Montgomery County Green Bank CEO lays out commercial solar PPA program
When the COVID-19 pandemic struck over a year ago, the U.S. economy went into free fall as industries were ravaged and much of the nation was forced into lockdown. Small businesses and nonprofits were some of the hardest hit, with the typical small business seeing substantial revenue and cash liquidity declines, according to JP Morgan. While total impacts of the health crisis continue to emerge, revenues for small businesses are still down significantly from pre-pandemic levels.
Maryland’s Montgomery County Green Bank is offering a pathway forward for small businesses and nonprofits to address operating costs and property health through a new commercial solar Power Purchase Agreement financing program. Launched earlier this year, the program requires no out-of-pocket costs and offers lower monthly payments for solar-generated electricity over 20 years.
“As we were talking to affordable rental, nonprofit faith-based community and smaller property owners, they had a strong interest in doing solar but what they were finding is that often the size of the array they could put up was too small,” Tom Deyo, Montgomery County Green Bank CEO, told NPM. “What we found is that smaller arrays did not have a marketplace, and that most of those businesses lacked the ability to handle out-of-pocket costs. They could not find their way to do it. That felt like a space we should enter, bring our flexible capital into the market, and get prices to a place where these businesses could take it on and manage their operating costs.”
Under the program, a solar developer works with a business to size an on-site rooftop solar PV system to meet energy demands. Once the developer and business agree on a price to buy the solar energy at lower PPA rates than those charged by local utilities, the developer then installs the system using a local contractor, and at no upfront cost to the business.
“A lot of the product we saw was escalator-driven,” Deyo said. “That doesn't work for a small business who is trying to manage an operating budget. Small businesses and organizations need predictability of their operating costs, so that is what we went about to design. We brought our capital, found developers out there that we could partner with, and all the benefits of our capital would play down to the owner or operator as opposed to enhancing the returns of the capital, so that then we could make this equation work.”
Solar developers were anxious to get on board with the program, as the opportunity presented them with an untapped segment of the market, they had previously been unable to serve.
“They said, ‘If you can bring this to the market in the way you’re talking about, we know we’ve got a lot of customers out there,'” Deyo said.
The financing program has now become something of a business driver for solar developers as more small businesses and nonprofits sign on.
“These entities are coming straight to us," Deyo said. "We’re then getting the installers involved, they're getting new customers and new leads, and so we’re providing both an outlet for them on projects they have, as well as a resource to opportunities they may not have known were out there. That is what we are learning with the Green Bank. Financing is great and it gets certain things moving. But where we can also be a market stimulator--that is even better because now you are seen as not just a tool. You are seen as a resource that can bring them business too. I think we’re trying to create that relationship across all of our contractor relationships."
Scaling up
The U.S. is currently making its way out of the most significant financial crisis since the Great Depression. Beyond the current economic crisis, the nation is also faced with the growing threat and impacts of climate change.
Reaching a 100 percent clean U.S. economy will take massive levels of investment to the tune of USD 225bn annually over the next two decades, according to a report from the American Green Bank Consortium.
Along with investments in grid-scale wind and solar and electrification of the transportation sector, distributed energy resources will play a critical role in hitting national, regional and local climate targets.
“Most of this is going to be done by individual small property owners,” Deyo said. “The vehicle by which we’re going to get there is by finding a way for each of those individual property owners to make a difference. They are all going to have some capital budget that they are going to have to figure out. But the roof replacement, the windows, the internal things--those are all costs they must bear with no returns. You put solar up, you do energy efficiency--these are things that can pay a little bit for themselves. Montgomery County is mostly a built environment, so this is about how you use that built environment in a way that contributes to the County’s goals. This happens example by example. People need to see the model working and then it kind of begins to grow itself.”
The program can be scaled, says Deyo, with the Green Bank currently exploring opportunities where more capital can be deployed.
“That's the perfect place where this accelerator money can go because, frankly, renewable energy is the big opportunity here.” Deyo said. “It's third-party finance, and they get the operating cost benefits. This is not that hard to make a decision around. I think this is a great place for additional resources, so bringing more capital can scale it for affordable housing and commercial properties that ran into that same struggle between the leasing period and the development period. I think there’s substantial opportunity there.”