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Special thanks to:


Steve Kominar, Peni Adams, Roger Ford, Kelley Goes, David Levine, Pat Esposito, Joseph Weidman, Ken Nemeth, Jennifer Hudson, Murphy Poindexter, Dino Beckett, Darrin McCormick, Ben Carraux, Christian Smith, Jamie Throwbridge, Rob and Melissa Taylor, Jerry Mounts, Edna Thompson, Mark Mitchell, Kelly Jo Drey, Rebecca Prokity, David Mitchell, Keith Pauley, Steve Owen, Christopher Burgess, Claire Austin, Larry Sherwood, Mark Muchow, Bart Krishnamoorthy, Tom Tarka, Greg Adolfson, Kent Spellman, Mary Hunt-Lieving, Mike McKechnie, the late Mike Whitt, Leasha Johnson, Terrry Sammons, Thom Worlledge, Jessie Sayer, Billy Perish, Gonzalo Vizcardo, Crystal Good, Stephen Smith and all our family and others we forgot to mention. Special thanks to all residents of Williamson and West Virginia as a whole your passion never ceases to inspire our work.

CASE Study
Central Appalachian Sustainable Economies (CASE) is an interactive regional network of innovators cultivating new ideas and resources in central Appalachia to grow healthy communities. The CASE study component of this network expands upon past and present regional successes of the CASE network in order to operate as a guide or set of best practices for the region as a whole. This research component will also actively identify smart approaches for expanding CASE projects as well as assessing the growth of applied sustainability throughout the region. This particular CASE study focuses specifically on economic diversification through energy integration with a specific focus on solar development in West Virginia.

Organization Information
Sustainable Williamson 1130 Midland Ave. Williamson, WV 25661 Tel 304-601-9091 sustainablewilliamson.org

Research Team
Primary Investigator J. Eric Mathis: Executive Director of Sustainable Williamson Research Director Frank Fineis: Intern for Sustainable Williamson Research Assistant Alex Donesky: Intern for the City of Williamson

Table of Contents
I. II. III. IV. V. VI. VII. VIII. IX. X. Acronyms .............................................................................................................................. 1 Introduction .......................................................................................................................... 2 Market Analysis ..................................................................................................................... 8 Solar Initiatives .................................................................................................................... 31 Financing options ................................................................................................................ 32 Regulatory Framework........................................................................................................ 48 Utilities' Best Case Scenerios .............................................................................................. 70 References........................................................................................................................... 76 Appendix A .......................................................................................................................... 83 Appendix B .......................................................................................................................... 84

Acronyms
AEP: American Electric Power ALEC: American Legislative Exchange Council AIRE: Appalachian Institute for Renewable Energy AMI: Advanced metering infrastructure API: Application programming interface ARC: Appalachian Regional Commission AREC: Alternative renewable energy credit ARPS: Alternative renewable portfolio standard BCCAP: Bergen County Community Action Partnership BNEF: Bloomberg New Energy Finance BOD: Board of directors CAGR: Compound annual growth rate CCA: Community Choice Aggregation CDE: Community development entity CMC: Competency Model Clearinghouse DER: Distributed Energy Resources DOE: Department of Energy DP&L: Dayton Power and Light DSIRE: Database of State Incentives for Renewables & Efficiency DSM: Demand-side Management EEI: Edison Electrical Institute EEPA: Electric energy purchase agreement EIA: Energy Information Administration E-ON: Energy Optimization Network EPA: Environmental Protection Agency FERC: Federal Energy Regulatory Commission GATS: Generation Attribute Tracking System GW(h): Gigawatt (hour) TM IEP: Integrated Energy Park IOU: Investor owned utility IPO: Initial public offering IREC: Interstate Renewable Energy Council ITC: Investment tax credit kW(h): Kilowatt (hour) LCOE: Leveraged cost of energy MTR: Mountaintop removal MW(h): Megawatt (hour) NABCEP: North American Board of Certified Energy Practicioners NARUC: National Association of Regulatory Utility Commissioners NEG: Net excess generation NEM: Net energy metering NG: Natural gas NMTC: New market tax credit NREL: National Renewable Energy Laboratory O&M: Operations and Maintenance PACE: Property Assessed Clean Energy PJM: PJM Interconnection LLC PPA: Power purchase agreement PSC: Public Services Commission PUC: Public Utilities Commission PUCO: Public Utilities Commission of Ohio PURPA: Public Utility Regulatory Policies Act PV: Photovoltaic QEI: Qualified equity investor QF: Qualifying facility RE: Renewable energy REC: Renewable energy credit REPI: Renewable Energy Production Incentive RFP: Request for proposals RPS: Renewable portfolio standard REW: Renewable Energy World (magazine) ROI: Return on Investment SAPC: Solar Access to Public Capital SBA: Small Business Administration SEIA: Solar Energy Industries Association SEPA: Solar Electric Power Association SGIP: Small Generator Interconnection Procedures SPPA: Solar power purchase agreement SREC: Solar renewable energy credit TOU: Time-of-use TPO: Third-party ownership USDA: United States Department of Agriculture VPP: Virtual power plant WVEDA: West Virginia Economic Development Authority WVEC: West Virginia Environmental Council WVU: West Virginia University

Introduction
Within Americas present energy paradigm of drawing lines in the sand, we have come to a crossroads as we consider the future sustainability of Americas global position in traditional as well as emerging energy markets. A strict demarcation has been drawn where we as a country either take the high road and adopt a genuine all-the-above energy strategy or continue down our present path of politicizing energy markets. In a January 2013 article written for Renewable Energy World (REW), the principle investigator of this report explains the shifts in this faltering energy paradigm, which is emerging in the least likely of places: as the age old us vs. them debate continues, many West Virginia residents, companies, and entrepreneurs are beginning to identify synergies between renewable energy and fossil fuels, specifically building unexpected coalitions in the heart of coal country. (Mathis, 2012, para. 2). As this study will thoroughly explain and outline, our research team, after comprehensive research on the subject, concluded that it is in the immediate interest of the residents, government and energy industry stakeholders of West Virginia to pursue an integrated path forward. It is through the lens of Sustainable Williamson that our teams believes that this process should not be done at the expense of the existing fossil fuels industry, but rather, adopt an all-of-the-above energy policy, also referred to as an energy mix or integrated energy approach. For example, in Clean Edge, the worlds first renewable energy research and advisory firm, highlights in its 2013 annual report the importance of an integrated or energy mix approach when it notes that: Some argue that Americas cheap natural gas will crowd out clean energy technologies, but we strongly believe this is not the case, as solar and wind have seen repeated record deployment in recent years and state-based RPS [renewable portfolio standards] keep deployment targets on track. Instead, it appears that the future of energy in the U.S. belongs to a mix of clean energy, improved efficiency, and responsible natural gas resource development. Moreover, a 2012 report by Ernst & Young entitled Cleantech Matters: Global Competitions (Global cleantech insights and trends report) conducted a survey of 100 executives involved in developing corporate energy strategies. Given Ernst & Youngs impeccable reputation as a global leader in assurance, tax transaction, and advisory services perhaps the following conclusion may provide an objective snap shot of what some could

consider an all-the-above corporate strategy already being adopted within the private sector: Energy mix has become a strategic issue at the C-suite level of billion dollar corporations as a significant and rising share of operating costs go to energy. While reducing energy costs through energy efficiency measures is often the foremost objective of energy strategy, a number of other subsidiary goals are also driving strategy, such as energy security, carbon reduction and price stability. Regulatory compliance, together with reputational and brand aspects, also plays a part (Ernst & Young, 2012, p. 5). Reflecting the above energy mix approach, this CASE study provides a glimpse into the potential West Virginia has for rapidly integrating solar throughout the state by targeting residential, commercial and industrial energy markets by way of utility-scale energy development. This potential is being actualized in real-world projects that are emerging both in the coalfields of Southern WV and throughout the state. In a more recent REW piece written on April 30th, 2013, the aforementioned author noted recent progress in the heart of coal country with an emerging project of Sustainable Williamson called Energy Optimization. He stated that Sustainable Williamson hopes that these projects will provide a working framework for energy optimization in the region transitioning communities from an aging monolithic fossil fuel economy to a rejuvenating diversified energy mix economy without picking winners or losers (Mathis, 2013, para. 2). Keeping this integrative path in mind, the following case study will examine one component of this approach - solar.1 Additionally, given the primary purpose of this report is to provide a comprehensive dashboard for West Virginia state leaders and elected officials, our team focused on the emerging solar market in a nation-wide and state-specific context with a particular focus on solar financing models as well as regulatory frameworks and incentive structures. From this analysis we provide several recommendations including virtual rooftop solar, expanded access to virtual net metering, third-party solar financing options and utility decoupling to name a few. In order to fully assess specific integrative approaches to energy development, our team at Sustainable Williamson is presently conducting several experimental pilot programs in the Southern West Virginia town of Williamson. The significant market barriers found in Williamson provide valuable information for addressing general market barriers to solar development
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Please note that our emphasis upon solar is not to be considered a specific bias of the proposed integrated path forward. To the contrary, our team and partners are dedicated to the development of all energy resources given their market maturity/viability.

throughout the state and beyond. These include, most prominently, large divisions between traditional and emerging energy resources and difficulties in attaining market penetration in areas other than the normative moral-markets found within more progressive and/or prosperous northern regions of the state (e.g., purchasing RE = saving the planet or becoming energy independent) where return on investment (ROI) is peripheral at best. When considering these barriers as well as our research to date, our team has developed a comprehensive roadmap that considers five of the fundamental pre-requisites to effective solar market penetration. The breakdown is as follows: Market Analysis: Overview of present market conditions as well as a synthesized roadmap for West Virginia. Solar Initiatives: Overview of solar industry support network. Financing Options: Overview of solar financing options. Regulatory Framework: Specific analysis as it relates to financing options and virtual net metering. Utilities Best Case Scenarios: Potential measures that will ensure utility industry success during solar expansion

The following two projects are underway in Williamson, WV and to a large extent, across Southern WV to begin implementing the underpinnings of an energy and industrially diverse West Virginia rooted in a genuine all-the-above approach:

Sustainable Williamson
Sustainable Williamsons vision is to connect community stakeholders with specific programs under the banner of applied-sustainability and to activate personal engagement with economic development through market-driven projects. Williamson residents believe that central Appalachian communities will choose to actively participate in community development while making efforts to retain their investment within local economies by creating reliable wellpaid jobs and an expanded local tax base. Diverse participation in the development of triplebottom line markets will stimulate vital economic growth, thus improving health, wealth, and well-being. It should be noted that Sustainable Williamsons specific focus on applied sustainability as opposed to sustainable development2 in general simply translates to
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The authors understand this concept as it is defined by the United Nations Brudtland Report. When assessing most literature and more importantly projects that utilize this concept, we find that there is an over emphasis

