to a Power Purchase Agreement, there should be no cost to the association for the system itself or for its installation. A third party would purchase the system, and the association would purchase the electricity produced by the system from the system’s owner. The system owner may be entitled to incentives, grants, etc., which would indirectly have an impact on the price the association would pay for the electricity, but the availability of incentives (tax rebates, grants, etc.) would not be an issue the association would need to concern itself with directly.

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