financing solar energy for indian housing

National American Indian Housing Council

Annual Convention

FINANCING SOLAR ENERGY FOR INDIAN

HOUSING Denver, Colorado

May 7, 2019

John Clancy & Brian Pierson

Godfrey & Kahn, S.C.

• Wisconsin-based law firm – 175 lawyers

• Renewable Energy Strategies Team Leader John

Clancy 18 years experience working with tribes in

environmental protection, renewable energy

development, beginning with successful

opposition to sulfide mine

• Indian Nations Law Team Leader Brian Pierson

28 years experience working with tribes,

beginning with Wisconsin treaty rights litigation

Why You Should Care

• The IHBG is inadequate to meet the affordable

housing needs of tribal communities.

• The IHBG won’t grow but your operating costs

will.

• Energy costs are a major expense for TDHEs

and for tribal families.

• Effective TDHE leadership means leveraging, i.e.

aggressively pursuing non-IHBG sources of

money to meet the community’s needs.

Why You Should Care

This presentation is about aggressive and effective

leveraging. Our goal is to help you:

• Finance conversion to renewable energy

• Reduce your tenants’ monthly housing costs

• Promote tribal environmental values

4

PART ONE

THE FOSSIL FUEL PROBLEM

5

Three Problems With Current Energy

Supply in Indian Country

1. Tribe depends on energy provided by state-regulated utilities based off-reservation.

2. Overwhelmingly, the utilities produce energy by burning fossil fuels that create greenhouse gases and other emissions (e.g., sulfur and mercury).

3. Energy from fossil fuels is expensive and the price may likely to continue to climb.

The Dependence Problem

• Tribe must depend on outsiders for energy for

governmental operations and economic

development.

• Tribe has no authority over state-regulated

utilities and are subject to rate increases and

supply interruptions.

• Tribe’s ability to plan long-term is impaired

because of unknown future energy costs.

7

The Fossil Fuels Problem: It Causes Climate

Change and Threatens Public Health

8

Fourth National Climate Assessment

(“NCA4”) published Nov. 2018• https://www.globalchange.gov/browse/indicators/indicator

-annual-greenhouse-gas-index

• Prepared pursuant to the Global Change Research Act of 1990

• Lead Agency is the National Oceanic and Atmospheric Administration (NOAA), with oversight by Department of Agriculture (USDA), Department of Commerce (DOC), Department of Defense (DOD), Department of Energy (DOE), Department of Health and Human Services (HHS), Department of the Interior (DOI), Department of State (DOS), Department of Transportation (DOT), Environmental Protection Agency (EPA), National Aeronautics and Space Administration (NASA), National Science Foundation (NSF), Smithsonian Institution (SI) and U.S. Agency for International Development (USAID)

9

https://www.globalchange.gov/browse/indicators/indicator-annual-greenhouse-gas-index

NCA4 - Overview

“Earth’s climate is now changing faster than at any

point in the history of modern civilization, primarily

as a result of human activities. The impacts of

global climate change are already being felt in the

United States and are projected to intensify in the

future—but the severity of future impacts will

depend largely on actions taken to reduce

greenhouse gas emissions and to adapt to the

changes that will occur.”

10

Greenhouse Gas Index (NCA4)

11

CO2 Emissions (NCA4)

12

Climate Science Special Report

Fourth National Climate Assessment (NCA4 v. I)

13

Temp. changes 1901-1960 avg. vs. 1986-

2016 avg. (NCA4)

14

NCA4

“The health and well-being of Americans are

already affected by climate change, with the

adverse health consequences projected to worsen

with additional climate change. Climate change

affects human health by altering exposures to heat

waves, floods, droughts, and other extreme

events; vector-, food- and waterborne infectious

diseases; changes in the quality and safety of air,

food, and water; and stresses to mental health and

well-being.”

15

The Cost Problem

• Retail prices that utilities charge tribes/TDHEs

are high and generally increasing.

• Even though natural gas has been cheaper,

electric rates continue to rise.

• Costs may rise as users leave utility system.

16

Shrinking Icecap

17

PART TWO:

ENERGY TERMINOLOGY AND

SOLAR ENERGY BASICS

18

Renewable Energy Basics: Kilowatts &

Megawatts

• Energy output is measured in watts, kilowatts,

megawatts, etc.

• Energy consumption is measured in kilowatt

hours (kWh) and megawatt hours (MWh).

19

Renewable Energy Basics: kWs and MWs

A kilowatt hour (kWh) is:

The amount of electricity used, in kilowatts (1000

Watts = 1 kW) multiplied by number of hours the

energy is used.

(e.g., you have a 100 W light bulb and you have it

on for 10 hours a day then: 1000W (1/10 kilowatt)

x 10 (hours) = 1 kWh per day.)

20

Renewable Energy Basics: It Can Work Anywhere

21


An 8 kW solar array could provide enough energy

to power an average home in states like Colo,

WI,NM, NV(on average 23 kWh per day).

