Wednesday, June 11, 2008

Who is paying for ASU's solar panels?

At first glance, this looked really cool. ASU has done a deal with Honeywell to get 2 Megawatts of solar panels installed at no cost to them.

ASU planned to announce an agreement today under which three companies will install, at their expense, solar electricity-generating equipment on up to 330,000 square feet of rooftop space at its main campus in Tempe.

Jonathan Fink, director of the Global Institute of Sustainability at ASU, said that the university will pay the companies a fixed rate that is slightly lower than what it is now paying for power from Arizona Public Service Co.

Looking a little deeper, I noticed that a couple of other entities were involved and that the total cost was around $30 to 50 million.

Honeywell Building Solutions, Independent Energy Group and SolEquity will build the systems.

They will recoup their investment, thought to be $30 million to $50 million, by selling the electricity back to ASU under a 15-year contract.

Let's run some numbers. Two megawatts of capacity, generating power an average of 12 hours a day results in 24000 kw hrs per day of electricity. At 10 cents a kw hr, that’s worth $2,400 a day or $876K per year if the sun shines every day in Tempe. That doesn't pay for $30 to 50 million over 15 years. Even if the power is worth 15 cents a kw hr it's only $1.3 million per year and that still doesn't work. We need to find the rest of the money.

Apparently, part of the money will come from APS.

APS is under a mandate from state utility regulators to generate 15 percent of its power from renewable sources by 2025 and is offering incentives to residents and business to install systems to generate renewable energy.

"It helps us meet the renewable mandate from the Arizona Corporation Commission and offsets the need for additional generation to meet future demand," said Barbara Lockwood, APS' manager for renewable energy.

She said a 2-megawatt system, such as the one planned at ASU, could qualify for up to $1 million a year in rebates from the utility.

OK, so now we're getting close but we're still not there. $2 million a year for 15 years still doesn't pay for a $30 to 50 million project with interest. This is where the other entities come in.

Collins also noted the creativity and usefulness of the purchase-power agreement.

"We're starting to see a lot of innovative financing for solar installations," he said.

So what else is going on. I don't know for sure but here is what I suspect. SolEquity is in the business of putting these deals together. ASU is the host but can't take advantage of tax credits and other business incentives. Honeywell makes money on the installation, operation and ongoing maintenance. Independent Energy Group probably owns the project and acts as the commercial entity that can receive tax credits and utility rebates. The federal tax credit for solar projects is 30% if they are installed prior to the end of the year. Some state tax credits are also available.

Given that, it appears to me that ASU will pay for about a third of the cost. APS customers will pay for about a third through the alternative energy mandate. Federal and state taxpayers will pay for the final third through state and federal tax credits.

Heck of a deal for ASU, Honeywell and Independent Energy Group. Not so much for APS rate payers and taxpayers.

(Full disclosure: when I worked for Honeywell Industrial Control we did a couple of deals for customers with a special purpose entity that owned the project and sold the "service" to the customer over time. It appears to me that that is the role being played by Independent Energy Group in this deal. Again, I don't know for sure as I have no specific knowledge of ASU's deal.)

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