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Affordable Solar Power in Connecticut: A 2019 update

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Part 3 in a series about affordable solar panels in the USA.

Connecticut’s Solar For All Program

Established in 2015, Connecticut’s Solar For All Program has, as of June of 2018, installed solar panels on 1,651 low income single family households across the state. The program is part of Connecticut’s Residential Solar Investment Program (RSIP), which provides production incentives to help lower the costs associated with installing solar panels. Both programs are overseen by the Connecticut Green Bank, a public entity which finances and incentivizes green energy projects by providing guarantees via money paid by the state’s electrical rate payers to attract private capital.

The Solar For All Program functions as a partnership between the Connecticut Green Bank and the private installation firm PosiGen. In order to qualify, individuals must own their own single family home, have a household income 100% or below the Area Median Income, and be willing to undergo an energy efficiency audit. The program utilizes a third party ownership (TPO) model wherein homeowners do not own the solar panels on their homes, but rather purchase the power from the financing firm via a Power Purchase Agreement (PPA), which includes a performance guarantee. The Connecticut Green Bank pays an incentive to the financing firm based upon on the kilowatts produced by the system, with the understanding that the incentive will be used to offer lower rates to the homeowner via the PPA.

Under Connecticut’s RSIP, firms financing third party ownership contracts normally receive an incentive of 3.5 cents per kilowatt hour up to 20 kW. However, under the Solar For All Program, the incentive is more than doubled to 9.0 cents per kilowatt hour up to 20 kW. The incentive is paid on a quarterly basis over a six year period. To help make the program more accessible, PosiGen does not rely exclusively on traditional measures of credit, also utilizing non-traditional measures such as an individual’s utility bill payment track record. Marketing for the program is handled by PosiGen and via the Solar For All team of the Connecticut Green Bank partnering with local municipalities and non-profits.

The financing firms for the Solar For All Program are mostly private equity companies who are interested in lowering their tax liability via the Federal Investment Tax Credit (ITC) and depreciation. These types of investors are specifically targeted given that ownership of the projects is not expected to net large cash returns. The Connecticut Green Bank utilizes its private capital networks to help PosiGen find these investors.

Unfortunately, the Solar For All Program has a limited lifespan. The Connecticut Green Bank never planned on the RSIP being permanent, and the entire program is designed to be gradually phased out in favor of purely private market financing either by the end of 2022 or when total installed capacity via the RSIP reaches 300 MW. When this occurs, Connecticut will have to explore other options if it wishes to continue to specifically target lower income households.

Connecticut Solar For All logo

Is Connecticut’s affordable solar program successful?

While Connecticut’s Solar Power For All Program does utilize a novel public-private partnership, the long-term viability of such a program is questionable. Even if the RSIP was not being phased out by 2022, the program would likely face financing issues moving forward due to the expected end of the ITC at the end of 2021. The 30 percent tax credit of the ITC is the main draw for investors into TPO’s, and without it agreed upon rates in PPA’s would have to be higher in order to attract in further investors.

Looking at the here and now, rather than the future, also highlights some possible issues with the structuring of the program. While the program does remove some of the significant barriers for low income home owners, namely access to capital and credit, the structure of the program also creates an incentive to target households on the edge of being low income rather than those more in need. The production incentive of 9 cents per kilowatt hour is paid to the firms owning the solar panels under the idea that they will use it to provide more competitive PPA terms to the homeowners, which is significant given that the average cost of electricity in the state is around 21 cents per kilowatt hour. However, the firms are not required to pass on the full incentive, meaning that they are better off targeting households which can afford to pay a higher PPA rate.

Another possible issue is that the Solar Power For All Program utilizes only a single firm to install solar panels. While this does not directly affect the state or its electricity rate payers, due to the incentive payment being based upon production, it does create a market monopoly of which a firm could take advantage. Given that only one firm is allowed to install solar panels for the program, the price of installation is based upon the installing firm’s ability to find project financing rather than market competition. This in turn can exacerbate the targeting of households on the edge of being low income as described in the previous paragraph.

Last modified: August 8, 2019

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