It would likely cost $20,000 - $25,000 and look

something like …

22

This:

23


1000 Kilowatts (kW) = 1 Megawatt (MW)

• A 2 MW wind turbine can generate 2 MW

of energy, enough to provide heat and

electricity to approximately 400 to 600

households.

• It would cost approximately $1.3 - 2.2

million per MW and look something like …

24

This:

25

Renewable Energy Basics: Wind and Solar Limitation

• Electricity is consumed not only during the day

but also in the evening and at night.

• A solar array produces energy only during

daylight.

• Wind produces energy only when the wind blows.

• Which means a key to renewable energy finance

is …

26

Renewable Energy Basics: Net Metering

• Net Metering: An arrangement by which the Tribe

sells the renewable energy it produces, but does

not consume itself, into the grid and receives a

credit against the amounts it pays for energy

purchased from the grid.

• Interconnection: Process of connecting energy

generation system with utility grid.

• Net Zero: The goal of producing enough

renewable energy to meet the Tribe’s entire

energy needs.

27

Energy Consumption / Costs

• Actual energy costs depend on the local utility.

• High current energy costs can be beneficial for

financing solar because the cost savings from the

conversion are greater, increasing the potential

return for investors, which translates into more

investor money to finance the solar facilities.

28

Battery Storage

• Key to resiliency with solar or wind

• Battery storage is an evolving technology

• Pricing has been declining and will likely continue to decline but battery costs are still high

• At current prices, adding battery storage to the 10 kW rooftop residential system pictured in a previous slide would increase the total cost by $700-$900 per kW ($7,000 - $9,000)

• Strategy Issue: Whether to invest now or wait for improvements in technology and further price reductions

29

Battery Storage

Strategic Options

• Install solar facilities solar with equipment that facilitates future

incorporation of batteries;

• Solicit bids from solar installers both with and without battery

storage to assess the value added;

• Limit costs by sizing battery storage based on critical loads to

assure essential needs

• Pursue grants to reduce the cost of batteries.

30

PART THREE

OVERVIEW OF THE STRATEGY

32

Strategy

1. Use tribal/housing energy consumption and

energy efficiency opportunities as assets,

rather than just liabilities;

2. Take advantage of Federal, State and utility

grants and programs; and

3. Partner with taxpaying entities to take

advantage of tax incentives.

33

Residential Average Electricity Consumption & Cost

2017 average residential monthly electricity consumption, cost*:

• U.S.: 867 KWh @ 12.89 cents per KWh = $111.67

• AL: 1,136 KWh @ 12.55 cents per KWh = $142.55

• AZ: 1,033 KWh @ 12.44 cents per KWh = $128.40

• CAL: 554 KWh @ 18.31 cents per KWh = $101,49

• CT: 690 KWh @ 20.29 cents per KWh = $139.97

• FL: 1,089 KWh @ 11.61 cents per KWh = $126.44

• HA: 506 KWh @ 29.50 cents per KWh = $149.33

• LA: 1,187 KWh @ 9.74 cents per KWh = $115.54

• ME: 546 KWh @ 15.97 cents per KWh = $87.21

• MA: 583 KWh @ 20.06 cents per KWh = $116.86

34

Residential Average Electricity Consumption & Cost –

2017 (cont.)

MS: 1,132 KWh @ 11.08 cents per KWh = $125.38

NM: 615 KWh @ 12.88 cents per KWh = $79.16

NY: 572 KWh @ 18.03 cents per KWh = $103.22

NC: 1042 KWh @ 10.94 cents per KWh = $113.98

RI: 577 KWh @ 18.32 cents per KWh = $105.76

SC: 1082 KWh @ 13.02 cents per KWh = $140.80

SD: 976 KWh @ 11.77 cents per KWh = $115.06

TN: 1150 KWh @ 10.72 cents per KWh = $123.30

TX: 1112 KWh @ 11.01 cents per KWh = $122.47

WI: 660 KWh @ 14.35 cents per KWh = $94.67

*Latest data available from U.S. Energy Information Agency released 10/12/18

https://www.eia.gov/electricity/sales_revenue_price/pdf/table5_a.pdf

35

Commercial Average Electricity Consumption & Cost

2017 average residential monthly electricity consumption, cost*:

• U.S.: 6,143 KWh @ 10.66 cents per KWh = $654.79

• AL: 5,123 KWh @ 11.60 cents per KWh = $594.06

• AZ: 7,771 KWh @ 10.50 cents per KWh = $809.85

• CAL: 5,782 KWh @ 15.76 cents per KWh = $911.53

• CT: 6,723 KWh @ 16.06 cents per KWh = $1079.88

• FL: 6,506 KWh @ 9.35 cents per KWh = $608.19

• HA: 4,194 KWh @ 26.77 cents per KWh = $1,122.79

• LA: 7,006 KWh @ 8.95 cents per KWh = $626.99

• ME: 3,286 KWh @ 12.12 cents per KWh = $398.11

• MA: 5,282 KWh @ 15.93 cents per KWh = $841.64

*https://www.eia.gov/electricity/sales_revenue_price/

36

Goals

• Reduce short-term and especially long-term energy costs for the tribe and for tribal members;

• Achieve long-term energy independence by transitioning to renewable, reservation-based sources of energy; and

• Do the Right Thing by reducing carbon/environmental footprint.

