How to build zero-cost on-site solar and storage projects
Download our guide to leveraging financing and incentives to access energy solutions that cut energy costs, generate revenue, and meet decarbonization goals.
11 01, 2023
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1. What is CapEx in renewable energy? What does zero-CapEx mean?
Capital expenditures (CapEx) are the initial investments that organizations need to make to develop a new renewable energy project, such as an on-site solar and battery storage system. Unfortunately, significant upfront costs often deter organizations from pursuing clean energy projects, despite their benefits and growing demand within the industry. Luckily, many energy solutions financing mechanisms and incentives are available today, allowing organizations to build an on-site solar and storage system without an initial investment.
2. What makes battery storage and clean energy projects valuable?
On-site solar and battery storage systems benefit organizations by reducing energy costs, cutting carbon emissions, and offering revenue opportunities.
Generating solar power enables organizations to consume less electricity from the grid, resulting in energy costs savings. In addition, as a renewable energy source, solar helps organizations reduce their carbon emissions, advancing their decarbonization targets.
Battery storage unlocks more flexible energy use by allowing organizations to shift energy use to cost-effective times, thus reducing charges and utility bills. Organizations can also take advantage of revenue opportunities through demand response programs, where they get paid for reducing their energy demand during times of stress on the electric grid.
3. Why should I consider integrating solar and battery storage?
An integrated solar and battery storage system is the go-to solution for many organizations because the synergy between these technologies is key to capturing the most financial and sustainability benefits:
- Solar adds a unique sustainability dimension to storage by allowing it to charge primarily from the sun rather than from the grid.
- Battery storage systems strategically charge and discharge solar energy, storing excess solar energy generated when the sun shines. They ensure that this renewable energy is not wasted but rather utilized when needed most, like during peak price times on the grid.
In addition to the sustainability and flexibility value, solar and battery storage offers:
- Economic predictability: Long-term power purchase agreements (PPAs) lock in $/kWh energy prices, reducing exposure to future price changes and making long-term strategic planning easier.
- Additional economic incentives: While the Inflation Reduction Act offers incentives on the federal level, many local jurisdictions provide additional storage incentives when storage is paired with solar – including property tax reductions, performance payments, or additional solar renewable energy credits (SRECs) for on-site generation.
- Making solar economics work: In this integrated solution, storage can enable solar to work in traditionally non-solar friendly markets that have high PPA prices. By adding storage to solar in many markets, you can reduce PPA prices – for instance, adding storage to solar can reduce $8/MW to $5/MW.
4. How do I finance my on-site solar and battery storage project?
To get started, explore incentives designed for organizations interested in renewable energy solutions and battery storage. For instance, the Inflation Reduction Act of 2022 has facilitated the emergence of new market opportunities spurred by these incentives.
While they can significantly reduce upfront costs, incentives typically will not cover the entire cost of your solar and battery storage system. That’s where financing comes into play, allowing you to determine how to fund the remaining balance of the system after incentives are considered. Luckily, there are various energy solutions financing options that your organization can leverage.
5. What are incentives for solar and battery storage projects – and how can I use them?
The Inflation Reduction Act provides almost $400 billion in federal incentives for clean energy and technologies, including the Investment Tax Credit (ITC). The ITC reduces upfront costs for solar or battery storage systems installed during the tax year and is structured as a tiered credit system.
At the minimum, project owners are eligible for a base rate of 6%. But if they meet additional requirements – prevailing wage and apprenticeship requirements – they unlock the full credit of 30%. Projects may also earn an additional bonus tax credit of 10%, if they meet a “domestic content” requirement, are in “energy” or “low-income” communities, or can qualify as a “low-income” project. Stacking these bonus adders together means a project – given that it fits all eligibility criteria and is accepted to receive the low-income adders – could achieve a maximum 70% ITC.
Inflation Reduction Act incentives
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Stacking available credits and bonus adders from the Inflation Reduction Act allows organizations to receive a maximum 70% ITC.
6. What are the common on-site energy solutions financing solutions?
Once you take advantage of available incentives, consider financing options available to your organization to fund the remaining balance of the system. There are three primary options that we typically see in the market:
- Direct purchase: Your organization funds the project internally, essentially investing from your balance sheet as capital expenditure (CapEx) to gain full project ownership.
- Third-party financing: Your organization seeks external lenders to finance the project and makes payments over its lifespan.
- Developer financing: Your project partner handles the upfront capital, and you collaborate to share project benefits, often through a Power Purchase Agreement (PPA) or a benefit share model.
Energy solutions financing options
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Out of 3 energy solutions financing options we see in the market, developer financing is the one that allows organizations to benefit from on-site solar and storage without hefty upfront costs.
7. Will my organization incur any costs?
Choosing a developer financing option for your on-site energy solutions with an experienced and reputable energy partner eliminates upfront costs and financial risks for your organization. Enel, for instance, wraps all project costs within our zero-CapEx financing mechanisms so that organizations do not have to put up any capital. Instead, Enel puts up the capital.
8. What is the difference between direct purchase and developer financing?
Direct purchase: From a value perspective, direct purchase offers potential high returns but carries significant risk. When you opt for direct purchase, you are putting up the capital and yes, there is a significant rewards potential. However, it also means that you’re shouldering all the risk. Imagine owning a storage or solar asset. What if the sun doesn’t shine as much as you hoped, or you can’t fully leverage your asset’s value streams? In such cases, your expected value might fall short, and your return on investment (ROI) may fail to meet your initial projections.
