All-in-all, as an asset the church will own that guarantees lower costs for the next few decades, this kind of investment hits both the goals above: environmental stewardship and protecting the coffers. The problem is finding the cash to buy the system up front, which is why a Power-Purchase Agreement can sometimes make more sense. To wit:
OPTION 2: SIGNING A POWER-PURCHASE AGREEMENT (PPA) WITH A SOLAR COMPANY
A PPA is another relatively straightforward way to go solar, and it usually doesn’t require any money down. Under the agreement, a solar company installs panels on the church roof and sells the electricity to the church. The starting per-kilowatt-hour (kWh) rate is usually a little below the price you pay the utility company, but it’s also usually designed to go up by a certain percentage each year (1-3 percent is common). A typical PPA contract runs for 10 years.
The upside is you know exactly how much you’ll be paying for electricity for the next 20 years, and the solar output is guaranteed by the PPA company. They do all the work and put all the materials on the roof, and you pay the money.
The downside is this kind of arrangement only works if your state allows third-party solar financing (four states don’t) and whether your state has good net metering rules. For example, there’s a relevant solar horror story in one of those states that doesn’t allow PPAs: A church in North Carolina had solar panels installed by a local solar advocacy group called NC WARN, and began to purchase the energy from those panels under a PPA, but an April 2016 ruling by the state’s Public Utilities Commission found that NC WARN was breaking the law and resulted in a $60,000 fine against the group. The case is now working its way through the court system.
Long story short: make sure your state allows this kind of solar billing arrangement unless you’re prepared to take on the utility company, the state and the courts to win this moral battle. Here’s how the numbers shake out for a 10-kW solar PPA in the average state:
Here’s how all that works: The church signs a PPA agreement with a solar installer for energy at the cost of $.11/kWh, which is $.0125/kWh cheaper that the utility company charges (seriously, fractions of a penny matter here). So buying 12,480 kWh of electricity from the solar company saves the church $156 (12,480 times $0.0125) in the first year.
The PPA stipulates that the cost of the solar electricity will increase by 2 percent per year over a 20-year contract. But the percentage increase of electricity across the country has historically been about 3.5 percent, so the church starts to save more money as the years go by.
If these numbers hold true, the church will save about $10,000 in electricity costs over the 20-year PPA contract. That’s not a huge “if,” but the price of utility company electricity could rise by less than 3.5 percent, which would make these numbers change.
The net present value of the $10,000 over 20 years is about $6,000. That’s pretty good, but here’s why it isn’t the best: The church is still paying a lot for electricity, and to a company that cares little for its mission and values. That’s where the congregation comes in. Get a few people together who’d love to offer a long-term benefit to the church, and you might find just the right way to finance your solar installation. Here’s why:
OPTION 3: HAVING CONGREGANTS ESTABLISH AN LLC
If your church has a few parishioners with means, having them set up an LLC to purchase a solar installation and sell the electricity is a brilliant idea. That’s because the LLC qualifies for the Federal government’s direct grant of 30 percent of the costs of installing a solar array (under section 1603 of “the stimulus” of 2009).
So that means the $30,000 10-kW installation would result in a direct cash payment of $9,000 to the LLC, reducing the year-1 cost to just $21,000. At that point, the LLC could sell the solar energy to the church at a flat rate of 8.5 cents/kWh for the next 20 years, which would allow the investors to break even while helping the church benefit to the tune of $22,000 in energy cost savings. Check it out:
Looking at that chart, you can see how this kind of PPA can result in amazing savings for the church. And it’s not like we’re talking about a pipe dream here. People have done almost this exact thing before, with excellent results. In fact, depending on your state, there can be other ways to profit from solar — like SREC sales — that can change the payback numbers for the better.
WHAT CAN GO WRONG WITH SOLAR FOR A CHURCH?
The list here is about the same as the list for a homeowner — the roof could need reconstruction before the system can be installed, the price of electricity could rise by less than 3.5 percent per year, or the state laws about net metering could change sometime in the future, making the installation less profitable.
The good news (no pun intended) here is that many churches have gone down this path, and they love to share what they’ve learned. Here are a few inspiring stories and articles that may be helpful if your church is thinking about solar:
- Nine churches in a Massachusetts diocese using solar energy
- Solar ideas for nonprofits• Brotherhood Mutual Insurance FAQ on solar for churches
- Interfaith P&L page for churches
- New York Catholic church goes solar