Motives:

New Jersey's municipal solar energy projects are earning recognition throughout the state and the world.  However, since governmental entities are not entitled to various state and federal incentives, purchasing solar energy systems is often less attractive than a lease or PPA arrangement.  Motives are environmental and an overall reduction in utility costs.

How Municipal Solar Makes Sense:

Towns considering municipal solar energy often find outright purchase (even when financed by a loan) may not be the most attractive option for several reasons:

1.   Government bodies, such as municipalities, don’t have the benefit of the 30% federal tax credit, making solar more expensive.

2.   Municipalities may not want to assume the risk of a large loan. (PSEG does not offer their loan program for large systems).

3.   Substantial loans for municipal solar system purchases adversely effects a municipality’s balance sheet.

The remaining options for municipalities are leasing and power purchase agreements, or “PPAs.”  These can help munis avoid many of the problems of an outright purchase.

In a leasing arrangement, munis pay a fixed monthly rate to use a municipal solar system owned by the lessor. This rate is independent of system generation.  Generally a lease will be contracted for 10-20 years.  The lessor, a private company, can take advantage of tax incentives that are unavailable to the municipality.  The municipality generally receives SRECs for the system’s generation.  In many leasing arrangements, the muni’s involvement with solar does not effect its balance sheet.  In most arrangements, the muni is responsible for maintenance and insurance.

In a PPA, the municipality pays a predetermined rate per kWh generated.  The PPA provider owns the system, and sells the electricity generated to the muni, generally for 5-15% less than the grid rate.  The PPA provider receives the tax benefits, controls the SRECs, and is responsible for maintenance and insurance.   Terms are usually 15-20 years. 

The following grid compares purchase, leasing, and PPAs.

	Purchase with Loan	Leasing	PPA
System Owner	Municipality	Lessor	Investor
Pricing	Fixed loan payment	Fixed monthly payment	Fixed rate per kWh
Performance Risk?	Yes	Yes	No
Accounting treatment	On balance sheet	Generally off balance sheet	Always off balance sheet
Federal Tax Credit	Not available	Lessor’s Acct	Investor’s Acct
Federal Depreciation	Not available	Lessor’s Acct	Investor’s Acct
NJ Incentives	Ineligible	Lessor’s Acct	Investor’s Acct
SRECs	Yes	Possible	Investor’s Acct
Maintenance	Municipality pays	Municipality generally pays	Investor pays
Insurance	Municipality pays	Municipality pays	Investor generally pays