Sustainable Capital: Financing Your Nonprofit’s Solar Project

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Nonprofits serve important needs in their communities but often cannot afford to pay for energy. Going solar allows them to save on electricity costs and free up funds for their mission.

Many commercial entities specializing in solar financing offer leases and PPAs that enable nonprofits to monetize federal incentives and receive cash back upfront, lower lease payments, or lower contracted utility rates over the contract term.

  1. Loans

Nonprofits struggle with managing overhead costs that include energy bills. Purchasing a solar system allows them to lock in a levelized rate of energy cost for years to come and eliminates rising utility rates. This can help them reduce operating costs and allocate more funds to further their mission.

But a nonprofit is not a typical commercial borrower, and few lenders specialize in financing renewable projects. This means that loans are often more difficult to secure, especially for nonprofits. But, with the right preparation and documentation, your nonprofit can obtain a loan that covers all or part of your solar installation project.

Banks and financial institutions are increasingly interested in providing sustainable finance products. These include loan programs for renewable energy and energy efficiency, and several resources can help your organization navigate the process. The key is to find the lender best suited to your needs, which can vary by project type.

For example, a local community development corporation (CDC) or credit union may offer low-cost loans for solar projects at a rate below those of traditional banks. Another option is a nonprofit specialty lender that can provide a direct loan to a nonprofit or tax-exempt organization focused on energy efficiency & solar project financing. Examples of these include Pathway Lending and CollectiveSun’s Proprietary CrowdLending Campaign.

Many lenders require a strong project plan, including a cost-benefit analysis, a detailed financial model, and a clear plan for the use of the proceeds. This will help you to secure the best terms and reduce your overall project risk.

A third-party provider can also help you secure a PPA for your solar installation. These providers can help you secure financing through a Power Purchase Agreement, a lease for the equipment, and a sale of excess energy to other buyers. They can help you obtain the upfront capital to cover the purchase and installation of a solar system and manage operations, maintenance, and any associated taxes.

  1. PACE

For many nonprofits, electricity is their largest expense. That’s why many are looking at solar as a way to save money and invest it back into their mission. In addition to saving money, solar can help increase revenue by attracting donors who care about the environmental impact of their donations.

But when it comes to financing, many non-profits face challenges compared to for-profit businesses. One is the inability to take advantage of energy cost-saving incentives available to for-profits due to their tax status.

Fortunately, there are financing options for nonprofits to go solar that can overcome this hurdle. One example is Commercial Property Assessed Clean Energy (C-PACE). C-PACE is a financing technique that enables business owners to repay energy consumption, conservation of water, and energy efficiency projects with a voluntary property assessment that is added to their normal property taxes. This approach eliminates the need for large up-front payments and can be extended over a long financing term (20+ years).

C-PACE is already being used in Washington DC and New York City to finance commercial buildings, including houses of worship, schools, hospitals, and multifamily housing. Urban Ingenuity, Energize NY, and other leaders in the C-PACE space have produced resources to educate municipalities on pathways to extend these benefits to civic organizations, such as PACE-secured Power Purchase Agreements (PPAs) and third-party ownership for nonprofits.

A church in NYC, for instance, partnered with CollectiveSun to reduce its electricity costs and invest the savings into its community through a shared-ownership model. CollectiveSun helped the church avoid high upfront fees by allowing it to use a significant amount of the Federal Tax Credit, which cuts any installer’s price in half. They then paired it with an innovative financing option called CrowdLending, which allows the church to invite its supporters to make low-risk, crowdfunded contributions toward the entire project cost.

By taking advantage of C-PACE, the church can reduce its electricity bill to almost zero and focus all its efforts on its mission. In addition, the organization is now able to attract donors who care about the environmental impact of their gifts and want to support the church’s commitment to its community.

  1. Leases

Nonprofits spend a significant amount of their budget on electricity, and the more they can save on energy costs, the more funds they have for other critical operations. Whether faith-based organizations, schools, healthcare facilities, or housing developments, solar can dramatically reduce a nonprofit’s energy costs, freeing up funds to further its mission.

Many nonprofits choose to finance their solar projects with leases or power purchase agreements (PPA). These arrangements are typically $0 down and eliminate upfront capital needs, allowing nonprofits to generate cost-free power. They also enable them to take advantage of federal incentives since the third-party financier owns the system and is able to monetize the solar investment tax credit and other financial incentives by charging the nonprofit or tax-exempt entity less per kilowatt hour for their energy than they would otherwise pay to a utility.

The biggest obstacle to financing a commercial solar project for a nonprofit or tax-exempt entity is that they lack an easy way to demonstrate their creditworthiness, as homeowners can do with a FICO score. Additionally, many nonprofits don’t have large cash reserves and lack the economies of scale enjoyed by businesses when installing large solar systems, reducing their potential savings even further.

However, with the Inflation Reduction Act of 2022, nonprofits can now use federal solar incentives through a PPA. By partnering with a for-profit developer that is able to monetize federal incentives, nonprofits can still take advantage of the 30% direct pay option while paying a lower kWh rate than their utility would otherwise charge them.

If you’re interested in learning more about how to use the federal and state incentive programs to finance a solar installation for your nonprofit organization, the SCF team is here to help. We are experts in bringing together investors seeking socially responsible investments with ambitious, sustainable companies that need financing to grow and thrive. We can provide capital to fund your next big opportunity, and our work is recognized on the NASDAQ Sustainable Bond Network. Contact us for more information.

  1. Third-Party Ownership

Nonprofits spend a lot of money each month on electricity. This can be a major constraint for organizations that strive to serve the community, especially since the more they spend on energy, the less they have available to invest in their mission and programs. Solar can provide nonprofits with cost-free, clean energy, reducing the burden of expensive utility bills and freeing up funds to do better.

One financing option that may be available to nonprofits is third-party ownership, which allows for the installation of a solar system at a nonprofit’s facility with a contract to purchase all electricity produced by the system. This model can be advantageous for nonprofits because it removes upfront costs and reduces maintenance and operations expenses while providing access to tax benefits.

While third-party ownership is not the most common way for communities to go solar, it offers a unique opportunity to address barriers that would otherwise hinder low and middle-income (LMI) populations from going solar. A growing number of states have passed legislation to facilitate this type of solar financing, and many community solar programs now offer third-party ownership options for customers. These programs also utilize a variety of other innovative finance strategies to expand access, including on-bill repayment (or “on-bill recovery”) that places loan payments directly on a customer’s electric bill, increasing accessibility for a wide range of credit scores.

Another financing option is a site lease, which allows for the installation of a PV system at your nonprofit’s property with a contract to purchase all electricity generated by the system. This model can be beneficial for nonprofits because it removes upfront costs and reduces maintenance and operations expenses while providing access and benefits of a full-service PV solution, including federal and state incentives such as SRECs and net metering.

Nonprofits are well-positioned to lead on solar as they often have dedicated, passionate members eager to fundraise and donate to support the organization. In addition to the potential for significant electricity bill savings, these groups can also help educate the community about the benefits of solar energy and how it can positively impact our environment.

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