37

Key Finance Tools

• Grants

• Investment Tax Credits

• State and Local Incentives

• Power Purchase Agreement: Allows tribe to pay the cost of the solar facilities over time in the form of payments (lower than current payments to electric utility) for energy produced by the solar facilities

• Net metering Agreement: Allows tribe to be paid for the energy produced by the solar facilities when the Tribe isn’t consuming it.

38

WORKPLAN

• Project Schedule and Milestones: The Applicant

should provide a detailed schedule (by month) for

the entire project, including task and subtask

durations, and milestones. See Appendix D for

sample

39

PART FOUR

GRANTS

40

Federal Grants

• DOE Tribal Energy Program

• HUD Indian Housing Block Grant and Indian Community Development Block grant

• DOI grants, including Indian Energy and Economic Development Program.

• USDA Rural Energy for America Program, Rural Utilities and Community Facilities

• Federal Home Loan Band Affordable Housing Program

• And more

41

Financing: Key Sources

All of the above-listed funding sources should be considered. Our focus is:

• Federal Grants, especially: − Indian Community Development Block Grants

(ICDBGs)

−Competitive Indian Housing Block Grant

−Department of Energy Renewable Energy Grant

−USDA Rural Energy for America Program (“REAP”)

• NAHASDA Title VI guaranteed loans

• Renewable Energy Investment Tax Credits

42

Grants: IHBG

• NAHASDA Title II: “Eligible” activities include:

−Development of utilities

−Necessary infrastructure

−Utility services

− Improvement to achieve greater energy efficiency

• Activities must be to develop, operate, maintain,

or support affordable housing.

43

Grants: IHBG Can be Used for Projects not

Exclusively Devoted to Housing

The IHBG can be used to finance a renewable

energy facility to the extent the power is used for

“affordable housing activities.” If 50% of the energy

is used for affordable housing then the IHBG can

be used to cover 50% of the costs of a facility that

powers, e.g.

• Tribal government facilities.

• Tribal enterprises (casinos can be very attractive

because of heavy energy consumption).

44

The FY 2018/19 Competitive IHBG

• The FY 2018 and 2019 budget bills provides for a

total of $200,000,000 of IHBG funds for

“competitive grants to eligible recipients. … The

Secretary shall consider need and administrative

capacity and shall give priority to projects that will

spur construction and rehabilitation.”

• No regulations or other guidance yet. May be

similar to ICDBG.

• Ongoing debate over the “need” component

45

Competitive IHBG

• Annual IHBG normally needed to meet existing

needs

• Competitive IHBG offers opportunity to use IHBG

for larger development project

• Should be strategically considered in tandem

with ICDBG opportunity

46

Grants: ICDBG

Indian Community Development Block Grant:

Objective is “development of viable Indian and

Alaska native communities, including decent

housing, a suitable living environment, and

economic opportunities, principally for persons of

low and moderate income” (i.e., < 80% of area

median income). 24 CFR 1003.2

47

Grants: ICDBG

− Tribes can apply or pass resolution permitting

TDHE to apply

− FY 2018 Notice of Funds Available was published

10/22/18

− www.hud.gov/program_offices/public_indian_housi

ng/ih/grants/icdbg

− Applications were due 1/7/19

48

http://www.hud.gov/program_offices/public_indian_housing/ih/grants/icdbg

Grants: ICDBG

Eligible Uses include:

• Acquisition of real property

• Housing rehabilitation, including improvements to

increase energy efficiency through installation of

storm windows and doors …[etc.] and

modification or replacement of heating and

cooling equipment, including the use of solar

energy equipment.”

1003.202(b)(4)

49

Grants: ICDBG

Eligible Uses (cont.)

• Public facilities and improvements

• Private utilities

• Technical assistance to increase capacity to

“carry out eligible neighborhood revitalization or

economic development activities”

50

Grants: ICDBG

• Maximum Grants

Eastern Woodlands $700,000

Southern Plains $800,000

Northern Plains $800,000

Northwest $500,000

Alaska $600,000

51

Grants: ICDBG

SWONAP

50,001+ $4,000,000

10,501-50,000 $2,000,000

7,501-10,500 $1,600,000

Below 7,500 $800,000

52

Competitive IHBG - ICDBG

• Consider ICDBG and Competitive IHBG as

complementary programs

• Annual IHBG generally needed to meet existing

needs, not available for a large solar project

• The Competitive IHBG, like ICDBG, offers

opportunity for large solar project to achieve

long-term cost savings for members

• Competitive IHBG easier to use for new

construction

53

DOE 2018 Grant

1) Energy Efficiency Measures and/or Energy Generating System(s) for Tribal Building(s) (Area of Interest 1)

a. Deep Energy Retrofits (Area of Interest 1.a.)

b. Energy Generating System(s) (Area of Interest 1.b.)

c. Energy Efficiency Measure(s) and Energy Generating System(s) (Area of Interest 1.c.)

or,

2) Community-Scale Energy Generating System(s) Deployment (Area of Interest 2); or,

3) Energy System(s) for Autonomous Operation (Area of Interest 3)

a. Powering Essential Tribal Loads (Area of Interest 3.a.)

b. Tribal Community Resilience (Area of Interest 3.b.)

