By Christian von Hassell

During its February meeting, the Board of Trustees opted to postpone any decision about a proposed solar farm that would power the new third-year housing. At an estimated capacity of 1 megawatt, the project would rank among Virginia’s largest solar systems, were the Board to approve its construction. According to Brian Eckert, W&L’s Director of Communications, the Board wants more time to evaluate the school’s financing options and the project’s long-term economic viability.

W&L does have some experience with solar energy, installing panels on the roofs of the parking garage and Lewis Hall back in 2011. With a combined capacity of 444 kilowatts, these systems now generate 3% of the University’s total power. Rather than owning the systems directly, W&L purchases the power they generate from Secure Futures, the firm who actually owns and operates the school’s panels.

In exchange for an upfront investment and a share of the tax equity earned by the project, the University pays a lower rate to Secure Futures than it would to a normal utility. This sort of relationship – known as a power purchase agreement (PPA) – is common practice within the industry, as it reduces the initial investment and operational responsibilities of the purchaser.

Interestingly, Secure Futures recently hired President Ruscio’s son, Matt Ruscio. While no evidence suggests Secure Futures charges uncompetitive rates, this fact does create a real conflict of interest for future business with the firm. The terms of any deal deserve extra scrutiny, especially if we are not considering other providers.

At the same time, in the scenario where the Board approves the project, Eckert suggests that the school would take a different approach and attempt to own the panels outright. Such a deal would place greater managerial responsibility on W&L and require a larger initial outlay. At the same time, direct ownership might carry a better return on investment in the long run. Eckert was not aware of any specific tax tradeoffs between the different arrangements. However, owning the panels directly could make it tougher – though not impossible – for W&L to fully utilize the tax benefits associated with investments in solar energy.

The federal government currently offers a 30% investment tax credit for investments made in solar energy. Often, the entity investing in solar panels does not have a large enough tax liability to benefit from the ITC. In response, outside investors with greater capacity for the tax credits frequently help finance solar projects, offering cheap capital in exchange for the tax equity. That said, the solar investors that can benefit most from such arrangements are the solar system installers and operators who enter into PPAs with their clients. As a not-for-profit, W&L might have trouble fully utilizing the tax benefits afforded by the proposed project, while potentially finding itself unable to efficiently source outside tax equity investors. Solar installers and operators are able to bundle the tax credits earned from a large portfolio of solar system investments. This scale helps mitigate the transaction costs associated with marketing their tax equity to outside investors.

While further details are needed to fully assess the tax implications of those two scenarios, a scenario in which the Board waits much longer to make a decision will undoubtedly have costly tax consequences. The ITC will decrease substantially at the end of 2016, significantly reducing the financial benefits of a large variety of solar projects, at least in the short run. With the deadline approaching, solar firms will likely face intense demand over the course of 2016 as their clients race for their last chance at a 30% tax credit. This ought to provide the Board a clear incentive to make their decision in a timely manner.

Many W&L students were surprised by the Board’s announcement. For some still unknown reason, a sizable portion of the student was under the impression that the Board had approved the solar array back when they first approved the third-year housing requirement. Maya Epelbaum ’15 has been leading a well-supported student petition to encourage the Board to pursue the solar project. Maya views the board’s hesitance – while driven in part by a healthy skepticism towards major capital projects – also reflects a generational gap in environmental awareness.

While the nature and extent of mankind’s contribution to climate change thoroughly warrants healthy scientific debate, I think it is safe to say that the overwhelming majority of W&L students understand that burning fossil fuels carries serious drawbacks. As we sit back and enjoy cheap gasoline and the other fruits of an American energy boom, the future inches nearer and nearer. The Board’s approval of the proposed solar array would at least signal that W&L is consciously looking forward, taking steps to reduce its carbon footprint and, quite likely, its energy bill.

Image taken from Wikimedia Commons