Georgia has an uplifting solar story to tell. We had 22 megawatts (MW) of installed solar in 2012 when Southface launched the Solar Map available on www.GeorgiaEnergyData.org. The state exceeded 1,100 MW by the end of 2016. However, our tracking of solar installations in Georgia also reveals that the vast majority of this capacity is in the form of solar farms that sell electricity exclusively to utilities. Very little distributed generation (DG) solar capacity is being added that directly benefits homeowners, businesses, nonprofits and local governments.
An Opportunity for LIHTC Developers to Take the Lead
Low-income housing tax credit (LIHTC) is a federal tax credit program that encourages private development and investment in an effort to provide affordable housing for low-income households. Georgia’s Department of Community Affairs (DCA) awards LIHTC to developers on a points-based criteria detailed in its Qualified Allocation Plan (QAP).
Georgia has historically been a leader in incentivizing sustainable building attributes through its LIHTC allocation policies. As a result, over 14,500 low income units have been built in Georgia since 2008 that meet or exceed the energy efficiency specifications contained in one of the five sustainability certification programs authorized by DCA.
Market forces and state policies have aligned to allow Georgia’s LIHTC developers to lead on DG solar in much the same way they have led on energy efficiency. The 2017 QAP “raises the bar” by rewarding builders who commit to construction of LIHTC projects that elevate building performance as follows:
- An extra sustainability point for High Performance Building Design,
a new concept introduced by Southface that requires the building to
meet more stringent energy efficiency criteria that are not affiliated
with any “green” certification program. Renewable energy can also
be used to meet these performance thresholds.
- Three points for Exceptional Sustainable Building Certification.
This is also a new concept introduced by Southface that requires
the building to meet the most stringent certification levels
(e.g., EarthCraft Platinum or LEED Platinum).
Solar Works on Multifamily Buildings
Two prominent LIHTC developments have had relatively large solar systems for many years. Sustainable Fellwood is a mixed-use, mixed income development community in Savannah. Phase 3 of the community, which was developed by Parallel Housing, The Woda Group and Melaver, has an 85.26 kilowatt (kW) solar photovoltaic (PV) system. OneWorld Sustainable installed the PV system in April 2011. At that time, Georgia Power Company had a program through which it purchased 1,500 kW of solar electricity at a rate of 17 cents / kilowatt hour (kWh). Sustainable Fellwood participated in this program and sold all of the electricity generated by its PV system to Georgia Power.
Auburn Pointe is a mixed-income redevelopment project located east of Atlanta’s Grady Memorial Hospital. The project’s developer, The Integral Group, and construction manager, IBG Construction Services, committed to incorporate “green” building practices into the redevelopment including LEED certification for the management office and solar PV arrays. The project has a total of 140 kW of solar on four buildings and one canopy, which produce 197,000 kWh a year of power that offset the electricity consumption of the development’s common areas. The solar panels were installed by Radiance Solar in phases between 2012 and 2014.
A lesson learned from these two pioneering projects is that solar works for LIHTC developments. Solar PV does not damage the building, looks attractive, is reliable, has minimal maintenance costs and excites tenants who believe in innovation. However, another lesson learned is that it is best to integrate solar into the design of a building in order to optimize the orientation of solar PV panels. If solar is an afterthought, then solar installers have to design around roof obstacles, which limits the placement options for solar PV panels as well as the aesthetics of the PV system.
The Economics of Solar Have Dramatically Changed
Solar prices in Georgia have declined 64 percent since 2011. Furthermore, owners of solar systems on LIHTC properties can take advantage of federal tax incentives for solar, which include a 30 percent investment tax credit as well as accelerated and bonus depreciation. These federal tax incentives reduce the solar system owner’s tax liability and accelerate the rate of return on the solar investment.