54

DOE EERE Tribal Energy Grant

Energy Infrastructure Deployment on Tribal Lands

issued under the Indian Tribal Energy

Development and Self Determination Act of 2005

25 USC § 3501 et seq.

The 2019 FOA was issued on March 14, 2019.

Source for all DOE 2019 Grant information is https://eere-exchange.energy.gov/FileContent.aspx?FileID=98266714-

eac7-407d-9947-9751cbc8cf3f

55

https://eere-exchange.energy.gov/FileContent.aspx?FileID=98266714-eac7-407d-9947-9751cbc8cf3f

DOE 2019 Grant: FOA Summary

Tribes, Intertribal Organizations, and Tribal Energy Development Organizations can apply for funds to:

1) Energy Generating System(s) and/or Energy Efficiency Measure(s) for Tribal Building(s) (Topic Area 1)

a. Energy Generating System(s) (Topic Area 1.a.)

b. Multiple Energy Efficiency Measures (Topic Area 1.b.)

c. Energy Generating System(s) and/or Energy Efficiency Measure(s) (Topic Area 1.c.)

Or,

2) Community-Scale Energy Generating System(s) Deployment (Topic Area 2);

Or,

3) Energy System(s) for Autonomous (Independent) Operation (Topic Area 3)

a. Powering Essential Tribal Facilities (Topic Area 3.a.)

b. Tribal Community Resilience (Topic Area 3.b.)

56

DOE Grant: Average Award Amount

DOE anticipates making awards that range from:

• $50,000 to $1,000,000 for Topic Area 1 (Energy Efficiency Measures and/or Energy Generating System(s) for Tribal Building(s));

• $250,000 to $2,000,000 for Topic Area 2 (Community-Scale Energy Generating System(s) Deployment)

• $50,000 to $1,000,000 for Topic Area 3.a. (Powering Essential Tribal Facilities); and

• $250,000 to $2,000,000 for Topic Area 3.b. (Tribal Community Resilience).

AVAILABLE WITHOUT REGARD TO INCOME LEVELS OF PERSONS BENEFITTED.

57

DOE Grant: Cost Share Requirement

A 50% cost share of the total allowable costs of the

project (i.e., the sum of the DOE share, and the

Recipient share of allowable costs equals the total

allowable cost of the project) is required.

58

Grants: USDA Rural Energy For America Program

(REAP)

• Renewable Energy Systems & Energy Efficiency

Improvement Loans And Grants

• Competitive Small Grants of $20,000 or less

available at specific times

• Competitive Unrestricted Grants (up to

$500,000) available at specific times

• Competitive Loan Guarantees are available

continuously throughout the year

60

Grants: USDA REAP

Funds may also be used for the purchase, installation and construction of energy efficiency improvements, such as:

• High efficiency heating, ventilation and air conditioning systems (HVAC)

• Insulation

• Lighting

• Cooling or refrigeration units

• Doors and windows

• Electric, solar or gravity pumps for sprinkler pivots

• Replacement of energy-inefficient equipment

61

Grants: REAP

• Who may apply for this program?− Agricultural producers with at least 50% of gross

income coming from agricultural operations, and

− Small businesses (including tribal businesses) in eligible rural areas.

• What is an eligible area?− Businesses must be in an area other than a city or

town with a population of greater than 50,000 inhabitants and the urbanized area of that city or town.

− •Agricultural producers may be in rural or non-rural areas.

62

Grants: REAP

• Projects greater than $200,000 require a

technical report.

• Energy efficiency projects require an energy audit

or assessment.

• Loan guarantees on loans up to 75% of total

eligible project costs.

• •Grants for up to 25% of total eligible project costs

• Combined grant and loan guarantee funding up

to 75% of total eligible project costs

63

REAP Loan Guarantee

Loan Guarantee Terms

• $5,000 minimum, $25 million maximum loan amount;

• Up to 85% loan guarantee

• Rates and terms negotiated with the lender and subject to USDA approval. Maximum term of

−30 years for real estate

−15 years for machinery and equipment

− •7 years for capital loans

−30 years for combined real estate and equipment

64

Grants: REAP

• Renewable Energy System Grants:

−$2,500 minimum

− •$500,000 maximum

• Energy Efficiency Grants:

−$1,500 minimum

−$250,000 maximum

65

Financing: Federal Home Loan Bank AHP

• Federal Home Loan Bank System encompasses

11 Regional Banks.

• Created by the Federal Home Loan Bank Act as

a government sponsored enterprise to support

mortgage lending and community investment.

• Each FHLBank is a separate, government-

chartered, member-owned corporation.

