1603 Solar Lease Program ™
OVERVIEW:
Photon Energy Services offers an alternative solar program for school districts that find the long-term structure of power purchase agreements (PPAs) prohibitive in achieving their sustainability goals – the 1603 Solar Lease Program (1603 SLP™). Academic institutions can now get a shorter contract period and greater savings over the life of a solar installation than what is available with a traditional PPA. The program, developed in collaboration with the US Department of Treasury and major U.S. financial institutions, is possible due to the 1603 Treasury Grant program of the American Recovery and Reinvestment Act of 2009 (ARRA).
As the name suggests, 1603 Solar Lease Program participants lease – instead of purchase – solar equipment that is constructed on their property. Participants receive the benefits of affordable electricity generated from a renewable source and the ability to maintain the tradable renewable energy credits (TRECs) that allow them to say they’re green. 1603 SLP participants also benefit from an early buyout option (EBO), which allows them to buy out their lease agreement at between 45 and 60 percent of the total system cost and use a general obligation (GO) bond or other sources of capital to purchase and own the solar equipment that has been installed on their property. This option allows the district to shift the cost of electricity from the operating budget to bond funding, freeing up additional money for teachers and other critical areas of need.
The table below provides a comparison of the benefits a school district will receive under a traditional PPA and the new 1603 Solar Lease Program.
| PPA | School District SLP |
| Description | Buy power not equipment | Specialized 100% lease financing using ARRA funds |
| Upfront Out of Pocket | $0 | $0 |
| PPA Provider | School District | |
| Typical Term | 20-25 years | 15 years |
| Savings possible throughout term of agreement | Yes | Yes, typically greater than those of a PPA |
| Early Buyout Option | Negotiated at greater of agreed price or fair market value | Month 60, set buyout price typically between 45% and 60% of system cost |
| Payment Type | Set rate for energy produced | Fixed lease payment |
| Operations and Maintenance (O&M) | PPA provider through O&M contract | School district |
| General Fund Impact | Energy cost savings | Energy cost savings |
| Warranty | Warranties belong to PPA company | Warranties belong to school district |
| Basic Terms | Base + annual escalator | Fixed payments adjusted to projected savings/state incentive income |
| State Incentive | Goes to PPA provider | Goes to school district (used for SLP payments) |
The following chart provides an overview of the estimated annual savings a school will experience under the 1603 SLP.
1603 SLP Q&A:
Q: When and how can a school district get solar energy through the 1603 Solar Lease Program?
A: The 1603 Solar Lease Program is currently available to school districts and other academic institutions nationwide. Please complete our contact form to receive more information on how your district may benefit from the program. A Photon representative will contact you within 48 hours.
Q: How is this program possible?
A: The 1603 Solar Lease Program was developed in collaboration with the US Department of Treasury and major U.S. financial institutions. It was made possible under the Section 1603 Treasury Grant program of the American Recovery and Reinvestment Act of 2009.
Q: What is Photon’s role in this new program?
A: Photon Energy Services is the 1603 SLP project developer. Photon brings together best-in-class construction firms and direct funding from institutional banks to install on-site and reliable photovoltaic (PV) systems. As developer, Photon will also provide rate analysis, solar impact analysis and system design services for each 1603 SLP installation.
Q: Who pays for the solar equipment if the school district does not make the initial investment?
A: The 1603 Solar Lease Program was developed in collaboration with major U.S. financial institutions such as Bank of America Merrill Lynch. The program’s collaborating financial organizations purchase the solar equipment and serve as the system’s owner under a true tax lease. This lease structure gives the district (the lessee) a lower monthly payment for the solar equipment than a finance lease would.
Q: Where will a 1603 Solar Lease Program installation be built and who handles the construction?
A: Photon Energy Services works with best-in-class construction firms like Rosendin Electric, Inc. to install on-site, long-term and reliable photovoltaic (PV) systems on 1603 SLP participant facilities. Solar electric installations are often constructed on building rooftops and parking structures but may also be ground mounted.
Q: Why is the shorter contract term of the SLP appealing against the PPA?
A: Many districts have long-term plans for their facilities, whether it is a scheduled roof repair or significant retrofits. Consequently, a long-term contract may interfere with the district’s plans. A SLP gives the district another option for solar if there are long-range plans that may interfere with the development of a renewable solar energy installation.
Q: How can a district sell TRECs for a profit?
A: On March 11th, 2010, the California Public Utilities Commission (CPUC) authorized regulated utilities to use Tradable Renewable Energy Credits (TRECs) to meet their renewable portfolio standards. While this decision is new and the market is developing, this decision will allow districts to sell their TREC’s back to the utilities.
Q: Under the 1603 Solar Lease Program the school district is responsible for operations and maintenance. How does a district ensure they’re getting a high quality and reliable installation that will generate power through the life of the SLP agreement?
A: Operations and maintenance (O&M) agreements are available from a number of experienced firms. Typically, the contractor installing the system will be required to provide performance guarantees and will provide ongoing O&M services to assure system performance.
Q: What kinds of state and federal incentives can a district take advantage of under this program?
A: Districts will benefit from the California Solar Initiative (CSI) and its Performance Based Incentive (PBI) plus federal grants and tax breaks such as Pickle rule depreciation[1] and the 1603 Treasury Grant.
Q: My district has bond money. Can I still benefit from a 1603 SLP?
A: Yes. Photon can work with your CBO, financial advisor, and bond council to create a solution tailored to your current financial situation. In many cases, blending bond money with a 1603 SLP can result in even greater savings to your district.
Q: How do I know if the 1603 SLP is a good option for my school district?
A: Contact us to learn more about how your district may experience saving with solar through the 1603 SLP.
[1] Adopted in 1985 (and named after its sponsor), the Pickle rule limits depreciation for leases of property to those persons who do not pay U.S. income taxes such as tax-exempt entities and foreign persons. Under the Pickle Rule, the depreciation is limited to the longer of the property's class life or 125 percent of the lease term.