Sustainable Williamsons emphasis upon and utilization of market-driven models that will bolster Americas competitive position in contemporary global energy markets which considers the merits of sustainability, that is, a strong emphasis is placed on considering the impacts our present decisions will make on future generations (e.g., Americas national debt). This citywide effort became possible when Williamson Mayor Darrin McCormick spoke at a city council meeting encouraging the council and local citizens to accept energy efficiency and renewable energy as a means to sustain a way of life for future generations. In 2011, the Williamson Redevelopment Authority adopted a new slogan: Where Development Meets Sustainability. The city, with the help of Sustainable Williamson, now hosts several community gardens, a weekly farmers market, and a monthly 5k race amongst many other public health initiatives that accompany its commitments to sustainable energy integration; the latter commitment is the specific focus of this report. Challenges and Opportunities Once a favorite retailer for shoppers in Mingo and surrounding counties as well as a hub for the coal and banking industries in the region, the City of Williamson is no longer a bustling center of commerce it once was. Williamsons economic decline began as a result of the devastating 1977 flood, only to be followed by another flood in 1984, just as most businesses were beginning to recover from debt. In 1990, the Clean Air Act regulations began to affect the coal industry as fewer mining permits were issued in the region. In Appalachia, local and state governments are dependent on the coal industry; 40% of jobs are directly reliant on the coal industry in some counties (West Virginia Office of Miners' Health, Safety and Training, 2012). In Williamson, the coal industry provides financial support to community schools, local organizations, and political campaigns. The Appalachian Regional Commission ranks Mingo County as one of the most economically distressed counties in Appalachia based on three economic indicators: average unemployment rate, per capita income, and poverty rate. According to the U.S. Census Bureau, 21% of local residents in Williamson are living below the poverty threshold, compared to the national average of 14.3%, and in 2012 Mingo County had an annual average unemployment rate of 9.9%, compared to a national average of only 8.1% (U.S. Bureau of Labor Statistics, 2013).
upon the ecological and social components with little to no applied component regarding the economic pillar. This accounts for our use of applied sustainability which serves as a direct response to the profound shortcoming or ignoring the important role market systems play in sustaining the other two pillars.

According to the West Virginia Health Statistics Center, much of the state's out-migration has been younger people who have been forced to move away to find work in other regions because of fewer economic opportunities, a phenomenon referred to as brain drain. According to a Health Statistics Centers 2002 report, they marry and raise their families elsewhere. Then, after they retire, many West Virginians come back home to enjoy life in the Mountain State (WV Health Statistics center, 2002). Indeed, the state has the second highest percentage of persons aged 65 and older and the third lowest percentage of people under age 18 in the nation (U.S. Census Bureau, 2008).

After years of low economic growth, Williamsons city government leaders are consistently looking for new ways to survive and spark economic recovery. The city has attempted hiring freezes, layoffs, and levying greater percentages of employee contribution to health care insurance, and yet, the essential services that the city provides continue to decline. The consideration of geographic and topographic disadvantages plays an important role in shaping our strategy to diversify the economic backbone of coal dependent communities, that is, energy. According to the Appalachian Regional Commission (ARC), rural communities in mountainous regions experience limited economic opportunity and slow growth rates. These regions typically lack diverse inter-industry relationships between counties; coal field communities typically mirror the coal-dependent economies of their spatial neighbors. More importantly and to highlight the un-sustainable nature of the prevailing mono-economies found in Southern West Virginia, the heavily coal-dependent West Virginia economy is sensitive a host of factors national coal demand, environmental legislation, the health of the national economy, etc. without having other reserve industries for potentially laid-off coal industry workers. Building upon a strong energy economy in southern West Virginia, Sustainable Williamson aims to negotiate and actuate economic diversification by catalyzing local investment in municipal and neighborhood solar/energy-efficiency projects. Residents and municipal officials are already demonstrating widespread support for these projects because of their immediate benefits of reducing energy burdens for households and city municipal buildings. Sustainable energy professionals from across the nation have traveled to Williamson to share knowledge with professionals in coal-based industries and community residents, including at-risk youth.

Discussions have focused on the economic feasibility, research and development, operations and maintenance, design and installation of new sustainable energy technologies.

Gilliam Solar
Gilliam Solar, a West Virginia company based in The Heart of the Billion Dollar Coalfield (Williamson, WV), is a solution-based company specifically designed to bridge the gap between the fossil fuel and solar industries. Its a simple concept. Both energy resources are more productive when they work in a collaborative or integrative fashion, rather than an ideologically driven environment of division or us vs. them.3 Given this fact, Gilliam Solar is uniquely poised to bring the promise of renewable technologies and West Virginias fossil fuel based energy expertise together to the same table. Photovoltaic (PV) Design & Installation Through its collaborative partnerships, Gilliam Solar is presently developing several novel approaches to developing residential-, commercial- and utility-scale solar. While potential exists for expansion into other well-established renewable energy markets outside of central Appalachia, Gilliam Solar is first and foremost am integrative PV company. Target Markets To date, Gilliam Solar has initiated important discussions and research to assess the development of coupled generation (by means of utility-scale natural gas and solar) on both active and inactive mine sites throughout the central Appalachian region. Gilliam Solar has developed an innovative financing model believed to be economically attractive to coal companies and landowners alike. Gilliam Solar is presently organizing a cross-sector coalition in order to procure the necessary support for these projects. Perhaps their logo says it all:

See REW article entitled The Importance of Understanding our Renewable Energy Worldview: Why Fossil Fuels Are our Friends http://www.renewableenergyworld.com/rea/blog/post/2013/05/disruptive-threatsstrategic-considerationsa-utility-lobbying-group-keeps-it-real

Market Analysis Analysis Market


Sustainable Williamsons research team has analyzed several challenges facing the West Virginia economy, its coal companies, and its electric utilities. We propose a solution to these challenges: solar energy growth on the residential, commercial, and utility-scale levels, through the rollout of Virtual Power Plants.

Declining Appalachian Coal Industry


The United States Energy Information Administration (EIA) projects in their Annual Energy Outlook for 2013 that the renewable energy (RE) sector will nearly double its output from 2009 to 2035, while in the same period, it predicts that Appalachian coal production will decrease (EIA, 2013, pp. 6, 85). Significant declines in mining productivity over the past decade have substantially reduced the long term sustainability of Appalachian coal. This has resulted in higher prices for the commodity, causing the market to replace it with coal from other regions, namely from mines farther west with more easily accessible deposits. Appalachian coal output is expected to continue on this decline for an indefinite period. According to the EIAs latest Quarterly Coal Report, between March 2012 and March 2013 West Virginia coal production fell by 12.3%, and total U.S. coal production declined 8% Appalachian coal production predicted to decline (USGS, 2009). between this time as well (EIA, 2013, p. 6). In 1940, 1-in-5 workers in West Virginia were employed at or in support of a coal mine. Due to mechanization and a host of other causes, by 2011 less than 5% of the states workers were employed in a coal-related field, even though production had increased through 1980s and 90s. With Appalachian coal production predicted to decrease and employment within the

industry to decrease even more rapidly, West Virginia needs to strongly consider adopting an integrated path forward.

Historical employment at mines in West Virginia (left axis) and coal production in millions of tons (right axis).

Our team suspects that the states dependence on price-unstable fossil fuels paired with the growing scarcity of coal have resulted in a steeper residential electricity price increase over the last ten years compared to nationally averaged retail prices and prices in neighboring states Pennsylvania and Ohio (using a linear regression based upon EIA data).4 West Virginia saw an
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The EIA calculates that West Virginia derives 96% of electricity from coal. National bituminous coal prices increased from $39.92/short-ton in 2006 to $60.88/short-ton 2010. Sub-bituminous coal prices have likewise increased 98% between 2000 and 2010. Appalachian coal is also the most expensive in the nation. Table 7.9 Coal Prices, Selected Years, 1949-2011 [Data file]. (2011). Retrieved from Energy Information Administration website: http://www.eia.gov/coal/data.cfm#prices.

average of .131 cents/kWh/quarter increase from October 2004 to February 2013, while the national average was only .080 cents/kWh/quarter. That figure for Pennsylvania and Ohio was .111 and .103 cents/kWh/quarter, respectively. It is important to note that this rate increase discrepancy occurred despite both PA and OH establishing solar carve-outs, i.e. legislation mandating a solar energy quota fulfilled by electrical utilities, prior to 2010. The normative assumption is that rates increase with solar penetration. The following findings say otherwise:

In addition to the above findings, Ohio Public Utilities Commissions recent study (August, 2013) examined the relationship between renewable resource additions and wholesale electricity markets in Ohio. The Staff of the Public Utilities Commission of Ohio conducted this study in an attempt to quantify the changes in wholesale electricity prices and generator emissions that are likely to occur as a result of the states Alternative Energy Portfolio Standard (AEPS) requirements. The report concluded: The model simulations indicate that, consistent with theoretical expectations, Ohioans are already benefiting from renewable resource additions through downward pressure on wholesale market prices and reduced emissions. No severe congestion issues or emergency curtailments were observed, even after incorporating all approved projects,

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which suggests that the electric grid in Ohio is sufficiently robust to support the continued development of utility-scale renewable projects. (Ohio PUC, 2013, p. 7)

Disruptive Challenges for the Electric Utility Industry


According to a 2013 report from the Edison Electric Institute (EEI), although distributed energy resources (DER) such as PV, wind, and geothermal systems account for less than 1% of nationwide load, DER and demand-side management (DSM) technologies such as smart-grid technology and energy efficiency tools pose significant disruptive challenges to the electric utility industry. Along with a more energy conscious consumer and a national dialogue in favor of efficiency, DER and DSM pose two large threats to the current utility model: decreased growth in energy demand and additional costs to integrate and maintain these new technologies within the existing grid infrastructure. In tandem, these effects will reduce electric utility revenue and force electricity costs upwards, further alienating non-DER participants and increasing the chance that these customers will consider alternative energy sources. Circling back to the conclusions found in the Ernst & Youngs report further unpacks the demographics and trends found within the diverse pool of utility customers as they relate to C-suite level of billion dollar corporations. Indeed, these large/corporate customers are becoming more conscious consumers by valuing the reputational and brands aspects of DER/DSM integration as well as the obvious, lower energy costs. Company self-generation of energy and integration of renewables into the energy supply have been implemented at significant rates to meet these ends, with these practices set to accelerate over the next five years. The main barriers to self-generation and use of renewables are mostly related to risks and financial returns, suggesting that adoption could come even faster with financing innovations and increase cost competitiveness of renewables. In summary, only those corporations that have a comprehensive and diverse energy strategy will be able to create a competitive advantage in the new world of a more resource-efficient and low-carbon economy (Ernst & Young, 2012, p. 5). Given this corporate trend, currently, distributed energy does not pose a near -term threat to the utility model. However, in the next seven years this will most likely change. According to the EEI, Bloomberg New Energy Finance (BNEF) projects that nationwide solar system installations will continue at a 22% compound annual growth rate, reaching a total capacity of 30 gigawatts by 2020. BNEF also projects by 2020 distributed energy resources will account for 10% of energy capacity in the United States. This energy market shift, which corresponds to a 10% decrease in utility load, will cause a 100% increase in electricity rates for non-DER customers. As DER generation becomes only more widespread, the cost of providing interconnection and back-up