66

Financing: FHLB AHP

• Affordable Housing Program (“AHP”) programs

pursuant to 12 U.S.C. 1430(j) and 12 C.F.R. Part

1291

• Rental AHP Eligibility requires that at least 20%

of the project's occupants earn 50% or less of

area median income

• Grant maximums vary by Regional Bank

• Competitive application process

67

Financing: FHLB AHP

Maximum grants vary by regional FHLB, e.g.

NY: $20K per unit

SF: $2M per project

CHI: $850K

Des Moines: lesser of $500K or $30K/unit

68

Financing: FHLB AHP

• Eligible Rehab is prescribed in each regional

bank’s Implementation Plan

• Often allows for upgrade of electrical and energy

systems

69

NAHASDA Title VI

• Permits TDHE to borrow up to five times the

needs portion of IHBG - Permits AHA to pursue

larger projects, achieve economies of scale and

meet needs of community sooner

• 95% Guaranteed by the United States

• Secured by future IHBG: Unless there is revenue

to service debt, will reduce funds available for

future development – Must be used wisely

• Good source of “gap” financing

70

Tribal Solar Accelerator Fund

• “GRID Alternatives has a long-standing partnership with the Wells Fargo Foundation, which has supported the national expansion of GRID’s renewable energy access work since 2012.

• In 2018, GRID Alternatives received a 3-year, $5 million grant from the Wells Fargo Foundation to support GRID’s National Tribal Program as well as provide new, independent funding to tribes for renewable energy projects.

• This concept and program scope was developed into what is now the Tribal Solar Accelerator Fund (TSAF).”

Source: https://tribalsolaraccelerator.org/apply/

71

https://tribalsolaraccelerator.org/apply/

TSAF Priorities

• “The TSAF will provide necessary capital to support the development of new solar demonstration projects in tribal communities around the country

• The TSAF supports solar education, training, and workforce development in tribal communities

• The TSAF prioritizes the development of long-term energy plans to increase tribal energy security and resiliency.”

• Source: https://tribalsolaraccelerator.org/apply/

72


TSAF Funding Areas

Each TSAF funding area has its own application for funding; please go to tribalsolar.org to download the application(s).

“DOE Matching Funding - Application deadline: May 3rd

• Matched Funds: Tribes that have a cost-share funding need, or an outstanding U.S. Department of Energy grant matching funds requirement

• Proposals will be funded up to $250,000 per project

Tribal Solar Project Funding - Application deadline: May 3rd

• Tribal Facility Solar Projects: These projects can include rooftop, carport or ground-mount solar installations that meet the energy needs of the tribal community

• Tribal Residential Solar Projects: These projects will be for low-income single-family homes in tribal communities

• Proposals will be funded up to $200,000 per tribe”


73


TSAF Grant Timeline and Reporting

• Source: https://tribalsolaraccelerator.org/apply/

RFP ANNOUNCEMENT March 4, 2019

TSAF INFORMATIONAL WEBINAR March 15, 2019

GRANT APPLICATION DUE May 3, 2019 by 5:00 p.m. MST

GRANT AWARD/DENIAL NOTIFICATIONS June 3, 2019

GRANT TIMELINE (PROJECT FISCAL YEAR START/END) July 1, 2019 – June 30, 2020

GRANTEE CHECK-INS WITH TSAF STAFF July 1, 2019, October 1, 2019, January 1, 2020

GRANTEE FINAL REPORT DUE March 1, 2020

74


TSAF Initial Review and Selection

CriteriaUpon receipt of a TSAF application, the following funding criteria should be met regardless of the funding area applied for:

• Solid and concrete matches between project purpose and funding priority area

• Clear focus on building renewable energy infrastructure in the tribal community

• Demonstrated ability and/or experience necessary for a successful project

• Clear plan of action, including specific goals and measurable objectives

• Feasible, cost-effective, and sustainable budget

• Partnerships that engage broad tribal community participation and support

• Potential for application and replication in other tribal communities


75


TSAF EligibilityThe TSAF eligibility criteria is as follows:

• Federal and state-recognized tribal governments in the lower 48 states and Alaska (tribal government programs, such as tribal housing authority, cultural departments, economic development entities, etc.)

• Tribally-led 501(c)(3) nonprofit organizations (fiscally-sponsored tribal community organizations, tribal community organizations without a 501(c)(3) nonprofit status may submit an application through a sponsoring organization if the sponsor has IRS 501(c)(3) status and can provide written authorization confirming its willingness to act as the fiscal sponsor.

• Schools that are tribally-controlled 501(c)(3) nonprofit organizations and schools that are tribally-operated such as tribal colleges and universities (TCUs), any public or Bureau of Indian Education (BIE) schools.

• The definition of “tribal-led” is: an organization in which a majority (>51%) of the board of directors and leadership team are American Indian or Alaska Native. Organizations that are not tribal-led are not eligible to apply (with or without a fiscal sponsor).

• For tribal facility projects, the community served must be designated low-to-moderate income (LMI) as demonstrated by eligibility for federal, state, or tribal low-income programs, or with Census data.

• For tribal household or multi-family projects, the resident households must be 80% or below the area median income as defined by the Department of Housing and Urban Development (HUD) or another LMI-serving program.