Since Sustainable Fellwood and Auburn Pointe, several additional LIHTC projects have taken advantage of the changing economics of solar. A recent example is Mary-Leila Lofts, a two-building, 71-unit LIHTC project in Greensboro, Georgia developed by Greensboro Mill, LP. The project showcases both an adaptive reuse of a historic factory as well as sustainable development. Greensboro Mill maximized QAP sustainability points available to Mary-Leila Lofts by obtaining EarthCraft Communities certification. In addition to the required energy efficiency features, the developer installed a solar PV system, which contributed 10 percent of the total 100 points required for certification.
Greensboro Mill chose Hannah Solar to construct the rooftop solar PV system. Hannah Solar worked with the project construction and development teams to refine the PV system size based on the buildings’ projected energy load and the available roof space. The final system was sized at 119.79 kW and provides electricity to just the common areas. The system was priced at $2.20 per watt with a total cost of $272,581 inclusive of sales tax. Because Greensboro Mill is a taxable entity, it was able to utilize federal tax incentives. After factoring in the utility energy savings, Hannah Solar estimated a five year payback period with a total system value of $750,000 over its 30-year life, 25 of those under full warranty.
The Mary-Leila Lofts project showcases the importance of having a solar installer involved with the development from the beginning. Hannah Solar was able to provide key input on how to keep the project installation costs as low as possible. For example, they recommended that the general contractor install certain infrastructure, such as conduit runs and termination points where the PV system would interconnect with the electric grid. This type of coordination helped reduce the amount of materials and labor costs required for the project and prevented Hannah Solar from having to punch through walls to install more conduit and run more wire. These are tasks that would have inevitably increased the cost of installation.
The Mary-Leila Lofts PV system was interconnected to Georgia Power Company in June 2016. Since then it has generated 95,201 kWh of electricity, which puts the system on track to generate an estimated 175,805 kWh in the first year. Mary-Leila Lofts’ energy savings from the PV system from June 2016 to April 2017 has been approximately $22,855 at 13 cents per kWh.
Using Solar to Maximize 2017 QAP Sustainability Points
The 2017 QAP rewards developers who integrate additional energy efficiency best practices and / or renewable energy technologies in order to optimize the performance of the building as a whole. The scoring criteria are contained in the 2017 QAP Appendix II, Chapter VI. Sustainable Developments. While no project can obtain more than three points under this scoring criteria, there are two pathways to obtain points.
The first can be characterized as certification plus “high performance.” If a developer seeks two points via Sustainable Communities Certification or one point via Sustainable Building Certification, then the developer can seek an additional one point for High Performance Building Design by demonstrating a 10 percent improvement over the baseline building performance rating. The energy savings will be established following the Performance Rating Method outlined in ASHRAE 90.1-2010 Appendix G.
The second can be characterized as “exceptional certification.” A developer can seek three points via Exceptional Sustainable Building Certification, which will be awarded to applicants who commit to obtaining the highest level of sustainable building certification (e.g., LEED Platinum or EarthCraft Platinum).
Both high performance and exceptional certification can be achieved with the inclusion of solar. To demonstrate how much solar kW capacity would be needed for high performance, Southface analyzed two LIHTC projects that DCA selected for funding in 2015 and 2016.
The first, Project A, is a four-story, 90,000 square foot multifamily building comprised of 100 apartment units, conditioned interior corridors, amenity spaces and a leasing office. Project A’s energy efficiency features resulted in a four percent energy savings over ASHRAE 90.1-2010. This will allow Project A to obtain EarthCraft Certification. If, however, Project A were to pursue funding in the 2017 QAP, to get an extra point for high performance the project would need to reach a 10 percent energy savings over ASHRAE 90.1-2010. The six percent gap could be overcome by having a 35 kW solar PV system, which would produce the approximate 50,000 kWh electricity needed per year to meet the High Performance Building Design criteria. A 35 kW system would require approximately 2,700 square feet of roof space.
The second example is Project B, a four-story, 95,000 square foot multifamily building comprised of 95 apartment units, conditioned interior corridors, amenity spaces and a leasing office. Project B’s energy efficiency features resulted in a 12 percent energy savings over ASHRAE 90.1-2010. As such, if Project B were in the 2017 pool of QAP projects, it would qualify for an extra point for high performance. If Project B did not include any energy efficiency features and was built to meet bare minimum ASHRAE 90.1-2010 standard, then a 63 kW solar PV system would be needed to produce the approximately 90,000 kWh of electricity needed per year to meet the High Performance Building Design criteria. A 63 kW system would require approximately 4,800 square feet of roof space.