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supply for variable resources [intermittent resources without base load capacity such as wind and PV] will add to the utility cost burden (EEI, 2013, p. 5). DER and DSM also have the potential to expose the electric utility to stranded costs, i.e. the unrecovered costs associated with the investment in new generation plants and transmission lines in the present that will go un-utilized in the future. Stranded costs will further exacerbate retail electricity costs as well. While electricity prices are expected to increase due to scarcity as well as socio-political trends favoring DER/DSM integration, less time will be required to achieve PV price-parity. For approximately 16% of the U.S. retail electricity market where rates are $0.15/kWh or above, solar has achieved price-parity with traditional energy sources. This is a state referred to as being in the money or cost competitive where the cost to produce solar is at or below the cost of producing energy from traditional resources. By 2017 the amount of the U.S. retail electricity market in the money for PV will increase to 33% (EEI, 2013, p. 13). If retail energy prices continue to increase over the next seven years at the same rate that they have been increasing since 2005, combined with Clean Edges projections for trends in the levelized cost of energy (LCOE) of solar PV, solar could be as affordable as traditional residential electricity prices as soon as midyear of 2016. Solar energy could be affordable to all sectors of the retail electricity market residential, commercial, industrial, and transportation by midyear of 2017(EIA, 2005 2013) (Pernick & Wilder, 2012, p. 9).
45 40 35 30 Cents / kWh 25 20 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Possible PV LCOE Retail Res. Retail All Sect.

West Virginia Solar PV "In the Money"

The total effect of DER/DSM and the declining cost of PV creates what the EEI refers to as the vicious cycle, illustrated below.

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As revenues decline and new energy competition evolves, the public utility credit quality rating currently a BBB majority, down from the AA norm during the 1980s will continue to erode until public utilities face severely reduced access to low-cost capital, once the heralded strength of the industry. The higher cost of capital will be pushed onto the consumer, who will then further consider DER and DSM systems. This, in turn, further reduces utilities revenues, the industrys access to low-cost capital, and the competiveness of their electricity in the retail market. EEIs insight is recognizing similar trends that have occurred in other public regulated sectors, that is, public utilities industry must avoid this scenario lest it die out in a similar fashion as the airlines and telecommunications giants of the 1970s. The Institute highlights several beneficial industry responses to energy efficiency and distributed generation: a stranded cost charge paid by DER and fully departing customers; a customer advance to aid construction that recovers some upfront costs of capital expenditures and mitigates stranded costs; and identify[ing] new business models and services that can be provided by electric utilities in all states to customers in order to recover lost margin while providing valuable customer service (EEI, 2013, p. 18). Shortly, we will address the ideal examples and scenarios for the West Virginian electric utility industry that allow for the recovery of stranded costs while ameliorating their structural disincentives towards DER integration and energy efficiency measures.

Growing Solar Industry


When assessing the global energy markets, we can no longer frame renewable energy as a marginal or alternative energy resource. With its rise in demand both nationally as well as internationally, renewable energy generation is quickly becoming a dominant force that we must all contend with. For example, the European Photovoltaic Industry Associations Global Market Outlook for Photo-voltaics 2013-2017 major finds include:

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Around the world, 31.1 GW of PV systems were installed in 2012, up from 30.4 GW in 2011; PV remains, after hydro and wind power, the third most important renewable energy source in terms of globally installed capacity. Germany was the top market for 2011, with 7.6 GW of newly connected systems; followed by China with an estimated 5GW; Italy with 3.4 GW, the USA with 3.3 GW; and Japan with an estimated 2 GW. Under a pessimistic businessasusual scenario, the global annual market could reach 48 GW in 2017; under a policy driven scenario, it could be as high as 84 GW in 2017. IRECs projections for U.S. solar PV capacity

Quick facts
Utility PV installations have grown 670% between 2010 and 2012 (SEIA, 2013, Introduction). Cumulative operating PV capacity now stands at 7,962 MW (SEIA, 2013, Key Findings)

From Q1 of 2012 to Q1 of 2013, residential system prices fell 15.8% from $5.86/Watt to just $4.93/Watt (Installed Price).

For the second year in a row, PV was the number one new source of electricity generation installed in Europe.

We can already see from European markets that government policies incentivizing solar energy development and use are effective in motivating consumers to buy and businesses to innovate. For example, Germanys implementation of a feed-in-tariff policy guaranteeing long-term power purchasing agreements at an agreed upon price this policy has accounted for up to 75% of all solar deployment. Net metering and financial incentives, such as Solar Renewable Energy Credits and feed-in tariffs for solar-generated electricity, have supported solar PV installations both nationally and on an individual state level within the US. Though German feed -in tariffs have begun to stifle innovation and price improvements, this is merely the result of poor tariff design; the tariffs have served their purpose of jump-starting the renewables market wonderfully but their slow rate decreases have created too much demand at high prices

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preventing competition and cost-reductions. We will discuss the solutions to this issue in the Financial Options section below (Pernick & Wilder, 2013: p. 38). In 2012, the United States total installed solar capacity reached 3,328 MW, representing a 76% growth from 2011, and it is expected that installed capacity will reach 4,375 MW by the end of 2013 2013 (SEIA, 2013, Market Outlook). In 2012, the U.S. had 3,328 MW of installed PV capacity, representing 10.7% of global capacity (EPIA, 2012, p. 36). This rapid growth rate was substantially U.S. Solar is growing exponentially (taken from SEIA, 6/2012) driven by the rise of utility-scale solar projects across the nation (IREC, 2012, p. 17). The Solar Foundation claims in their National Solar Job Consensus 2012 that 44.2% of all surveyed solar firms expect to add new employees between 2012 and 2013, while only 3.6% expect to cut solar jobs (The Solar Foundation, 2012, p. 15). While there are a range of employment opportunities across the solar sector, many are well paid. According to the Bureau of Labor Statistics, the mean annual wage in 2010 for electricians at a solar power plant was $59,020, for residential/commercial solar water heater plumbers that figure was $50,550, and solar power plant welders, cutters, solders, and brazers earned $45,990. The BLS claims that "According to industry sources, solar installers usually have starting salaries between $30,000 and $40,000 per year," while positions requiring more education such as electrical and industrial engineers can earn more than $90,000 annually (Hamilton, 2011, pp. 9, 16, 18). These jobs require various levels of education and training; they include installation, manufacturing, sales, and engineering. As the solar job force increases, new training and education programs have rapidly developed. There will also be continuing demand across the solar financial sector as the U.S. has been a huge innovator in project finance through the invention of no -money-down solar leases and power purchase agreements. As of September of 2012, there were 119,016 solar industry jobs in the United States, a 13% increase from the 105,145 jobs twelve months prior(The Solar Foundation, 2012, p. 5). Between August 2011 and August 2012, the fossil fuel electric generation sector lost 4,000 jobs (a 3.77%

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decline), and 850 coal mining jobs were lost (a 0.83% decline). 2013 is expected to have a 17% growth in solar industry employment with 44.2% of firms slated to hire new workers, all while the employment growth for the nation is projected to be a modest 1.5% (p. 14). Within the industry there will be immense growth across each solar occupation between 2012 and 2013: 1. 2. 3. 4. 5. Photovoltaic installers (21% growth) Manufacturing (9% growth) Sales and distribution (22% growth) Project development (14% growth) Other (18% growth)

These developments in the solar industry are supplemented by employment growth in energy efficiency technologies. The Department of Energy concludes that a full deployment of smart grid technology across West Virginia will induce $215 million of job creation (DOE NETL, 2009, p. 9). Solar DER growth must also be considered alongside the large strides made in energy efficiency through the implementation of demand-side management technologies and the first steps towards a smarter grid.

Developments in Demand Side Management


Perhaps the most widely implemented DSM technology is the smart meter, which allows for semi-real-time to real-time energy data transfer between supplier and consumer. The energy supplier may create a tiered pricing system for on-peak and off-peak load rates and the consumer are then incentivized to reduce consumption during those hours of higher electricity

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prices. This system will also provide the necessary information for the consumer to curtail consumption in general. Between 2007 and 2011, the growth in smart meter installations experienced a compound annual growth rate of around 47% and accounted for 14.1% of all energy served in the U.S. in 2011, up from just 2.2% in 2007. Also during 2011, 20% of all public and state owned utilities had deployed smart-meters and 31% of their employees had them as well (Zpryme, 2013, p. 6). In 2013, the Clean Edge Report found in their five major trends section, that smart grid and other empowered-customer technologies are rapidly becoming a dominant force that should not be ignored: Monitoring clean-tech performance in public financial markets, Clean Edge, along with NASDAQ, currently produces two indexes* which act as benchmarks for the sector: CELS tracks U.S.-listed clean-energy companies and QGRD looks at smart grid and grid infrastructure companies (QWND, which was discontinued in early 2013, tracked performance of global wind companies). Historically, these indexes have experienced much volatility, climbing as much as 74 percent and falling as much as 64 percent in a single year. During 2012, CELS was down 1.8 percent and QGRD up 18.2 percent for the year. QGRD outperformed the S&P 500 index benchmark, which rose 13.4 percent in 2012 (Clean Edge, 2013, p. 7).

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Synergies between the clean tech and high tech sectors have spurred numerous firms dedicated to utility data usage software. Silicon Valleys darling Nest Labs ships 45,000 programmable thermostats a month; these devices analyze homeowners energy usage patterns, weather forecasts, and other data to maximize energy efficiency through a smartphone application interface (Clean Edge, 2013, p. 8). Founded in 2007, tech firm Opower delivers utility data usage via a smart thermostat to its customers so that they can compete with their neighbors, even Facebook friends, for energy savings. Opower estimates that its services have saved a cumulative two terawatt-hours of electricity since its inception (p. 8). Further application of smart grid technologies will continue to reduce consumer electrical demand, consequently augmenting the chances of an electricity price increase, thus making PV systems more affordable an application of the vicious cycle mentioned in the above Edison Electric Institute report. Utilities are beginning to make use of smart grid technologies as well, thus further enabling a more empowered-customer, a trend not unlike those seen across the high tech sectors (cellphones that report data usage, hybrid automobiles that track fuel economy) and the Internet (formerly top-down generated content has been supplanted by user-generated content): In Texas, utility Reliant Energy installs a free Nest thermostat for customers of its Learn & Conserve energy-saving plan, while TXU Energy reported 100,000 downloads of its iPhone and Android smart-phone app for remote thermostat control by the end of 2012. Reliant and TXU are two of seven utilities that have implemented the Green Button, a U.S. Department of Energy initiative for smart meter-enabled customers to track their energy use on their utilitys web site; nearly 30 other utilities in 17 states have committed to do the same (Clean Edge, 2013, p. 9).

