Solar in OZ

While most Opportunity Zone (OZ) investments are being made in real estate development, renewable energy has emerged as another promising asset class to invest capital gains and bring great benefits to low income communities. In particular, the installation of solar panels on homes, nonprofits and businesses located within OZs. With state and federal tax benefits and power purchase agreements (PPAs), Qualified Opportunity Funds (QOFs) are finding solar to be a good way to diversify OZ investment portfolios. 

How Solar Makes Money in OZ

Solar installation in Opportunity Zones is lucrative thanks to power purchase agreements and state and federal tax credits. A PPA is created when a third-party developer (in this case, a solar OZ business) installs a solar panel system on a property. The developer typically owns, operates and maintains the system, offering the property owner cheaper electricity and/or some type of payback period to take ownership of the system. The developer makes money by selling the electricity generated to the property owner as well as selling any excess back to the local utility and backfeeding the grid.

Additionally, since the OZ solar business is the owner of the system, the OZ business is eligible for any associated tax benefits for the creation of new renewable electricity. Federal credits include The Solar Investment Tax Credit Code and Solar Renewable Energy Credits (SRECs). There are many state specific credits available as well. 

What typically happens is that the property owner signs a contract with the Opportunity Zone solar company to install solar panels on their property, and to purchase power generated by the panels. The PPA period is typically 10-25 years, if the power is offered below market rate. The OZ business recoups their cost on the sale of this power, selling the property owner what they need and the excess back to the utility company. The community benefits by increasing their power grid with renewable sources, decreasing climate impact and lowering electricity costs to clients. The community also sees a boost in job creation for the installation of the systems, maintenance, sales and more. 

SEDC Solar

SEDC Solar is an Opportunity Zone business with the stated purpose of providing complete solar and battery storage systems to low and middle income homeowners, churches and businesses throughout the Washington D.C. area. They recently announced a partnership with Electriq Power, Inc. (a provider of intelligent and integrated energy solutions) to integrate energy storage into their business plan. SEDC Solar is funded by a Qualified Opportunity Fund called Net Zero Fund whose goal is to provide free solar and battery installation. Net Zero offers investors return on their capital gains investment in two years and 15% thereafter. 

SEDC Solar and Electriq Power’s business plan is to install solar panels and batteries on homes, churches and businesses and to provide repair and maintenance for 20 years at no cost to the client. SEDC Solar estimates that participants in the program will see a reduction in their electric bills of 50-80%, and at the end of their PPA, they will own their solar power system free and clear, enjoying the benefits for many years into the future. 

SEDC and Electriq Power will lower energy costs in Opportunity Zone communities in the DC area, as well as increase the power grid with climate friendly renewables and provide energy storage. As for job creation in the Washington D.C. area, SEDC estimates that for every 50 homes or 12 churches that adopt their program, one person will be hired and trained to maintain the systems and to help grow the program within the community. “SEDC Solar is a vehicle for people to do well and do good at the same time. There is a true opportunity to provide equitable solutions to communities in the D.C. area and we’re proud to call Electriq Power a partner in this endeavor.” Says Thomas Jones, Manager at SEDC Solar.

Norfolk Solar Qualified Opportunity Zone Fund 

Another prominent example of an Opportunity Zone solar business is Norfolk Solar Qualified Opportunity Zone Fund, nominated by the Sorenson Impact Center as one of Forbes Top 20 OZs in 2019. Norfolk is a QOF based in Virginia that provides turn-key solar installations at no cost to their clients within Opportunity Zones. They recoup their investment via tax credits and energy payments from their clients. 

Norfolk’s goal is to have their solar power systems be cost-neutral to their clients. They typically expect that clients' energy bills stay the same as pre-solar installation during their repayment period, with the benefit of their power purchase agreement having a relatively short period, typically 7-15 years depending on the agreed upon electricity rate. This is significantly shorter than the typical 20-25 year contracts seen with most PPAs. At the end of the payback period, clients will own their systems free and clear and have many years to enjoy the benefits in the future. 

Norfolk Solar has built exclusive relationships with local solar installers to keep costs low and predictable. To further benefit Opportunity Zone communities, Norfolk has added the requirement for installers to host a paid, on-the-job training program to train OZ community residents to install, repair and maintain the solar panels. This ensures job creation and training specifically within the OZ community. 

Norfolk’s initial plan was to install solar on businesses, nonprofits and homes alike. However, changing laws in Virginia made offering free solar to homeowners under their business plan infeasible. They are continuing to offer their services to businesses and nonprofits. However, the latest legislation, the Virginia Clean Economy Act, allows for low income homeowners to have solar installed with PPAs at zero out of pocket cost. Norfolk Solar is currently installing solar on one home as a pilot for working within the allowances of the current law. 

Are you interested in Opportunity Zone investing? You’ve come to the right place. OZ FundHub is your premier resource for OZ educational tools and more. Check out our interactive fund map for a visual view of Opportunity Zones across the US. Use our Fund Finder tool to be matched to the right Qualified Opportunity Fund that meets your investment goals.