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News

January 11th, 2015

Money from the sun: Solar developer links financing, buyers | Telegram & Gazette

By Yanshu Li SPECIAL TO THE TELEGRAM & GAZETTE

http://www.telegram.com/article/20150111/NEWS/301119938/-1/business21

An old golf course in Warren is now home to 57,000 solar panels that are producing enough electricity to power 2,300 homes.

The Warren solar farm is demonstrating that solar power has a future in Massachusetts. It is owned by First Wind Holdings Inc. based in Boston. Starting as a wind energy company, First Wind now owns two solar projects in the Worcester area (the other is in Millbury), and 17 wind projects across the U.S., with two more wind projects under construction.

"There's a strong demand for renewable energy in Massachusetts," said John Lamontagne, communications director at First Wind. "And the state has a very strong policy to encourage development of solar power. And there are incentives that are one of the reasons we are here."

First Wind pays $130,000 annually in property tax to the town of Warren, and the solar farm's construction created roughly 100 construction-related jobs, said Matt Kearns, vice president of business development in First Wind. Borrego Solar of Lowell, which installed the solar panels, will continue to provide maintenance for the first year.

The Warren solar farm does not fit the stereotype of acres of solar panels on a sizzling stark desert. Instead, the rows of south-facing panels reflect a metallic blue against the nearby bushes and trees. The panels make a slight buzz when someone stands close to listen, almost as if the sunlight makes a sound.

Two-way relationship

Across Massachusetts, solar power is producing 678 megawatts of electricity, which is enough to power 110,000 homes, according to the Massachusetts Clean Energy Center. The Warren solar project has a total capacity of 14 megawatts and is the second-largest solar array in the state.

Renewable energy providers often look for large consumers of energy to provide power to. It is a relationship that works both ways: First Wind, which spent $60 million to build the Warren and Millbury farms, can show its lenders that it has a long-term contract in place to sell the electricity generated.

The user of the electricity can trumpet that its power is coming from a clean, renewable source.

A portion of the energy produced in Warren is used by the University of Massachusetts Medical School in Worcester.

Having such a customer ready to buy its power helped First Wind gain financing at a favorable rate. It eliminates a major source of risk — finding a customer.

"The banks like to know that you are going to have someone to buy the energy for 30 years. And having that (power purchase agreement) in place allows them to finance the project at a better rate for us," Mr. Lamontagne said.

With encouragement from then Gov. Devel Patrick, the medical school targeted solar power to reduce its reliance on more traditional forms of energy. It consulted Competitive Energy Services, a Topsfield-based company, to help find a reliable provider at a good price.

Saving $1 million a year

In the competitive bid, First Wind won the long-term purchase agreement by offering a 37.5 percent discount against the retail power rate, which was $16.50 per kilowatt hour at the time. That is a contracted, fixed price for the solar-generated electricity, according to Mr. Kearns, and allows the medical school to save $670,000 in utility costs annually over the course of the 30-year agreement.

The discounted rate offered by First Wind was very attractive among the bidders seen in the state, said Andrew Price, senior vice president at the Mass. Clean Energy Center.

According to Mr. Kearns, the cost of producing solar energy is dropping dramatically. In certain markets, the costs are down and becoming competitive to the conventional energy.

Although the delivery cost of solar energy is a bit higher, solar energy is getting more competitive over the long term, he said.

The portion of Warren solar farm that operates for medical school was in a net-metering program: The university not only pays the solar developer at the discounted price according to the contract, it also earns credit in its monthly electric utility bill for all the electricity generated by the solar panels that it does not use. The credits appear as a dollar amount, which can be used to offset the utility bill from the electric distribution company.

Of the 57,000 panels at the Warren site, 19,998 have been harvesting sunlight for UMass Medical School since June.

According to UMMS, the medical school estimated it will receive $400,000 worth of credits on its bill, in the form of excess electricity paid back to the grid, for each year it receives electricity from the project.

Put another way, UMMS expects to save just over $1 million per year on its electricity bill with its contract with First Wind.

Sources of profit

The net-metering program is just one of the state incentives that have been created to expand green communities in the state. The credits are one factor that strengthens the engagement in the renewable energy industry among businesses, state agencies and nonprofit organizations.

As a result, Massachusetts ranks sixth in the nation for solar-installed capacity, according to the Solar Energy Industries Association.

First Wind earns its money back in two ways. One is the contract revenue earned from agreements like the one it signed with the Worcester medical school.

Another even more profitable revenue source are Solar Renewable Energy Certificates. A SREC is similar to a stock certificate for energy production: One SREC is earned from one megawatt-hour of renewable energy generated by using a green technology, like wind or solar power. SRECs are bought and sold on the open market.

Mr. Kearns said selling the SRECs is profitably generating the bigger portion of First Wind's revenue.

Utilities are required by law, the Massachusetts Renewable Portfolio Standard, to have a certain percentage of their electricity generated from renewable sources. They can either to produce the energy themselves or buy the credits.

First Wind sells the certificates, separately from the solar electricity, in the SREC market to the electricity suppliers who need to fulfill the SREC requirement, according to Mr. Kearns.

Since purchasing the credits to meet the legislation requirement is easier than producing them, energy suppliers look to buy the credits in the SREC market to avoid paying a fine that would be three times the retail price of electricity if it were sold to a consumer.

Mr. Kearns said selling the SRECs generates a bigger portion of First Wind's revenue than contracts like the one signed with UMass Medical School.

But both are profitable, he said, but he declined to break it down further.

First Wind expects to operate the Warren solar project for 50 years, said Mr. Kearns, and the solar panels will be upgraded as technology and efficiency increases.

First Wind will also focus on developing wind projects and the utility-scale solar projects to generate solar power to feed into the power grid, like the Warren solar farm, according to Mr. Lamontagne. The company is in talks to be acquired by SunEdison Inc. and TerraForm Power Inc.

Suzanne E. Wood, sustainability and energy manager at UMass Medical School, said it will leverage the money it has saved to continue improving its energy efficiency by increasing green power coverage on campus and adding renewable energy projects.

"We are the state's only public medical school, with a hospital on campus. Being more sustainable is obviously part of our core value," Ms. Wood said.