Solar Development in West Virginia


Within the state of West Virginia, economic benefits from solar PV deployment are largely the product of job-creation and expanded local tax bases. A 2010 report from Berkley concludes that PV development creates more jobs per megawatt of capacity than any other electricity generation option with 20 manufacturing and 13 installation/maintenance jobs created per installed megawatt. This represents substantial potential job growth for West Virginia in an otherwise faltering economy. While the installation and maintenance jobs created are all intrinsically linked to local job creation, the manufacturing jobs that are created are linked to

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the factories where the PV panels are built. We strongly believe that PV module, wafer, and inverter manufacturing plants will be developed in WV as well.5 PV companies locate manufacturing facilities near thriving markets to cut down on transportation costs and areas with appealing incentives, therefore, West Virginia is uniquely suited to capitalize on the manufacturing job creation potential associated with the growing PV market for the following reasons (see Appendix A). West Virginias location would allow manufacturers overnight access to over half of the population of the United States markets by means of the states access to enormous railway infrastructure. Also, business costs in the state are 13% below the national average according to the West Virginia Department of Commerce. These factors, along with the presence of a labor force already trained in the energy industry (coal and natural gas), can be utilized to establish West Virginia as the hub for the PV industry on the eastern seaboard of the United States. Furthermore, the coal fields of West Virginia are ripe with potential for the deployment of utility-scale PV generation capacity, increasing aggregate demand for solar on the East Coast. While former strip mine sites may not be attractive for most forms of investment, they are prime locations for PV electricity generation. This massive reservoir of electrical generation can be exported to the energy hungry population hubs of the Northeast through, for example, the PJM power pool. The PV industry has the potential to redefine West Virginias economic landscape through research, development, construction, and implementation of a domestic renewable energy source. This can all be achieved by adopting an integrative path forward that is built upon synergies between traditional and emerging energy resources. Moreover, and in lieu of West Virginia supporting an integrative path forward to economic diversification, there are additional spin offs that may spur unforeseen developments in other sectors essentially exemplifying an emergent quality founded upon what some have called open-innovation. In a recent report by the National Renewable Energy Lab entitled Energy Systems Integration: A Convergence of Ideas it highlights some of these emergent qualities when the authors state that energy systems have evolved from small, local, single-service systems (e.g., the steam engines that powered the Industrial Revolution) into highly integrated, continental systems that deliver energy services (e.g., natural gas and electricity transmission/distribution systems that deliver to our homes and businesses). The report goes on to note that integration is also increasing between the energy system and other systems such as data and information networks and water systems - that traditionally have not been
5

Due to the proprietary nature of some assumptions that are informing our teams analysis, we cannot fully disclose what we strongly believe to be a highly probable path forward for economic d iversification in West Virginia as it relates specifically to manufacturing.

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linked with energy (DOE NREL, 2012, p. 3). More pointedly, the report specifically unpacks the open-innovation quality that an integrative path forward provides: The combination of low-cost monitoring and control and the integration of data and information networks with energy systems is enabling advanced control and coordination across energy pathways and scales. For example, general Electric monitors a significant number of turbines worldwide from two locations (Schenectady, New York, and Salzbergen, Germany) provide maintenance and operation support. In addition, improved monitoring and control, reductions in local power production costs (e.g., from cost-competitive photovoltaics), interactive local energy management systems, and potential electrification of automobiles allow consumers to play an increasingly influential role in the future of energy systems by giving them the opportunity to act as producers as well as consumers of energy and provide services to the larger energy system (p. 4). With these potentials in mind as well as considering West Virginias most underutilized asset surface mining sites perhaps the EPA has many faces within our proposed paradigm of energy integration, one of a collaborative partner to West Virginias economy as opposed to an enemy. Through its RE-Powering Americas Land Initiative, the U.S. EPA has instituted policies to encourage the use of former strip mine sites for solar development. Under the terms of the initiative, contaminated lands, landfills, and mine sites, referred to as brownfields, are considered ideal hosts for renewable energy resources. Since the Initiatives commencement in 2008, it has seen a 40% compounded annual growth rate, with large utility-scale solar projects (10 MW +) making up nearly 60% of the total installed capacity on contaminated lands (EPA, 2013, p.1). The EPA partnered with the U.S. Department of Energys National Renewable Energy Laboratory (NREL) in August of 2010 to evaluate the potential of eight brownfield sites in Nitro, West Virginia for utility-scale PV systems. The sites within the study were primarily usedchemical sites and capped landfills; none were coal mines. Their report was heavily in support of solar development, concluding that the eight sites are all feasible areas in which to implement solar PV systems. The report goes on to assert that developing solar facilities on brownfields can provide an economically viable reuse option for sites with significant cleanup costs or for sites where local economic conditions prohibit traditional reuse of the site, as is the case with Nitro,[West Virginia] (NREL, 2010, p. 35). This positive development from Nitro is further evidence that West Virginia is well-positioned to lead the East Coast PV market.

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Synthesized Roadmap for West Virginia


When considering both Sustainable Williamson and Gilliam Solar along with the findings below, we are presented with an exciting opportunity to develop an innovative approach to solar integration that targets both residential, commercial and industrial applications of solar PV without ever stepping foot on a rooftop. Built upon the existing progress made by Gilliam Solar in establishing an Integrated Energy Park TM model (IEP) for coupled generation of Natural Gas and Solar on post-mine land use sites in southern West Virginia, Sustainable Williamson is assessing an integrated path forward that may provide a novel strategy for the integration of multiple energy resources in the central Appalachian coalfields and beyond which include coal, natural gas, biomass, hydro and solar. Phase 1 of this model begins with a coupled-generation scenario (typically 1MW of solar for every 5MW of natural gas) blending both utility-scale Natural Gas and Solar in a profitable manner with the intention of developing a load-matching scenario (for every MW of solar installed there is a MW of natural gas installed) by building from WVs existing NEM rules. This shift from coupled-generation to load-matching essentially renders the utility-scale solar component as the primary production technology (NG -> Solar) as opposed to a supplementary technology (Solar -> NG). In turn, it is likely that this will provide a north star in terms of how West Virginia may begin developing a policy strategy with the following delineation in mind:
Coupled Generation LoadMatching Energy Integration

Virtual NetMetering

Virtual Power Plants

To further explain this policy strategy, our team at Sustainable Williamson has developed the following video (Energy Optimization) which specifically unpacks IEPs and how they relate to developing virtual power plants (VPP) where the key component to this is how virtual netmetering will provide an integrated path forward for coal country as America continues its integration of sustainable energy resources over the coming years. The following sections provide suggested recommendations to lower the cost of solar through enriching existing netmetering policies as they may potentially relate to a variety of innovative financing models.

Industrial VPP

IEP

Commercial Residential
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To serve as a real world example of energy integration as it relates to Sustainable Williamsons pilot Energy Optimization program and the aforementioned IEPs, the City of Williamson will follow in the footsteps of Siemens Distributed Energy Management Systems (DEMS) 2008 8.6MW pilot in Germany where the baseload will primarily be Natural Gas. With the stated goal of the development of marketable virtual power plant, Siemens outlined sev eral points that is presently informing Williamsons efforts: Definition of business models in different energy markets Definition and implementation or optimal operation strategies for distributed generation Implementation of innovative communication concepts between distributed generation and DEMS (Seimens, 2013, p. 5) It is also important to note the intended expansion of Siemens pilot to 200MW which began merging approximately 20MW in 2012 with the objective of integrating different distributed energy sources such as biomass plants, biogas block heating plants, wind turbines, and hydroelectric plants throughout the whole of Germany. (p. 7) The innovative nature of Sustainable Williamsons efforts should be obvious given that the integrated operation of multiple integrated renewable resources, energy storage, demand response are largely uncharted (Seimens, 2013, p. 10) as well as considering the novelty of IEPs which are an essential part of the energy integration equation, that is, bridging the gap between traditional and emerging energy resources in a synergistic fashion. According to NRELs insightful whitepaper entitled Energy Systems Integration: A convergence of Ideas , an emphasis upon synergies or a holistic approach is paramount because there is significant danger that local optimizations may produce a solution that is far from global or societal optimum. Given the integrative nature of the Energy Optimization program that seeks to develop linkages between IEPs (global optimization) and local micro-grid (local optimization) build out, it should be noted that our approach plays a significant role in filling knowledge gaps or management uncertainties where a set of optimal subsystems may improve global results and resilience, but the boundaries between subsystems are unclear, and interactions between subsystems have not been defined (NREL, 2012, p. 6). Moreover, if these systems are well integrated into the larger energy system with correct control signals, the same local controls can be used to provide ancillary services to the grid to facilitate the use of more wind and solar energy (p. 7). A case in point are the load matching pursuits related to the IEP model which involve a 1 to 1 ratio of Natural Gas to Solar (NG -> Solar).

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Utility Sector Solar and the Probable Rise of Virtual Rooftop Solar
Paradoxically, our team has found that the paradigm of rooftop installations may be decreasingly relevant due to the various cost efficiencies resulting from an aggregated solar approach. These include but are not limited to: lower transaction cost, economies of scale, lower labor cost through mechanization, and the availability of federal loan guarantees. Within the solar energy market, there are primarily three market sectors: residential, non-residential, and utility. Together, the residential and non-residential sectors make up distributed generation installations. There is a very simple and obvious trend within the solar market, as summarized by the Interstate Renewable Energy Council: PV installations are getting larger, especially among utility-sector installations (IREC, 2012, p. 22). From 2010 to 2011 the average size of a distributed PV installation grew by 46% to 18kW, and the average size of a utilitysector PV installation increased by 250% to 4.62 MW. Average size of distributed generation PV installations (IREC 2012).

