Financing your SOMAH project

Property owners have multiple options if the SOMAH incentive does not fully cover the cost of the installation. SOMAH technical assistance is available to help property owners make informed decisions about the most viable financing pathway for their property.

If you decide to purchase a system, you may use one or a combination of options: cash, loans or the federal investment tax credit.

A one-time federal investment tax credit (ITC) is available for residential solar PV systems. The credit is based on a percentage of the total solar PV system cost. If the system is placed in service before Dec. 31, 2019, a federal tax credit of 30% of the total system cost is available. After Jan. 1, 2020, the tax credit will start to decline.

Placed in Service

Tax Credit Percentage

By 12/31/2019

30%

1/1/2020 - 12/31/2020

26%

1/1/2021 - 12/31/2021

22%

While SOMAH may cover up to 100% of the tenant load, the program covers only a portion of the costs for the common area, therefore, gaps may remain in funding a solar project. This could include costs to cover common area PV, upfront costs, operation and maintenance costs, costs to meet energy efficiency requirements, and other costs that support installation.

Third party ownership (TPO)

This option is most appropriate when a property owner does not have sufficient capital to buy a system upfront or has limited time to manage, operate, and maintain the system. In case of a TPO, the third- party contractor receives the SOMAH incentives and thus the monthly payments are lowered.

  1. Solar Lease
    • Under a solar lease, the property owner or the host customer pays a fixed monthly cost to the system owner.
  2. Solar Power Purchase Agreements (PPA)
    • Under a solar PPA, the property owner or the host customer pays per kilowatt hour of energy produced on a monthly basis to the system owner.
  3. Pre-paid solar PPA/ Lease
    • A pre-paid solar PPA/ lease is similar to purchasing a system. The host customer/ property owners pay 100% upfront cost with no monthly payments.

Re-syndication

The Tax Credit Allocation Committee boost for distributed energy (common area+in-unit) gives additional points on the TCAC application to buildings that install PV that offsets 30% of tenant loads or 50% of common area loads along with energy efficiency upgrades.

Federal/ State/ Local grants

HOME, AHP, and other local housing grants could cover some costs associated with PV installation DSIRE USA provides a list of all the local financing programs at http://programs.dsireusa.org

Third Party Operations and Maintenance (O&M) Contractor

Property owners/ host customers can also enter into a contract for third-party operations and maintenance of the solar PV system. This is particularly the case when owning the PV system as SOMAH requires the third-party owners to operate and maintain the system for the full term of the contract for TPOs.

Other financing options include leasing a system or entering into a PPA. With both agreements, the system is third-party owned and you pay per month. In a lease, you pay a fixed monthly rate no matter how much electricity your system produces. With a PPA, you pay a fixed amount for each kilowatt-hour (kWh) the system produces. The third-party owner will receive the SOMAH incentive, lowering or even eliminating the monthly payments.

Both a lease and a PPA typically are contracted for a 20-year period. Be sure to read and understand the entire lease or PPA agreement before you sign as these contracts will contain many terms and conditions that will remain in place for up to 20 years.

 

Purchased

Third-Party Owned

What you are buying?

An asset

A service, usually with an option to purchase

What is included in the purchase?

Generally will not include inverter replacement, operation and maintenance or insurance, may include monitoring

Generally includes operation and maintenance, inverter replacement, insurance and monitoring

What are the tax implications?

Need to have the tax liability to make use of the federal investment tax credit (ITC); a home equity loan may be eligible for a tax deduction

Solar services provider has the tax liability for the 30% ITC and can make use of commercial depreciation tax benefits

What are the risks?

Responsible for operation and maintenance

Longevity of the solar services provider

What are the financial benefits?

Return on investment in the form of lower electricity bills

Little or no upfront cost, usually cash positive or neutral in first year

The SOMAH program provides financial technical assistance for eligible property owners.

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