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Mid-sized projects driving US solar growth
March 25, 2013
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NEW YORK: Driving the growth in US solar power has been a surge in mid-sized projects — constructed by developers like Borrego Solar Systems, SolarCity and MEMC Electronic Materials Inc’s SunEdison which reached record levels in the first quarter, rather than the large, utility-scale power plants the industry sought to develop in recent years. 

The market for mid-sized projects, between 500 kw and 20 megawatts, is growing rapidly since they can often be built on the rooftops of big-box retailers, warehouses, schools and government buildings and are less expensive to build and get approved. Financing for the projects can be structured in various ways, but are usually funded by development companies and their outside investors or by property owners who benefit from lower power prices or by selling excess electricity back to a local utility at retail prices under “net metering” programs.

The market has been lucrative for privately owned Borrego, which saw revenues double last year. 

“We’ve proven that it works and it’s low risk,” said Michael Hall, chief executive of Borrego. “We can deliver to investors high-single or low double-digit returns.”  

A one-megawatt project can cost between about $2.8 million to $4.5 million to develop, and can often be bundled with other similar-sized projects to attract financing.    

“There are going to be fewer and fewer megadeals getting done,” Hall said. 

In addition, municipalities can issue tax-exempt bonds to fund the projects, keeping borrowing costs low.

The profitable smaller projects are driving the industry’s efforts to create solar REITs (real estate investment trusts) that bundle projects and create securities that can trade like stocks. 

Others in the industry hope to persuade the US Congress to alter the tax code to allow solar plants to be bundled under “Master Limited Partnership” (MLPs) rules, similar to ones used by the oil and gas industry.

The MLPs pay virtually no corporate taxes as they deliver nearly all profits to owners of the MLP’s units, which are traded like stocks.

A newly introduced bill by US Senators Chris Coons,  Democrat from Delaware, and Jerry Moran, Republican from Kansas, would expand the MLPs to include renewable energy projects, but industry experts have said any effort to expand tax breaks would face a tough fight in Washington this year.

Still, proponents pointed to a study released in May last year showed that as of 2011, the oil and gas industry had established dozens of MLPs worth more than $270 billion, mostly in the pipeline and fuel storage business.


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