The industry is clearly embracing the benefits of utility PV, as demonstrated by the sectors enormous growth. The rise of utility-sector solar projects began with an increase from almost 0% to 15% of all grid installed PV capacity in 2009. These projects increased to 32% of all capacity in 2010, 38% in 2011, and finally in 2012 utility solar made up 53% of all solar capacity in the United States, and it is the fastest-growing application of solar power plants in the PV industry (IREC, 2013, p. 7). Large-scale solar projects will continue to grow as more states enact higher renewable standards portfolio requirements, create larger solar-carve outs, develop their solar renewable energy credit markets, and continue tax rebate programs that augment

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the federal incentives. The developments across the utility PV sector are not necessarily at the expense of smaller distributed systems between 2011 and 2012 installation of non-residential distributed systems increased by 26% and residential installations increased by 61% but almost half of the capacity installed in 2012 can be attributed to just 61 utility-scale projects. Makeup of all grid-tied PV solar capacity in US, 2012

The advantages of utility-sector solar stem primarily from the principles of economies of scale. As in other high-tech industries, the cost of solar technology is a function of the scale of its deployment. The solar industry has experienced and will continue to experience a steady decline in PV prices due to the increased benefits of economies of scale. While rooftop solar remains popular within the most advanced solar markets, there are large differences in hard and soft costs between traditional rooftop and utility-scale solar. Inefficiencies associated with rooftop solar include higher installation costs, higher O&M expenses, shorter inverter lifespan, and permit fees. For example, the DOE Sunshot Vision Study maintains that a residential solar system requires $32.8/kW/yr in O&M costs whereas a utility-scale system only requires $19.93/kW/yr (DOE, 2012, p. 78). In a 2011 article featured on the Scientific Americans

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website, DOE NREL data on the average cost per solar watt between the years 1980 and 2009 was demonstrated to follow an almost straight line on a logistic scale, implying that the cost of solar PV falls exponentially with deployment, which suggests there may be a Moores law for solar (Naam, 2011). When interviewed by our research team, SEPA Senior Research Associate Bart Krishnamoorthy stated that it is typically cheaper to install a 1 MW ground mounted over one-hundred 10 kW rooftop systems because of soft costs and labor costs. Rather than interconnecting one hundred systems, which takes additional time, money and permits, a 1 MW system would be a better value proposition. The price of modules also typically goes down through large purchase orders as well; this also includes other components such as inverters and racking supplies (personal communication, June, 14 2013). These economies of scale are well represented by the discrepancies between residential and utility-scale solar prices $4.93/Watt and $2.27/Watt, respectively, and over the past three years the cost decline has been greater for utility installations than it has for distributed installations (SEIA, 2013, Installed Price) (IREC, 2013: p 6). Electricity prices over time, by sector. (SEIA 2013).

Another huge shortfall of rooftop solar not all rooftops are suitable for solar installation. Many rooftops do not face true south, the direction relevant to Northern Hemisphere solar

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applications. Furthermore, certain rooftops are at an improper angle with the sun to accommodate efficient solar panels. A 2012 study by the NREL found that only 22% to 27% of residential rooftop area is suitable for hosting an on-site PV system (DOE NREL, 2012, p. 3). Current trends across the public utility sector indicate that most of the industry remains hesitant to develop and operate their own solar systems. In 2011, utility companies owned only 28% of utility sector PV installations, while two-thirds of the industrys solar was obtained through power purchase agreements, a financial tool discussed below (this was using data extrapolated from 86% of utility-sector installations according to Larry Sherwood of IREC). For instance, the largest two utility-scale solar projects developed in 2011, the 49 MW Mesquite Solar 1 Plant in Arlington, AZ and the 35 MW plant in Webberville, TX, are owned by third party financers. These third parties sell the solar energy to Pacific Gas and Electric Co. and Austin Energy, respectively (IREC, 2012, p. 19). Many utilities seemingly go to great lengths to avoid having to manage their own solar systems; many have developed rigorous solar purchasing models, such as Dominions Solar Purchasing Program, a form of feed-in-tariff arrangement that accounted for 2% of utility-owned solar capacity in 2012. In 2012 only 5% of utility-scale solar installations were utility-owned, according to Sherwood, while 93% of utility PV is obtained through PPAs. Private solar financer-installers have begun to recognize the value of larger-scale solar projects as well. Solar Mosaic, a three-year-old solar energy firm based in Oakland, CA, obtained over $300,000 in private investments for a crowd-sourced solar initiative in a matter of twenty-four hours in January 2013. The model works through small private contributors who may invest as little as $25 into a given solar project and who are rewarded with a typical return of 4.5% once the project begins operation for local energy consumers. Solar Mosaics first five projects were their smallest PV systems ranging from 1.5 kW to 29 kW and they did not include a return on investment (Solar Mosaic, Browse Investments). Since the firms sixth project, which began the return on investment trend, their projects have been growing to full commercialscale capacity, reaching 114 kW and 487 kW systems as of late. Perhaps more importantly, the solar installer-financer market leader, SolarCity, launched a successful IPO at the end of 2012. Since 2008, the company has integrated large distributed installations with power agreements to supply corporations such as Wal-Mart, Toyota, SpaceX, and eBay with solar energy. SolarCity is also beginning to incorporate ground-mounted PV

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systems, as in the case of the 947 kW King Estate Winery project. SolarStrongs largest completed project to date is a 6 MW ground-mount and rooftop system for the Davis-Monthan Air Force base in Tucson, AZ (SolarCity, Military). Be it small 2kW residential rooftop solar or multi-megawatt systems, SolarCity views itself as a utility company. We sell energy, not equipment, says SolarCity CEO Lyndon Rive. Terry Grant, managing director at investment bank Marathon Capital states, SolarCity said to the investment world: people always pay their utility billIf they can act like a utility that happens to be solar, thats a really good thing (Clean Edge, 2013, p. 11). SolarCity is also aware of the large risks and inconveniences that may come with installing larger systems non-residential solar market volatility, longer project timelines, lengthy RFP bidding processes, and the fact that municipal, industrial, and commercial clients typically face different electricity rates and rate structures than residential clients, among other issues. Thus, compared to the first quarter of 2012 when non-residential systems made up 45.5% of the firms new installations, 190 of SolarCitys 250 MW to be installed for 2013 will be dedicated to residential systems (Kurlewitz, 2013). We suspect that SolarCity will remain focused on its residential third party ownership model due to these difficulties in working across sectors. Nonetheless, IRECs 2013 U.S. Solar Market Trends report concludes U.S. PV market growth will continue in 2013, with larger utility-scale projects leading the way (IREC, 2013, p. 17). A virtual rooftop system, i.e. a local offsite utility-scale solar array that distributes energy to individual residences, avoids the inefficiencies of rooftop solar (higher installation costs, higher O&M expenses, shorter inverter lifespan, etc.). This model should make use of virtual meter aggregation, or virtual net metering, a practice currently in place in a number of states including West Virginia. Within a virtual net metering system multiple electric meters are collected into one inflow-outflow mechanism so that more than one consumer may benefit from a single solar array. A virtual rooftop system is one in which many residents will acquire energy from the centralized generation array as well as supplemental energy from conventional utility generation when load cannot be met by solar such as the load-matching scenario mentioned above (NG -> Solar). This system must be net-metered: the offsite solar array will be monitored for both the energy it feeds into the grid (outflow) and the energy required on the opposite side of the system when solar does not satisfy demand (inflow). Net generation credits will be passed on to the virtual rooftop participants, further incentivizing investment through low energy prices. A virtual rooftop system, similar to a solar garden, is very much akin to a type of Community Shared Solar model, discussed in the Financial Options section below. For

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example, the Clean Energy Collective, LLC (CEC) located in Carbondale, CO, provides a memberowned model that enables individuals to directly own panels in a commercial-scale community shared solar farm through power purchase agreements with the local electric utilities (DOE NREL, 2012, p. 22). Moreover, given that a dominant trend in any given market is a tendency to migrate towards economies of scale, these recent trends in utility-scale solar development and integration should be considered when assessing the almost ideological nature of rooftop solar for the sake of VPP deployment.

Job Creation and Tax Revenue


The first step in assessing job output from each potential IEP required a baseline density of natural gas wells within a reasonable distance from the site 5 miles. Using natural gas wellhead data from the West Virginia Geologic and Economic Surveys interactive online maps, an average production for each wellhead was evaluated based upon production between the years 2008 and 2012. Using .KMZ files pinpointing ten AM active and A2 active, reclamation surface coal mining sites across six West Virginia counties, natural gas wellhead data from the West Virginia Geological and Economic Surveys interactive maps, and information from the gas generator suppliers, it was determined that around 13 wells on average would be able to supply our 10 MW natural gas facility (see Appendix B). Our team found at least 60 active surface mining sites, all of which were in close proximity to over 13 wellheads. Running NRELs Jobs and Economic Development Impact models for 2 MW of solar capacity and 10 MW of natural gas capacity, the following table displays potential job growth for West Virginia given a full deployment of IEPs across the state: Construction period* jobs per site Solar Natural gas Total 16 28 44 Operations period** jobs per site 1 12 13 Full deployment construction period* jobs 960 1680 2640 60 720 780 Full deployment operations period** jobs

*Construction period jobs are defined in full-time job equivalents, or 2080 hour/year units; that is, the number of full-time jobs sustained for one year during the span of IEP construction. Full deployment refers to the construction of 60 IEPs. **Operations period jobs are sustained throughout the lifespan of the IEP.

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Again, this is a conservative estimate of job creation, especially given that these figures only include solar and natural gas deployment, neglecting biomass and smart coal development/research potential on these sites. As for tax estimates, each integrated energy park would be subject to the West Virginia business and operations (B&O) tax as well as the local property tax. According to data provided by Mark Muchow and Jeff Amburgey of the West Virginia Department of Revenue, as well as being subject to a 6.5% corporation net income tax, each 12 MW IEP would be expected to contribute around $54,500 per year in B&O tax. As for property taxes, each IEP would be subject to an average 2.21% or 2.85% tax on 60% of assessed land value, depending on whether the site is located outside of or within a municipality. In total, the IEP model presents large job creation and tax revenue growth for West Virginia as well as for coal companies with performance bonds tied up in the reclamation process.

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Solar Initiatives
Recommendation: Activate the West Virginia Solar Energy Industry Association (WV-SEIA) and develop the board of directors (BOD). The Solar Energy Industry Association is a national trade association dedicated to the many aspects of solar project development, and it has wellestablished state chapters operating in fourteen states. The WV-SEIA board of directors should represent a diverse body of solar industry and energy policy experts throughout West Virginia. This association should actively remain a neutral market-development entity and avoid any and all relationships with entrenched environmental groups6 in order to develop a collaborative and, in the end, successful policy strategy. At present, there are few programs that encourage collaboration across the energy sector. To date, Community Power Network has initiated an open discussion group entitled WV-SUN to encourage emerging advocates of solar to engage in open discussion regarding developing the solar industry in West Virginia. Additionally, the West Virginia Environmental Council (WVEC) has been the primary legislative body for the solar industry to date.

