Unfortunately, an organization’s good intention to execute a renewable energy project does not always translate to actual implementation of a solar, geothermal, biomass or wind system. A recent nationwide survey of our electricity purchasing customers found that while half of them express interest in using renewable energy, less than 15 percent state that they are already doing so.

Why the disconnect?
It could be that sustainability is just now gaining the traction that has been long predicted, and as that continues we can also expect to see an exponential increase in actual project deployments. For many businesses and institutions, though, at least one barrier to beginning a renewable project is the perception that these projects are expensive and capital intensive. That could be the case if you don’t explore innovative financing options and apply all applicable incentives and rebates. However, long-term power purchase agreements (PPAs), performance contracting, and other services provided from a qualified energy service company can make it possible to deploy on-site renewable energy power today without incurring prohibitive expenses.

In the last year alone, Constellation Energy has brought more than 5 megawatts of on-site renewable power systems online for customers. In each of these cases, customers were able to deploy the system without an upfront capital commitment and realized a discount off their present electricity rates.

“Often, the initial motivation to go green is based on a desire to lessen the organization’s impact on the environment, entered into by management teams anxious about what they suspect might be the resulting higher energy costs,” said Gregory Jarosinski, President of Constellation Energy Projects and Services (CEPS). “What surprises our customers is that these projects can be installed for the same price or sometimes less than they are paying today for electricity.”

General Motors made a decision to work with Constellation Energy on a renewable power project, a nearly 900 kilowatt rooftop solar power system at its 300,000-square-foot service and parts warehouse in Fontana, California. The system will reduce greenhouse gas emissions by 355 tons annually, but General Motors made sure the project benefited the bottom line too.

“At General Motors we understand that good environmental decisions are good business decisions and solar energy is a perfect example of this,” said Rob Threlkeld, manager of green initiatives for General Motors. “Any project that we do has to at least break even or save us money. We’re not just going to do a project unless it makes good business and economic sense for us.”

Power Purchase Agreements

The key to making the solar project work for GM was structuring the project as a long term, power purchase agreement (PPA), under which Constellation Energy owns and operates the system and sells power back to GM. Constellation Energy pays all upfront and maintenance costs, approximately $7 million, and assumes the risk for construction or production delays. GM’s estimated electricity cost reduction is 10 percent, and the long term nature of the agreement provides a measure of stability and predictability in the company’s energy purchases. The project acts as a physical hedge to electric price increases. Depending on location, surplus power generated by the systems, on weekends for instance, can also be exported back to the local utility through net metering. Customers are then paid or credited for the electricity sold back into the grid.

Additionally, in the case of the GM project and a similar project for Alcoa, a thin film solar PV system was chosen. The photovoltaic material is lightweight and applied with adhesive and Velcro. If appropriate for the application, these systems usually require very little structural changes to be made to the facility roof—saving money and time. When combined with other energy savings technologies such as lighting, motors and energy management systems, these bundled projects result in significant avoided energy costs.

The advantage of the PPA for educational institutions, other non-profits or smaller commercial entities is that it gives these organizations access to the 30 percent investment tax credit (ITC) for commercial solar and fuel cell property. As owner of the property under a PPA, Constellation Energy is granted the tax credit and applies a proportional discount to the cost of the electricity sold back to the customer. Non-commercial organizations or businesses with smaller tax obligations would not be able to take advantage of the ITC without an energy services partner like Constellation.

The PPA has become the dominant contractual and financial arrangement in solar and other on-site renewable energy power systems. Constellation Energy is pursuing similar PPA projects, especially in states with particularly active incentive and rebate programs.

Incentives and Rebates

Government support of renewable energy projects, in the form of incentives and rebates at federal, state and local levels, is critical to making projects financially feasible.

The good news is that there are currently a number of programs that when cobbled together can bring the cost of on-site generation down to levels that make it competitive, and often cheaper than market rates. The bad news is that some of the most critical incentives, such as the 30 percent ITC, are set to sunset at the end of this year.

Recently, the U.S. House approved a six year extension of the ITC. Under the same bill, the production tax credits for biomass, geothermal and other renewable sources would be capped at 35 percent of the cost of the facility with no cap for wind. Whether the ITC extension will pass subsequent review remains unclear.

Setting aside the political challenges, simply navigating the maze of incentives and rebate programs can also be daunting for many organizations. An experienced energy consultant knows the ins and outs of available programs, and will build rebate reductions into the cost of a system.

“We leave no rock unturned in seeking out incentives and rebates for customers,” explains Wayne Luoma, chief financial officer of Constellation Energy Projects and Services. “Since we’re active nationwide, we’re extremely familiar with federal, state and local energy incentive and tax programs, and we build that experience into customer agreements to obtain the most advantageous pricing.”

Another value stream comes from the sale of renewable energy credits (RECs) granted to producers of renewable energy to incentivize development of carbon-neutral energy production.

Performance Contracting

The savings that result from improving the efficiency of energy infrastructure projects can themselves be used to finance an organization’s entree to renewables. Through performance contracting, energy savings resulting from a project are guaranteed and paid for out of a percentage of those savings. Savings are identified following an energy audit where goals are identified. Performance is monitored through the life of the contract.

Using performance contracting, the U.S. Army’s Aberdeen Proving Grounds worked with Constellation Energy to finance and install 643 geothermal heat pumps for family housing, resulting in $600,000 of annual savings over a 20-year contract. The project resulted in a reduction in 8.6 megawatts of annual energy usage—all at no extra cost to taxpayers.

“So many organizations want to make energy efficiency improvements and deploy renewable power, but they simply don’t have the ability to undertake a major capital improvement project,” said Kenneth Chodnicki, senior vice president of business development for Constellation Energy Projects and Services. “Performance contracting makes it possible to realize the benefits of a major capital improvement project—without the upfront capital.”

Constellation Energy expects to see an increase in energy efficiency projects and the deployment of on-site renewable energy generation as more organizations take a non-traditional approach to financing projects.

“The motivating factor for these projects is an organization’s commitment to the environment, but the deciding factor for most organizations is the beneficial economics of deploying renewables. Once organizations realize how this approach works, they’re usually very quick to act on their commitment to sustainability,” said Gregory Jarosinski, President of Constellation Energy Projects and Services Group.