76

TSAF Application Site and

Submission Guidelines• No more than 10 pages of application organization information and

proposal narrative (including charts/graphs, maps, or photos). The budget, project timeline, tribal council resolution or letter of support, and tribal council roster or board of directors list are required attachments excluded from the 10-page maximum.

• References must be included as footnotes or endnotes in a font size of 10 or larger. Footnotes and endnotes are counted toward the maximum page requirement.

All applicants will need to secure a tribal resolution or a letter of support from your tribal council acknowledging the application for the proposed project and that Wells Fargo Foundation is the source of funding regranted through the Tribal Solar Accelerator Fund.


77


Public Communications Expectations

The following are GRID’s commitments to and expectations of tribal partners participating in TSAF projects.

Our Commitments to You (TSAF grantee):

1. GRID Alternatives will provide you with a single point of contact for all TSAF-related communications activities.

2. GRID Alternatives will collaborate with your designated communications representative to develop a set of

communications activities that is appropriate for the project and your tribe. Activities may include one or more of the

following:

− Press release announcing receipt of TSAF grant for local, regional or national audience

− News item on GRID Alternatives’ website(s) and/or newsletter about the project

− News item on Wells Fargo Stories about the project

− Groundbreaking or other public event with speaking opportunities and/or branding for TSAF funders

− Project video produced by GRID Alternatives, Wells Fargo or other approved partner

− Listing/write-up in Wells Fargo stakeholder reports

− Listing in Wells Fargo philanthropy press releases

3. GRID Alternatives will provide you the opportunity to review and approve all external-facing communications assets

and their intended use prior to their release.


78


Tribal Solar Accelerator Fund

• 2018 grantees include the Spokane Tribe of

Wellpinit, Washington, the Chemehuevi Tribe,

and the Los Coyotes Band of Cahuilla and

Cupeño Indians.

79

State Incentives

• State incentives for Renewables and Efficiency

can be very significant and should be thoroughly

explored. NC Clean Energy maintains a

database:

• http://www.dsireusa.org/

80

For Tribes with Larger Undeveloped

Land Areas• May be good opportunities for siting of utility-scale

solar or wind facilities

• May allow for potentially substantial lease payments

• May allow for potentially significant payments in lieu of taxes

• May provide significant tribal member job-training and jobs

• May provide opportunities for provision of low-cost clean energy to Tribal buildings

• May be able to incorporate grant/tax credit financing strategies for energy used by the Tribe

81

PART FIVE:

RENEWABLE ENERGY

INVESTMENT TAX CREDITS

83

Tax Credits (Get Used to them)

• Congress authorizes tax credits to achieve policy goals without having to appropriate federal funds

• Tax credits are a major source of financing for new housing, housing rehab and solar development.

• Investors, rather than Congress, provides the funds; In return, investors get a dollar for dollar credit against their federal income tax;

• In effect, the US Treasury is contributing to the Project the money it would otherwise have collected.

84

How Tax Credits Work in Indian Country

• Tribes and TDHEs don’t pay income tax so they

have to partner with the investors who do.

• The Tribe/TDHE forms a partnership with the

investors for a limited period of time.

• The investor owns 99% of the partnership so that

it can claim 99% of the tax credits that the

Tribe/TDHE can’t use. The investor also gets

99% of the depreciation tax deductions on the

equipment.

85

The Basic Approach

1. Monetize investment tax credits to pay for

approximately 30% of construction/installation of

facility;

2. Further reduce the Tribe/TDHE’s out-of-pocket

development cost with energy grants, IHBG, Title

VI loan or other sources;

3. Potentially pay less for electricity while paying off

remaining costs over five or more years, depending

on grants, through a power purchase agreement;

4. Assume full ownership after the development costs

are paid.

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Key Tax Credit for Renewable Energy: the ITC

The Renewable Energy Investment Tax Credit (“ITC”):

• Available for solar and small wind

• Potentially available for battery storage installed with

new solar facilities subject, however, to restrictions

that may be less attractive to investors.

• Source of funds that don’t need to be repaid - like a

grant from the tribal perspective

• Delivers up to 30% of cost of development

• Survived the “Tax Cuts and Jobs” Act of 2017, Public

Law 115-97

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Tax Credits: Key Business Terms

• Depreciation: The right to deduct capital costs,

over time, from taxable income

• Tax Credit: A dollar for dollar credit against

income taxes otherwise due

• LLC: Limited Liability Company: A partnership-

like structure that allows for allocation ownership

interests for tax purposes of profits and losses

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ITC: the Tribe’s Deal with the Investor

Put simply:

1. The Tribe and the tax investor, who could also be the developer, form an LLC.

2. The Tribe agrees to give the investor a 99% ownership interest in the LLC so that the investor can claim 99% of the investment tax credits, which the Tribe/TDHE can’t use.

3. In return, the investor agrees to make economic contributions that significantly reduce the cost of the project to the Tribe/TDHE.

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ITC: The Tribe’s Deal with the Investor

• The investor gets the tax benefits.