The amount of solar required to achieve high performance or exceptional certification will differ between projects. The two examples above are illustrative and show that developers should maximize energy efficiency before considering onsite generation of solar electricity. However, given the economics of solar, PV systems may be a cost-effective solution that when coupled with energy efficiency, help developers maximize the points obtained via the Sustainability Development scoring criteria.
Developers Can Incorporate Solar Without Increasing Project Costs
Some LIHTC developers may not be able to take advantage of federal tax incentives because they are a nonprofit or do not have sufficient federal tax liabilities. Other developers may not be able to include the solar system investment in the total project cost. Developers in these situations may be able to take advantage of the unanimously-passed Solar Power Free-Market Financing Act of 2015.
This law allows a third-party solar company to finance and own a solar system located on a LIHTC development and to sell the solar electricity generated by the solar system to that property’s owner via a Solar Energy Procurement Agreement (SEPA). The goal is for the SEPA rate to be lower than electricity purchased from the utility. By entering into a SEPA, a LIHTC developer can include solar in the project design to obtain additional QAP points without adding to the overall costs of the affordable housing development.
In 2016, a LIHTC applicant proposed a project that would have a 491 kW solar garden adjacent to a 96 unit, master-metered redevelopment. The solar PV system, designed by Radiance Solar, would be mounted on a one acre vacant field adjacent to the apartment units. Being a master-metered development, this project was well suited for a SEPA because the landlord would pay for all electricity consumed by the entire project, not just the common areas.
Pursuant to the arrangement, an independent Special Purpose Entity (SPE) would develop and own the solar PV system and sell power to the landlord via a SEPA. The landlord would buy power at $0.098 per kWh, which was $0.025 per kWh less than what was offered by its current utility provider. The SEPA rate was locked in for 20 years. This provided a long-term hedge against rate increases for power bought from the grid, which in turn helped to ensure the project’s viability. The SPE would bear all capital and on-going maintenance costs of its solar system. Based on a conservative analysis, this SEPA would allow the LIHTC project to save almost $500,000 in electricity costs over a 20-year period with no upfront costs for the solar PV system.
The developer of this innovative project has allowed Southface to share a redacted version of its SEPA to assist other developers with the inclusion of solar in LIHTC projects. Below are key considerations for any developer contemplating using a SEPA:
- There are synergies between LIHTC and SEPA investors because a majority of LIHTC investors and syndicators already invest in solar systems located in other states where DG solar markets are more mature.
- SEPA investors prefer larger solar systems. Therefore master-metered projects may be best suited for SEPAs because a single customer, the building owner, pays the electricity invoice for the entire building and not just the common areas. Owners that have multiple sub-metered projects may also be well suited for SEPAs. In this situation, one SEPA provider could own smaller PV systems that power common areas across multiple buildings and still have a single customer for the solar electricity.
- If a SEPA is viable, before considering onsite generation of solar electricity, the developer should still seek to maximize energy efficiency in order to reduce electricity expenses.
Many Benefits from Incorporating Solar
The price of solar PV systems continues to drop. Many LIHTC developers may be able to cost-effectively maximize the 2017 QAP Sustainable Developments points by incorporating solar into their projects after they have maximized energy efficiency. While this may be enough to entice developers, incorporating solar provides other benefits as well.
Over the 25 to 30 year useful life of solar PV panels, it is highly probable that there will be increases in the cost of electricity purchased from the grid. Solar PV systems provide building owners with a hedge against utility cost increases. This makes the property more financially secure. Solar systems also decrease our impact on the environment and let tenants know that they are living in a cutting-edge property. The 2017 QAP gives LIHTC developers an opportunity to showcase the many benefits of DG solar to the broader multifamily market.
View the redacted SEPA here: SEPA for LIHTC Project