The WVEC
In July 2008 the West Virginia Environmental Council published the West Virginia Citizens Energy Plan recommending that the state implement a renewable portfolio standard requiring public electric utilities to generate 25% of their energy from renewables (WVEC, 208, p.9). The legislature passed RPS legislation in 2009 with a goal of 25% of energy to be derived from renewable and alternative energy sources including natural gas and clean coal technologies. The WVEC also recommended the implementation of a state tax incentive for solar systems, in particular, solar water heaters. This was also enacted in 2009. According to Don Garvin, Legislative Coordinator for the WVEC, the groups most important legislative accomplishment regarding solar is the $2000 residential solar tax credit passed by the legislature in 2009. This state income tax credit allows for a private resident to receive up to a credit worth 30% of the installed cost of the solar system,

Environmental groups that are explicitly anti-fossil fuel and would not be supportive of a collaborative approach suggested by this report, that is, an integrated path forward.

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with a cap at $2000 (personal communication, July 26, 2013). The state income tax credit for solar is slated to expire in July of 2014. In 2012 the WVEC successfully lobbied for House Bill 2740. The bill reads as follows: Therefore, any covenant, restriction, or condition contained in any governing document of a housing association executed or recorded after the effective date of this section that effectively prohibits or restricts the installation or use of a solar energy system is void and unenforceable That a housing association can refuse or deny the implementation of solar systems in common areas and common structures remains valid.

Universities
West Virginia Universitys participation in the Department of Energys Solar Decathlon: WVU is competing in the 2013 Solar Decathlon with their entry, a house entitled PEAK. PEAK is a self-sustaining log cabin structure that utilizes a PV generation system as well as a solar powered hot water system, along with structural insulated panels and many smart-technology applications that minimize energy usage (WVU Solar Decathlon, The Design). Marshall Universitys Center for Environmental, Geotechnical, and Applied Sciences completed a 6 kW solar project atop University High School in Huntington in partnership with the West Virginia Department of Energy and the West Virginia Brownfields Assistance Center. University High School itself is located on a reclaimed surface mine site. The system includes real-time data monitoring that will be incorporated into the schools science classes (Marshall University, 2012). The American Public University System in Charles Town, WV is currently home to the largest solar array in the state. The system was successfully completed in the middle part of 2012, and it is a 407 kW-capacity, 1600-panel array.

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Financing Options
Recommendation: Upon consideration of regulatory recommendations (below), the following financing options should be aggressively pursued in collaboration with our team of finance experts to further reduce barriers to market penetration. The three main pillars of competitiveness in the solar industry are the ability to acquire customers at low cost, install inexpensively, and achieve low cost of capital for leases or power purchase agreements. To realize a low cost of capital solar, dealers and developers must often partner with so-called tax equity investors due to the structure of state and federal solar incentives. Successful solar financing models make strategic use of as many municipal, state and federal incentives as possible but maintain consideration of market trends and technical details. The current market orientation away from rooftop and towards utility scale solar as discussed in the market analysis and the technical efficiencies of the latter which account for this shift, weigh heavily in the financial analyses and recommendations for our own projects. Organizations seeking to develop solar energy on their own facilities (hosts) should thoroughly review the relative advantages and disadvantages of the precedent solar financing models when designing their own approach. They should also research any relevant government incentives applicable to their jurisdiction and local solar energy service providers should they choose to develop solar energy. This section discusses some of the major solar energy financing models and is intended to assist policymakers, businesses, nonprofits, government agencies, suppliers, service providers and contractors, and others prospectively pursuing solar energy development. Below are a variety of models that have been devised by a broad range of solar investors and developers to most effectively take advantage of state and federal incentive structures given their circumstances.

Commercial Enterprises and Private Individuals


Self-Ownership and Self-Financing Simply put, in the self-ownership and self-financing model a company (the host) purchases and develops a solar project from a solar energy developer, paying the up-front costs. The energy

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produced is used for the owners own needs, and any surplus, depending on the jurisdiction, may be sold to the local utility. The owner may benefit from federal and state tax incentives, from a potential net metering arrangement that credits the owners electricity bill, as well as from the selling of any renewable energy credits that become available through solar power production (discussed below). The owner is responsible for the operations and maintenance of the installation. Third Party Ownership Models 1. Leasing: Solar energy developers often do not require the host to pay substantial or any up-front costs; instead, the solar energy project is amortized over years or even decades. The host makes lease payments to the developer for the installation, and uses the energy produced. A higher down payment on the lease will reduce the monthly lease payment: there is the possibility of positive cashflow from day one of the solar installation, should the lease payments be less than the original electricity bill. On the developers side, some finance companies specialize in arranging the financing for developers solar installation costs. The host and the developer will decide which party is responsible for upkeep and repair costs, although SolarCity, the nations largest residential solar financer-installer, insures all O&M costs are covered within the lease contract. Typically the host will have the option to buy the solar system at the end of the lease agreement. 2. LLC Leasing Model Investors form necessary legal structures (a Limited Liability Company) through which they contribute to the installation of the renewable energy project. Once the system is installed, the LLC owns it and can generate a modest return on investment over a 5-7 year period through incentives including accelerated depreciation, a federal investment tax credit, the sale of produced electricity and renewable energy credits (RECs). During this time, the LLC will lease space for the system from the community organization. After 5-7 years, the LLC may decide to donate the system to the community group as a charitable donation. The system will continue to produce clean energy, and could be a source of electricity or revenue for the organization for another 15+ years. 3. Solar Power Purchase Agreements: In Solar Power Purchase Agreements, or Solar PPAs or SPPAs, companies (the host) contract with solar energy developers to install solar panels on their properties at no initial cost. The company (the host) and the developer

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negotiate a long-term (10, 15, or more years) price for the solar electricity, and the host pays the developer for the quantity of energy produced by the system. As with selfownership, any surplus, depending on the jurisdiction, may be sold to the local utility via net metering. The developer still owns and operates the installation, and as such can receive eligible tax credits such as ITCs and NMTCs for solar energy. The developer also receives any available solar renewable energy credits, thus further reducing the overall price offered in the hosts energy purchasing contract. A crucial aspect of the PPA structure is that a system owner (by means of a third-party developer) can take advantage of federal tax incentives that a tax-exempt entity cannot. This model increasingly makes up a larger part of new solar energy development. Securitization An emerging and yet untested financial strategy within the solar industry, securitization involves constructing a portfolio of contracted revenue from solar projects, bundling the portfolio, and selling it as individual securities. This process aggregates pools of future payments on solar loan or power purchase contracts, and through a structuring process transforms their future cash flows into a security. Such transactions could provide the issuers' overseers with a significant amount of upfront cash for capital spending or other business ventures. The U.S. Department of Energy (DOE) has formed the Solar Access to Public Capital (SAPC) working group through NREL to facilitate securitization of solar by standardizing the power purchase agreements (PPAs), leases, and other instruments on which they are based and to improve clarity on risk. In a 2012 Standard & Poor's report, the firm details three categories of risk: (1) limited performance data, (2) a lack of large-scale services, and (3) declining panel prices, but it nonetheless concludes that the securitization of solar systems could be a feasible financing tool for developers who wish to monetize future cash flows (S&P, 2012, p.7) It will cut developers financing cost because the creditworthiness of the transaction is dependent upon the collateral pool and not the credit quality of the issuer, which in most cases is in the speculative-grade category (p. 7). This financial innovation could help make solar technologies even more affordable for an average consumer because it will bring in investors who dont have the wherewithal to look at solar directly but know securitized products.

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Feed in Tariff The feed-in-tariff (FIT) is a policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering longterm contracts to renewable energy producers, typically based on the cost of generation of each technology. FITs offer cost-based compensation to renewable energy producers by providing price certainty and longterm contracts that help finance renewable energy investments. Under the final order of the Federal Energy Regulatory Commissions PURPA Avoided Cost Docket 4822-U, electrical utilities are required to purchase power at their avoided cost, i.e. their marginal cost of producing an additional quantity of energy. The tariff (or rate) may differ to enable various technologies to be profitably developed. This may include different tariffs for projects in different site locations (e.g. rooftop versus ground-mounted solar PV projects), of different sizes (e.g., residential or commercial scale), and sometimes for different geographic regions. The tariffs are typically designed to ratchet downward over time to both reflect and encourage, technological change. The fact that the payment levels are performance-based puts the incentive on producers to

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maximize the overall output and efficiency of their project. Below are a few examples of FIT programs currently being adopted by utility companies and communities in the United States. 1. Dominion Resources Inc.: This utility company operates and supplies energy in the Midwest, Mid-Atlantic and Northeast regions of the U.S currently offers Virginia residents access to a pilot Solar Purchasing Program. The format of this model is as follows: Participants install and own the solar generation system but sell the electricity and Solar Renewable Energy Certificates (SRECs) back to Dominion at a premium rate of $0.15/kWh, Dominions avoided cost. Participating customers will continue to purchase all of the electricity for their home or business from Dominion on their current rate schedule. Dominion also purchases the SRECs on behalf of its customers who wish to support the development and production of renewable energy in Virginia and our surrounding region through the companys Green Power program. Participants in the program can match 100 percent of their electricity use in renewables, or they can buy 154 kilowatt-hour blocks of renewables for $2 each. The charges for these purchases are added to the participating customers bill (Dominion Resources Inc., About the Program). 2. Georgia Power: In its Solar Buy Back Program, the firm purchases renewable energy from eligible providers (solar system hosts) on a first-come, first-serve basis until the cumulative generating capacity of all renewable sources reaches a specific amount set by the Georgia Public Service Commission. The company will pay its avoided cost as defined by the most recent informational filing made by the company in compliance with PURPA. Georgia Power may purchase additional energy from the provider at an agreed upon price. Qualifying customers may sell all of the energy produced from solar installations (granted they are 100 kW in size) to Georgia Power at the Solar Purchase Price, which is currently 17 cents per kWh (Georgia Power, Selling). 3. Marin Clean Energy (MCE): In 2010, Marin Energy Authority launched, Marin Clean Energy, the first Community Choice Aggregate Feed-in Tariff program. To streamline the procurement process for small local renewable energy systems, MCE has designed a feed-in tariff to provide long-term contracts for renewable energy system owners. System owners are obligated to sign 20-year contracts. The tariff is determined by the programs total remaining capacity before the contract is signed. The characteristics of the renewable energy system whether the energy is generated during peak hours (solar), around the clock (biomass, fuel cell, landfill gas) or intermittently (wind) are considered as well when determining the tariff (MCE, Frequently Asked Questions)