Developer financing: Here you and your project partner share the value and risk, with your partner optimizing asset performance. You both benefit from the rewards, but you do not have to worry about the risk – you offload that to your partner. Your partner also handles maintenance, operations, and asset deployment, working alongside you to ensure they recoup their investment and optimize every possible ounce of value from that asset. This option offers a more dependable upside, even if you’re sharing it with your developer.
Example 20-year customer cashflows
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This chart illustrates the trade-off over a 15 to 20-year project lifetime. While direct purchase offers potentially high rewards, it also carries significant risk. The developer financing model, on the other hand, yields lower cumulative benefits but comes with lower risk. Working with a partner who has the expertise to manage the complexity of on-site clean energy assets ensures stability and enhances strategic planning.
9. What are the advantages of choosing developer financing?
Choosing a developer financing option and ensuring your partner provides a benefit share allow your organization to maximize asset value and minimize risk. The benefit share structure creates a partnership where both parties’ interests are firmly aligned though shared incentives. It motivates your energy partner to actively seek out new market opportunities and seek out new ways to extract additional value from the storage assets.
For example, Enel proactively collaborates with our partners to capitalize on new opportunities as market dynamics evolve and new demand response programs emerge, expanding the pool of value to its fullest potential. In doing so, we also shape these opportunities by collaborating with regulators to ensure market reliability, safeguarding long-term asset investments.
10. With a benefit share, does my rate change throughout the agreement?
The benefit share rate between your organization and your partner should not change over the course of the agreement. However, the benefits you receive can change depending on how much value was created during the settlement period.
As an example:
If you and your partner agree on a split of the expected savings, that ratio remains unchanged, regardless of the actual value derived. For instance, your partner’s initial projection might be that your system will bring your organization $5 million in cumulative benefits over 15 years, with a 50:50 split. However, this figure may fluctuate because of market dynamics, landing between $3 million and $6.5 million. Nonetheless, you will consistently receive 50% of the revenue generated without any upfront expenditure in the benefit share model.
11. What are the developer financing options Enel offers?
Enel North America leverages three main financing mechanisms when evaluating the economics of solar and battery storage projects:
- Power Purchase Agreement (PPA) rate – offers straightforward financing for solar and battery storage projects. Your organization agrees to pay a fixed rate per kWh for system-generated electricity over a contract period, usually 15+ years. This avoids upfront costs, ensures a stable energy price, and shields your organization against future price fluctuations.
- Battery storage benefit share – an innovative financing model that allows your organization to enjoy the advantages of battery storage without significant capital investment. As the system helps you optimize energy usage, curb demand charges, and tap into demand response revenues, the savings and additional revenue generated are shared between you and Enel, typically in a predetermined split, like 50:50. This structure ensures that both your organization and Enel have a vested interest in maximizing the system’s benefits, aligning incentives for success.
- PPA rate + battery storage benefit share – combines flexibility and cost-effectiveness. Your organization pays a fixed rate per kWh, like in a traditional PPA. Simultaneously, you share in the benefits and cost savings derived from energy optimization, demand management, and demand response programs. This hybrid approach offers energy cost predictability and value from energy flexibility and optimization.
12. Are there red flags I should be aware of with developer financing?
We’ve seen developer financing models where there is no benefit share arrangement – in which case, your organization would assume all risk. Be sure to request proposals from several energy partners and compare offerings.
13. Why now is the right time to take advantage of the benefits offered by solar and storage?
Rapid changes in the energy market, driven by factors like volatile natural gas pricing due to global geopolitical tensions, are amplifying the risk and cost of energy for organizations. With grid costs growing and electrification trends on the rise, organizations are increasingly focusing on energy cost mitigation.
At the same time, there's a unique opportunity to benefit from federal and state initiatives like the Inflation Reduction Act of 2022, which supports renewables, solar, and battery storage. When coupled with innovative financing solutions, these incentives effectively eliminate the need for your organization to put up capital for your project.
It is best to act quickly to take advantage of the federal and state incentives and financing mechanisms offered by energy partners like Enel. The demand for projects is surging, while supply chains are already disrupted, and the process for planning and executing energy projects takes time. Delaying your project implementation could result in extended wait times before you reap the benefits.
In addition, some incentives won't last indefinitely. They are designed to transition infrastructure into the market and will dry up as clean energy momentum grows. Delaying could leave your organization at a disadvantage against competitors who benefited from subsidized energy or sustainability initiatives.
14. How do I learn more about incentives or financing options?
Solar and battery storage technologies hold significant promise and can benefit your organization if you seek to cut energy costs, generate revenue, and meet decarbonization targets. However, specific benefits and available incentives and financing options will depend on several factors. An experienced and reliable energy partner can assess your organization’s energy requirements, consumption patterns, and sustainability goals to help your organization decide what works for you.
As one of the world’s largest renewable energy developers and innovators, Enel has the right expertise, experience, and integrated energy solutions to help you take advantage of the available incentives and tailor financing solutions that open the door to zero-CapEx energy projects. Read our guide, “How to build zero-cost on-site solar and storage projects,” to learn more about leveraging financing and incentives to access on-site solar and battery storage solutions.