• The Tribe gets the investor’s cash to build the

project.

• The amount that the investor contributes to the

Project is negotiated. The investor is looking for a

certain return on investment.

• The value of the tax credits and depreciation is

large enough for both the investor and the

Tribe/TDHE to benefit.

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The ITC is like Low Income Housing Tax Credits in some ways:

1. There’s an LLC or partnership with an investor.

2. The investor is given 99% ownership interest in order to claim 99% of the tax credits.

3. The investor compensates the Tribe for the tax credits by contributing equity to the project.

4. After a period of years, the investor goes away and the Tribe keeps the project BUT…

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It’s much easier than LIHTCs because

1. The ITCs aren’t allocated by a state housing agency and the State has no compliance role.

2. The ITCs aren’t competitive and there’s no complicated application process.

3. The investor can claim the credit in year one instead of over 10 years.

4. The investor may be ready to exit after six years instead of 15 years.

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Compared with LIHTCs, the ITC deal is a:

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ITC: Documenting LLC’s ownership

and access• Monetizing tax credits requires a lease or permit

to establish the LLC’s control of the wind or solar

facility for tax purposes.

• Lease: BIA Part 162 Leasing Regulations

− Include Special Provisions for Wind and Solar

Resource Leases.

−Still Require BIA approval of all leases.

−Leave in doubt whether agreements for

installation and access are “permits,” “rights of

way” or leases.

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and access• The HEARTH Act:

• Permits tribes to avoid future BIA lease approval by

adopting a BIA-approved leasing ordinance.

• Includes Tribal Environmental Review Procedures.

• Over twenty tribes have BIA-approved ordinances.

All tribes should consider doing the same.

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and access• Permits avoid BIA approval process. According to

25 C.F.R. 162.007, they generally:

• Do not grant a legal interest in Indian land;

• Are of shorter terms than leases;

• Give permittee has a non-possessory right of

access, not a right of possession or right to “limit

or prohibit access by others;”

• Are revocable “at any time.”

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Key Timing Issues

Beginning in 2020, the 30% ITC will phase down

per IRC Section 48(a)(2) and (6):

• 26% for projects whose construction begins

January 1 - December 31, 2020, if placed in

service by January 1, 2024, otherwise 10%;

• 22% for projects whose construction begins

January 1 – December 31, 2021, if placed in

service by January 1, 2024, otherwise 10%.

• 10% for projects whose construction has not

begun by January 1, 2022.

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ITC: the Tribe’s Typical Deal with the

InvestorPut simply:

• The Tribe and the tax investor, who could also be the developer, form an LLC.

• The Tribe agrees to give the investor a 99% ownership interest in the LLC so that the investor can claim 99% of the investment tax credits, which the Tribe can’t use.

• In return, the investor agrees to make economic contributions that significantly reduce the cost of the project to the Tribe.

• The investor exits the LLC and goes away once the IRS rules have been satisfied (minimum five years control) and the project has been paid off (normally after 5-10 years assuming substantial grant funds)

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PART SIX

THE OTHER AGREEMENTS THAT MAKE IT WORK

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ITC: Tribe’s Deal with the Design-Builder

• The LLC, owned by the Tribe (1%) and the

Investor (99%), enters into a contract with the

Design-Builder to install the system

• May be an AIA A141 Standard For of Agreement

Between Owner and Design-Builder.

• Issues include:

−Federal Procurement Requirements

−Subcontracting, employment and training

opportunities for tribal members

−Warranties

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ITC: Procurement Strategy to Maximize Benefit to Tribe

• Procurement may seek design-builder who can

not only install facilities but also bring ITC

investor who could potentially help finance up-

front installation and transaction costs, reducing

Tribe’s out-of-pocket costs

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ITC: Power Purchase Agreement

The Power Purchase Agreement (“PPA”)

• Determines what the Tribe/TDHE will pay to the

LLC for energy during the payback period.

• Should be less than what the Tribe/TDHE

currently pays to state-regulated utility.

• Will constitute part of the investor’s “return on

investment.”

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Interconnection and Net Metering

AgreementsAgreements with the utility that allow the LLC to

• connect to the grid and

• receive retail credit for the energy produced by

the solar facility when the Tribe isn’t using the

energy

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Tribal Utility Ordinances

A tribal ordinance may play an important role

• Exercise of sovereignty

• Authorizes sales of energy from wholly-owned Tribal entities to wholly-owned Tribal entities on Reservation lands

• Strengthens the Tribe’s case if the state should seek to impose restrictions on the LLC, Tribe or utility under state law. (Cf. White Mountain Apache v. Bracker cases)

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PART SEVEN

PUTTING IT ALL TOGETHER:

SOME REAL WORLD ILLUSTRATIONS

Illustration #1: DOE Grant + ITC

• Project: Solar facilities to generate 600 kW electricity to power 150 homes (or potentially 1000 kW for a solar farm serving 250 homes).

• Can be rental, rent-to-own or home ownership units.

• Approximate Cost: $2 million.

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• $1 million US DOE Tribal Energy Grant.