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Property Assessed Clean Energy (PACE) PACE a local government/community initiative that began in 2008 for energy efficiency building modifications; it is currently only available to commercial enterprises after the residential PACE program was halted in 2010. The PACE program begins with a local government establishing, in law or public policy, a specific goal or objective: promoting energy efficiency as a means to promote jobs or better air quality, for example (PACENow, Commercial PACE). The owner procures a thorough energy audit of the property for a project cost/savings analysis of the modifications, then the municipality sells bonds secured solely by participating property owners. Projects receive 100% financing from the municipality who agree to accept a property tax assessment for up to 20 years. 71 commercial-scale projects have been financed through PACE (Commercial PACE). Community Shared Solar A Community Shared Solar installation is a large solar array interconnected to the utility distribution system, in which the generated electricity is credited to subscribers of the installation. Community shared solar allows customers who are otherwise unable to have a solar system, such as renters or property owners with poor solar access, to receive solar electricity from an offsite system. System community options" expand access to solar power for renters, those with shaded roofs, and those who choose not to install a residential system on their home for financial or other reasons. Ratepayers and taxpayers fund solar incentive programs. Accordingly, as a matter of equity, solar energy programs should be designed in a manner that allows all contributors to participate. Furthermore, as opposed to standard residential rooftop generation, Community Shared Solar benefits from economies of scale. Currently About 1.5%, or 17 MW of distributed PV systems use a Community Share Solar model (IREC, 2012, p.21). Depending on the needs of the community pursuing shared solar different models may be adopted: Utility-Sponsored Model: A utility owns or operates a project that is open to voluntary ratepayer participation. (Examples: Sacramento Municipal Utility District Solar Shares Program; Tucson Electric Power Bright Tucson Program)

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Special Purpose Entity (SPE) Model: Individuals join in a business enterprise to develop a community shared solar project. (Examples: University Park Community Solar LLC; Clean Energy Collective LLC; Island Community Solar LLC)

Nonprofit Model: A charitable nonprofit corporation administers a community shared solar project on behalf of donors or members, and the nonprofit receives solar electricity, RECs, and net metering benefits as well. (Examples: Winthrop Community Solar Project; Solar for Sakai)

Public Entities
Self-Ownership As with the self-ownership model for corporations, simply put, a government body (the host) contracts with a developer, typically selected through a competitive bidding process after issuing a request for proposals (RFP), to obtain a solar installation to power public buildings. Any surplus, depending on the jurisdiction, may be sold to the local utility. The government entity issues bonds with long-term maturity to finance the up-front costs of solar energy development. Depending on the laws and regulations of the state, bonds may be issued specifically for solar energy development, or general revenue bonds or other bonds or financing may be used. The government entity is then responsible for the operations and maintenance of the installation. In general, governments have lower borrowing costs than private entities, and by definition are not mobile, so they typically have less risk in solar energy adoption.

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Community Choice Aggregation Local municipalities bundle together residences and small commercial institutions into an autonomous energy-demanding entity. The state legislature must mandate the creation of local government CCAs, a policy that has been successfully implemented in California, Illinois, Massachusetts, New Jersey, Ohio, and Rhode Island. The CCA acts as a publically owned nonprofit energy provider. The CCA is not a muni or a co-op: What separates CCA agreements from the municipal utility model is that CCAs generally take over the existing utilitys role as provider [i.e. the guarantor of energy generation], while still relying on the previous infrastructure and maintenance of the existing investor owned utility (IOU) (Allen, 2012, para. 3). The CCA may or may not own the electricity generating resources. The CCA may also incorporate a rate stabilization fund, which allows for the streamlining of energy prices even when fuel prices rise (Local Government Commission, 2006, p.5). Individual residents have the choice to opt out of the CCA. Bond-PPA Hybrid Morris Model Named for Morris County, New Jersey, where it was first implemented, the Bond-PPA Hybrid Morris Model seeks to take advantage of government agencies lower borrowing costs as well as private corporations solar energy tax incentives by combining features of the government self-ownership model with the corporate Solar PPA model. A public entity (the administrator) issues an RFP seeking a solar developer to build, operate, and own a solar project or portfolio of projects on public buildings (local hosts). When a solar company is selected the administrator sells bonds to finance the development costs of the PV installation. The administrator then enters into both a lease-purchase agreement with the winning bidder and a PPA (on behalf of the local hosts) to buy the electricity from the PV system. The solar company then passes the money it earns from the tax incentives (unavailable to municipalities) and SRECs sold to Utility companies seeking comply with state Renewable Portfolio Standards on to the administrator in the form of discounted electricity. As with self-ownership, any surplus, depending on the jurisdiction, may be sold to the local utility (Speer, 2012). The model has only been proven to work in states with SREC programs.

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Bond-PPA cash flow structure

Image courtesy of National Renewable Energy Laboratory

Nonprofits
BCCAP Model Named after the Bergen County Community Action Partnership Inc., the first organization to develop and implement it, the BCCAP model is specifically designed for non-profit organizations, whether acting individually or several nonprofits collaborating. In it, a nonprofit or group of nonprofit organizations partner with a qualified equity investor (QEI) to finance the development of a solar energy installation. The nonprofits create an affiliate organization to manage the project and receive the investment, which the QEI either already has raised or has the ability to raise for the purposes of the solar energy project. In the BCCAP case, the affiliate was a community development entity (CDE), as the projects took place in low-income areas. Given that most nonprofit organizations are tax-exempt, they cannot benefit from the tax credits available in solar energy. Thus, the rights and obligations of the solar installation are transferred to the QEI so that it may reap the ITCs and NMTCs available to solar energy, which is a major incentive for the QEI in the first place. Bond/PPA/BCCAP Hybrid As with the Morris model, a government agency issues bonds to finance solar energy development and leases out the installation to the developer, to which it makes power purchase payments. However, the host sites are nonprofit organizations instead of public
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buildings, especially nonprofits that contract with the government agency to provide public services, as the government agency will benefit through reduced costs for the nonprofit and, in turn, the granting agency. Sustainable Williamson seeks to further assess the development of this model in the future as it relates to Community Choice Aggregation.

State and Federal Incentives/Direct Loans/Loan Guarantee Programs


New Market Tax Credits (NMTCs) The NMTC Program attracts investment capital to low-income communities by permitting individual and corporate investors to receive a tax credit against their Federal income tax return in exchange for making equity investments in community development entities a domestic corporation or partnership which demonstrate a primary a mission of serving, or providing investment capital for, low-income communities or low-income persons. The credit totals 39 percent of the original investment amount and is claimed over a period of seven years (five percent for each of the first three years, and six percent for each of the remaining four years). The investment in the CDE cannot be redeemed before the end of the seven-year period (IRS, 2010). Federal Business Energy ITC Private and public solar developers of residential and commercial projects are able to receive a Investment Tax Credit (ITC) equal to 30% of total project expenses. This incentive is in wide use and will remain in effect until December 31, 2016 (DESIRE, Buisness).

Federal Bonus Depreciation Eligible renewable-energy systems properties entitle the owner to deduct a significant portion of the adjusted basis of the property during the tax year the property is first placed in service. For property placed in service from 2008 2013 the allowable first-year deduction is 50% of the eligible basis. This legislation extended the placed in service deadline for 50% first-year bonus depreciation by one year, from December 31, 2012 to December 31, 2013 (DESIRE, Modified).

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IRS MACRS Modified Accelerated Cost Recovery System (MACRS) is an accounting practice used to allocate the cost of wear and tear on a piece of equipment over time in this case, more quickly than the expected system life. The Internal Revenue Service allows a five-year modified accelerated cost recovery system for commercial PV systems. Although a solar array may produce power during the entirety of a 20-year PPA, the system owner (through means of the solar developer) can take advantage of the entire tax benefit within the first five years (DESIRE, Modified). WV Residential Solar Tax Credit Private residents can receive up to a 30% income tax credit after the purchase of a solar system, with a $2000 cap. Solar water heating systems must derive at least 50% of energy from the sun in order to qualify. Excess tax credits can rollover over into the next taxable year until July 1, 2014. INCENTIVE NOLONGER AVAILABLE desire.org WV EDA Direct Loan Program Funds projects from $50,000 up to $10 million, includes a two tiered interest rate system: for projects between $50,000 and $800,000, rate is the New York prime rate minus four percent, otherwise the rate is equal to the U.S. Treasury Note rate of equivalent maturity plus three percent. Rates have a four percent floor. To qualify, the borrower must create one job for every $15,000 in loans. WVEDA can participate up to 45% in eligible fixed assets (land, site preparation, construction, and equipment), and the borrower must have at least 10% equity invested. The borrower must guarantee at least 20% of the loan or provide an Irrevocable Letter of Credit. This is strictly a reimbursement plan as the loan occurs after the completion of a project, thus the borrower must have interim financing before WVEDA loan approval (WVEDA, Direct). SBAs CDC/504 Direct Loan Program The borrowers eventual company must operate as a for-profit enterprise, and the borrower must have a tangible net worth of $15 million or less and an average net income less than $5

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million after taxes for the preceding two years. The borrower must have reasonable owner equity to invest, and cannot have funds available from other sources that amount to a significant amount of the projects total financing. In the case of a renewable energy project, the maximum loan is $5.5 million. The project assets are considered collateral. Interest rates are slightly above the current market rate for five and ten year Treasury notes, and the Small Business Administration (SBA) includes a three percent fee that can be financed as well. Maturity terms are between ten and twenty years (SBA, Real Estate). USDA REAP Through the Unite States Department of Agricultures Rural Energy for America Program (REAP), private individuals can receive financial assistance for rural small businesses to install RE systems in the form of loan guarantees and grants. A small business in the context of a utilityscale solar producer is limited to an annual energy output of 4 million megawatt hours. The USDA guarantees 70% of debt for projects between $5 and $10 million and 60% for projects between $10 and $25 million (maximum). The Renewable Energy System Grant ($500,000) and the Energy Efficiency Improvement Grant ($250,000) are available, but grants cannot fund more than 25% or $500,000 of the project, whichever is less. The USDA combined loan guarantee and grant requests cannot exceed 75% of the total project cost (USDA, Business). Department of Energys REPI Program The Renewable Energy Production Incentive (REPI) program is a direct payment to the energy producer equal to 1.5/kWh valued in 1993 dollars, or about 2.1/kWh in 2013 dollars. The energy producer must be an entity of the State or a nonprofit electrical cooperative. The annual incentive payment lasts for the first ten years of project operation with possible funding available for each subsequent year according to the availability of annual appropriations. The REPI program has not been utilized since 2007, although its expiration date is 2026. This is probably a sign that utility-scale RE projects have been increasingly designated to the private sector (USDOE, 2007, Renewable).

