Not-for-profit agency takes on new role: award-winning solar developer

 Greater Bergen Community Action (GBCA), a not-for-profit community agency in Bergen County, New Jersey, has taken part in numerous community projects in Bergen County. This includes asset development, financial counseling, job training and neighborhood revitalization planning. Recently, the organization undertook a new project: solar development.
The result was award winning. Last September, the Interstate Renewable Energy Council (IREC) honored GBCA with its 3iAward for Community Renewable Energy Project of the Year. In presenting the award, IREC’s VP and COO Larry Sherwood praised the CBCA, saying, “This is the most innovative use of financing options for projects of this type that we have seen.”

So what led an established not-for-profit organization to take on the role of solar developer? How was the program organized and financed? Why did Sherwood call its financing arrangement “innovative”? And, is GBCA’s model replicable by other nonprofits?

“The idea [to get into solar development] actually came about as a result of our look at an overall cost saving audit,” said Robert F. Halsch Jr., GBCA’s Executive Director. “When we looked at energy (we operate dozens of facilities), it was a significant cost center that cried out for a creative approach.”

The organization reached out to solar PV developers and quickly discovered the variety of financial options available. “It occurred to us that we could be the solar developer, and the cost curve could bend to our advantage and that of partners in the community: nonprofits who are congruent of our mission. So we set about trying to do that as a way to save money – and pass these savings along to our partners as well.”

At about this time, Halsch went out for a beer with GBCA’s treasurer Tim Flynn to talk about containing costs. Flynn wrote down on a bar napkin a possible plan for establishing GBCA as a solar developer. According to Halsch, he “kept [the napkin] in the top drawer of my desk to guide me about [Flynn’s] thinking.”

After consulting with professionals in both the energy and finance sectors, GBCA designed a business model that they then brought to Goldman Sachs, whose Urban Investment Group became the sole private investor on the project. GBCA formed a Limited Liability Corporation, CAP Solar New Jersey 1 LLC. GBCA owns 51 percent of CAP Solar, and the Urban Investment Group the other 49 percent.

Their concept was to employ economies of scale by leveraging private capital, using a high-quality partner such as Goldman Sachs, to efficiently install photovoltaics on the rooftops of dozens of small nonprofit agencies. The partnership with Goldman Sachs was necessary because the individual solar installations by themselves would have been too small to attract investors. As Halsch puts it, “Capital markets need to see at least a couple of megawatts before they can engage” with a solar project.

The Urban Investment Group improved GBCA’s business model by adding New Market Tax Credits to it. CAP Solar was the entity created to facilitate the investment. GBCA itself invested $250,000 in the project.

“We looked at the underlying financials for each nonprofit,” said Halsch. “Nonprofit balance sheets are different from public companies and have to be evaluated differently.” The Urban Investment Group has since gotten almost all of its investment back because it accrues all tax benefits; GBCA earned enough from developer’s fees to cover its investment.

According to GBCA’s website, CAP Solar New Jersey, since the program was inaugurated, “has installed two megawatts of solar photovoltaic panels on the rooftops of schools, hospitals, health centers and other community facilities throughout NJ.” The benefits for the nonprofits and community include:

• immediate electric power savings (an estimated $3.1 million for all participants over 15 years)
• the creation of 23 new jobs for U.S.-only workers
  a reduction of the participants’ carbon footprint (estimated as the equivalent of 94,000 gallons of gasoline)
• reduced reliance on shrinking federal funding.

As Halsch explained, the project was “narrowly constructed to include not-for-profit operating facilities; for-profit and public entities were not solicited. We vetted well over 100 potential properties and many fell out [as candidates for solar installation] because their rooftops or electrical systems were not adequate. The program did rebate a 50 percent portion of the earned developer fee on each installation and, in some cases, that paid for necessary upgrades.”

Halsch added that all nonprofits who participated received 50% of the developer’s fee, whether upgrades were needed or not; CAP Solar received the other 50%. These fees could be substantial, based upon the size of the installation. Generally, these would be in the $10,000 to $40,000 range. Another reason some entities were unable to participate is that the inclusion of the tax credits made the deals legally complex, These organizations could not engage in the depth of legal review that would have allowed them to feel comfortable with the agreements.

It would appear, based upon details gathered from the website and Mr. Halsch’s statements, that CAP Solar is indeed a very sound project model. Though the end result is similar to what these nonprofits might have arranged through a PPA with a commercial solar company – for example, SolarCity or SunEdison – there are several crucial differences:

• the nonprofit gets paid to go solar via the 50% development fee, representing thousands to tens of thousands of dollars;
• with CAP Solar, there is no escalator clause: in other words, the non-profits pay a fixed rate for their solar electricity, so there is no risk that they will lose money over the long term by going solar;
• nonprofits more easily qualify for the PPA, which otherwise often requires more scrutiny into a nonprofit’s finances.

Asked why IREC praised the “innovative” nature of the program, Halsch believes the reason is that CAP Solar, “as a community renewables project… was financed fully by the capital markets, with no government funding. Of course, there were layers of tax credits which made the deal work, and these are certainly government subsidies. Perhaps the unique part is that we were able to maximize these tax incentives, and layer them together in a way that cut the kilowatt-hour [charges] for the customer in half relative to the private utility, and to hold these rates for 15 years.” Halsch thinks GBCA’s partnership with Goldman Sachs’ Urban Development Group was key to the project’s success, as the group was “committed to the greatest possible benefit to the nonprofit end user.”

As the first phase of installations has met predicted energy goals, GBCA is planning to roll out the project again in New Jersey, and also to expand it to other states.

“We are looking at net metering states, where the business model will look a little different,” said Halsch. “Since the cost structure of PV installation is considerably lower than when we installed, we are also looking at models which the capital markets will embrace, without the New Market Tax Credit.”

According to the CAP Solar website, their solar development model is “easily replicable in most communities” where PPA’s are legal. Halsch praised IREC, calling the organization “a recognized thought leader.” He also indicated that he is now communicating with other entities within IREC’s network.

“There are so many smart community leaders who are figuring out solutions to energy challenges,” Halsch said. “IREC’s recognition opens up a dialogue which will ultimately accrue to CAP Solar benefiting many more than the organizations which [originally] benefited from CAP Solar I in New Jersey.”