• Tax investor/developer pays the rest of the costs of

development, and gets return on investment through:

− The investment tax credit ($2M x 30% x 99% = $594k).

− Depreciation deductions.

− Tribe’s/TDHE’s reduced-cost payments for the energy

produced by the renewable energy facility.

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• If full credit is given for ITC (and nothing for

depreciation), Tribe pays for remaining

approximately 20% via energy purchases at price

substantially below utility rates.

• Once 20% is paid, Tribe essentially receives full

ownership without incurring any capital costs.

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Illustration #2: ICDBG + ITC

• Tribe or Housing Authority applies for ICDBG.

• No cost-sharing required but receive full six

points because of leveraging with tax investor.

• Potentially build solar facility that is about 40%

larger than with ICDBG alone.

• Further leverage with potential state incentives.

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Illustration #2: Cost Savings to

Tribe/Tenants

1. Currently: TDHE pays state utility 12¢/kWh, annual costs of $100,000.

2. After installation: During about 6-year payback period: Tribe/TDHE pays LLC 4¢/kWh, annual energy costs of $33,333.

3. After payback period: Tribe/TDHE can continue charging tribal member 4¢/kWh and use revenue for affordable housing OR reduce charges to minimal cost of maintenance during remaining 20-25 year life of facility.

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Subsidized or Free Energy Provided to

Members is Tax–FreeUnder the Tribal General Welfare Exclusion Act, 26 U.S.C. § 139E “Indian general welfare benefits” provided to or on behalf of a tribal member (or spouse or dependent) under an “Indian tribal government program” are excluded from taxable income if –

(1) the program is administered under specified guidelines and does not discriminate in favor of members of the governing body of the tribe, and

(2) the benefits provided under such program—− (A) are available to any tribal member who meets such

guidelines,

− (B) are for the promotion of general welfare,

− (C) are not lavish or extravagant, and

− (D) are not compensation for services.

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Subsidized or Free Energy Provided to

Members is Tax–Free

IRS Rev. Proc. 2014-35, “Application of the

General Welfare Exclusion to Indian Tribal

Government Programs That Provide Benefits to

Tribal Members” lists various specific tribal

government benefits that will qualify, including

residential housing programs that

−“enhance habitability … such as by remedying …

heating or cooling issues” and

−“pay utility bills and charges (including …

electricity)”

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Illustration 3: Solarizing Gaming,

Governmental and Other Facilities

• Evaluate energy usage and suitability of tribal gaming and other facilities for solar installations

• Solicit proposals from investors and developers using tax credits

• Seek targeted grants to assist with financing

• Seek low-cost debt to assist with financing e.g. USDA REAP guaranteed loan

• Use tribally-owned C-corp leasing structure to partner with tax credit investors

• Provide energy to tribal buildings through C-Corp.

• Prepay lease with buyout right

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Illustration 4: Solar Farm

Large-scale solar, e.g. 500-1000 acres – 100 MW

• Potential opportunity to lease land to a large

solar developer or utility and receive high lease

payments and payments in lieu of taxes

(reportedly double or triple the amount paid to

lease farmlands)

• Potential for negotiation of better pricing for solar

facilities on tribal buildings

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Energy Efficiency Projects

• Energy efficiency project can have quicker

payback (two to five years), especially with

state/utility incentives.

• Can have renewable energy company finance

project with Tribe/TDHE reimbursing through

energy payments.

• Tribe/TDHE can receive and keep federal, state

and utility grants/incentives.

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Take Aways

• There are significant federal and state incentives

for renewable energy and energy efficiency

• These incentives can often be combined with

investment tax credits and depreciation benefits

to dramatically reduce the cost of renewable

energy and energy efficiency development

• Any remaining costs can normally be financed

through energy savings

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Next Steps / Strategies

• Identify priority project(s)

• Identify federal and state grants and other

incentives that best match the priority project(s)

• Confirm tax credits that apply to the priority

projects

• Pursue federal and state grants and incentives

• Identify partners, e.g., installer and investor

• Tax benefits become less valuable beginning in

2020

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Getting Help Getting Going

HUD ONAP Training/Technical Assistance Process:

• The TDHE sends regional coordinator a Request for Training/Technical Assistance. To get the form, go to http://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/ih/codetalk/training

and click on the link “Technical Assistance Request Form”

• HUD contacts one of the authorized T/TA providers.

• G&K is a subcontractor in the area of renewable energy finance and development.

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http://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/ih/codetalk/training

Done!

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OFFICES IN MILWAUKEE, MADISON, WAUKESHA, GREEN BAY AND APPLETON, WISCONSIN

AND WASHINGTON, D.C.

The presentation and materials are intended to provide information on legal issues and should not be construed as legal advice. In addition, attendance at a Godfrey & Kahn, S.C.

presentation does not create an attorney-client relationship. Please consult the speaker if you have any questions concerning the information discussed during this seminar.

Thank You.

John Clancy

[email protected]

(414) 287-9256

Brian Pierson

[email protected]

(414) 287-9456

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financing solar energy for indian housing

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