Pilot Community Tax Equity Finance Model


The model explored by our team to finance community developed solar energy systems in Williamson centers on tax equity finance and three key participants:

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1. Individuals and community businesses Community Project Funders who principally or wholly fund the development of a solar energy system. 2. Neighbors and community entities Community Project Beneficiaries who lack the funds necessary to fully develop a solar energy system but wish to ultimately own and operate a solar energy system developed by Community Project Funders. 3. A Limited Liability Corporation (LLC), through which the investors (the Community Project Funders) will incorporate the project and operate the solar energy system for the first six years (approximately) of its lifetime. The structural and operational specifics of this entity, to be formed by the Community Project Funders, are complex and not the focus of this case study. In tax equity finance, Community Project Funders with a large portion of certain kinds of income in higher brackets (most notably and advantageously passive income) can recover between 80% and 90% of their depreciable solar energy system development expense. In cases where these funders have especially large sums of income in higher tax brackets, it is possible for the funder to realize a profit on their ownership interest in the development. The funders, after fully realizing the tax benefits over a six-year period, are then able to sell the solar energy system to the Community Project Beneficiaries at a bargain sale to charity price (between 70% and 80%) over its original development cost. The option to structure a charitable donation of the system is also possible, but more complex, and thus not discussed in this case study. This option adds to the return for project funders and further benefits the beneficiary by eliminating the need to raise cash for system purchase at discount. Community Project Funders: Community project funders are individuals or local businesses who provide the capital that is necessary to originally develop a solar energy system, such as a solar electric system on a nonprofit, municipal or other public property. These individuals or business partners: 1. Are able to maximally or optimally take advantage of the tax incentives offered for renewable energy development at their level of ownership in the LLC 2. Form an LLC (Limited Liability Corporation) to develop the solar energy system 3. Manage and operate the solar electric system for the first 6 years of its 25+ year lifetime

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4. Will most favorably have a tax liability on passive income, non-salary income derived from investments or business enterprises in which the investor does not actively participate. 5. Consult their tax professionals, such as a Certified Public Accountant (CPA) or Tax Attorney, to ensure that they qualify for and are able to maximally and optimally realize the tax incentives they derive from their membership interest in the LLC capitalizing, developing and operating the solar energy system. The Community Project Funders will receive a portion of the tax incentives equal to their ownership interest in the LLC, i.e., an individual with a 25% ownership interest (the money they provide to the LLC divided by the total amount of money provided to the LLC) in the LLC would receive 25% of all tax benefits available to the LLC as a result of its solar energy system development. Community project Funders in West Virginia who pay substantial federal income tax on passive income in the 28% - 35% tax brackets can recover 80% - 110% of their ownership interest in the LLC vie tax incentives available for renewable energy development, as illustrated in the figure to the right: Upon assessing this Tax Equity Financing Model, we determined that we should consult with our legal team at Key, Fox and Wiedman in order to understand whether: 1. Potential investors qualify for these tax credits 2. Potential investors are able to optimally and maximally receive the incentives at their level of ownership in the LLC 3. Assumptions about WV Tax Credit were in fact applicable to the entire photo-voltaic system This pilot model proved to be unviable because of its reliance upon the West Virginias Alternative-Fuel Motor Vehicles Tax Credit. Our initial assumptions led our team to believe that by bundling the above tax credit along with both the Federal Business Energy ITC and the Federal Modified Accelerated Cost Recovery System would actually provide a return on the Community Funders investment.

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Given that the West Virginia tax incentive is available to eligible taxpayers who construct or purchase and install qualified alternative fueling infrastructure, our team came to the conclusion that the entire solar energy system did not fall under the prevue of fueling infrastructure due the distinction between conversion technology versus storage technology. The language is as follows: Qualified alternative fuel vehicle refueling infrastructure means property owned by the applicant for the tax credit and used for storing alternative fuels and for dispensing such alternative fuels into fuel tanks of motor vehicles, including, but not limited to, compression equipment, storage tanks and dispensing units for alternative fuel at the point where the fuel is delivered: Provided, That the property is installed and located in this state and is not located on a private residence or private home. Qualified alternative fuel vehicle home refueling infrastructure means property owned by the applicant for the tax credit located on a private residence or private home and used for storing alternative fuels and for dispensing such alternative fuels into fuel tanks of motor vehicles, including, but not limited to, compression equipment, storage tanks and dispensing units for alternative fuel at the point where the fuel is delivered or for providing electricity to plug-in hybrid electric vehicles or electric vehicles: Provided, That the property is installed and located in this state. The credit provided in this article is not available to and may not be claimed by any taxpayer under any obligation pursuant to any federal or state law, policy or regulation to convert to the use of alternative fuels for any motor vehicle.

Additional Information
Below are introductory resources to some of the solar financing models mentioned in this section: Environmental Protection Agency Solar Power Purchase Agreements http://www.epa.gov/greenpower/buygp/solarpower.htm Grow Solar Wisconsin. Third-Party Ownership. http://www.growsolar.org/toolbox/third-party-ownership/ National Renewable Energy Laboratory. Solar PV Project Financing: Regulatory and Legislative Challenges for Third-Party PPA System Owners by Katharine Kollins, Bethany Speer, and Karlynn Cory. http://www.nrel.gov/docs/fy10osti/46723.pdf

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National Renewable Energy Laboratory. Financing Solar PV at Government Sites with PPAs and Public Debt by Claire Kreycik https://financere.nrel.gov/finance/content/financing-solar-pv-government-sites-ppasand-public-debt

PACE About Pace http://pacenow.org/about-pace/ Rahus Institute http://www.californiasolarcenter.org/sppa.html Run on Sun Solar for Non Profits http://runonsun.com/html/solar-for-nonprofits.html Solar Energy Industries Association. Third-Party Solar Financing. http://www.seia.org/policy/finance-tax/third-party-financing Tioga Energy Solar Financing PPA http://www.tiogaenergy.com/tioga-energyresource/other-solar-information/financing-solar-ppa Solar Energy Industries Association Solar Power Purchase Agreements: Fact Sheet http://www.seia.org/research-resources/solar-power-purchase-agreements

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Regulatory Framework
Recommendations: When considering the following findings, our team strongly recommends two specific changes within WV net metering: 1) expand the 2 mile radius limitation from point generation to the entire state to allow for a broad application of virtual net metering and 2) increase the present interconnection system capacity limitations for all categories (i.e., industrial, commercial and residential) as suggested by IRECs Best Practices (below). With regards to the current WV Alternative Renewable Portfolio Standards (ARPS) we recommend the development of a solar set-aside, or carve out, in a manner comparable to Ohio and Pennsylvania ARPS in order to spur continued competitive growth of solar in West Virginia but perhaps more appropriately and in the spirit of our proposed integrated path forward we strongly recommend the development of a carve out that incentivizes energy integration (e.g., solar and natural gas). Furthermore we urge that the WV Public Service Commission (PSC) must establish rules regarding alternative energy credits ownership, which they have yet to do, for net-metering to proceed effectively. We also recommend that the WV PSC review the time-ofuse pricing systems being adopted in several western states as well as the revenue decoupling policies for electrical utilities currently employed in 30 states, both of which could save money for WV residents, protect utilities from imminent shifts in the economic landscape and further incentivizes growth of renewable energy development.

TPO, PPAs and Leasing Arrangements in WV


Currently the primary reason solar financer-installers are not choosing to develop in West Virginia is that state regulatory protocols regarding third party financing remain ambiguous. If the WVPSC were to enact regulation designating solar third party originators (TPOs) as public utilities, the PSC would gain a high level of control over terms rates, and conditions of service offered by the TPO. Moreover, a determination of public utility status would likely prohibit TPOs from direct sales of electricity within the service territories of other certificated electric public utilities pursuant to West Virginia Code Section 24-2-11(b). The burdens of such regulation would likely dissuade a TPO from offering service in West Virginia, and the indeterminate status of this regulation makes for an unappealing investment market.

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The EPAs RE-Powering Americas Land Initiative highlights the immense potential for solar development in West Virginia that is currently being stifled by the undetermined regulatory framework for third party financing in the state. As the agency concludes in its study of brownfields (abandoned strip-mines in this case), a third-party ownership PPA provides the most feasible way for a [solar] system to be financed on these sites (NREL, 2010, p.27). Examination of whether a host customer utilizing a third-party owned system could net-meter is important as well, because the ability to net-meter is often essential to successful financing for on-site renewable energy systems. In another NREL Technical Report Solar PV Project Financing: Regulatory and Legislative Challenges for Third-Party PPA System Owners, outlines the most common regulatory obstructions facing the implementation of third-party owned PV systems in the United States. The report concludes most state laws and regulations that complicate third party ownership in monopoly territories have been in place for decades and did not originate specifically to prevent the third-party PPA model. In general, the third party PPA model is not specifically outlawed (NREL, 2010, p.7). Third party ownership may become an issue under the following conditions: The definition of electric utility is a seller of electricity: The solar PPA model specifies that the customer would directly purchase their energy from the solar developer, thus making the developer a seller of electricity and susceptible to being deemed a public utility, should a state have defined a public utility in such a manner. California, Colorado, Florida, and Arizona have all faced this issue regarding the implementation of PPAs; California and Colorado have passed specific legislation to exempt a thirdparty owned system from being considered a public utility. The definition of electric utility specifies the use of power generation equipment: The solar developer in a PPA may be qualified as a public utility because the developer manages electric power generation equipment. Such was the case in Oregon and Nevada, both of which passed legislative and regulatory solutions. N evadas solution is of particular interest: The Public Utilities Commission of Nevada declared third party owned systems as non-utility entities. Special consideration was given to these systems ability to incorporate net metering because allowing third -party ownership of net-metered systems is consistent with state policy goals to encourage the development of, and private investment in, renewable energy sources, stimulate economic growth in Nevada, and enhance the diversification of energy sources (p.

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12). Net metering: Under favorable net metering circumstances, solar energy generated in excess of onsite load is sold back to the utility and then credited to the customers electrical bill, thus greatly incentivizing (larger scale?) solar deployment. But, third party owned systems might not qualify as facilities or customers that are allowed to net-meter. This issue has been problematic in New Jersey and Texas and has only been resolved successfully for TPO in New Jersey. According to the states revised n et energy metering (NEM) and interconnection rules, a customer-generator facility is defined as the equipment used by a customer-generator to generate, manage, and/or monitor electricity (p. 16). Because the host in a PPA model uses the developer-owned electrical equipment, i.e. the solar system, the host is eligible for net metering. The West Virginia 2009 Alternative Renewable Portfolio Standards legislation defines electric utility in section 24-2F-3: "Electric utility" means any electric distribution company or electric generation supplier that sells electricity to retail customers in this state. Unless specifically provided for otherwise, for the purposes of this article, the term "electric utility" may not include rural electric cooperatives, municipally owned electric facilities or utilities serving less than thirty thousand residential electric customers in West Virginia. At first it may seem that any implementation of TPO solar systems may be obstructed by the clause stating that an electric utility is defined as any electric generation supplier that sells electricity. However, as long as the solar provider has contracted fewer than residential electric customers, it will not be labeled an electrical utility. . There should be legal research conducted with regards to confirming/refuting this conclusion, as well as towards addressing a scenario where a solar developer has aggregated 30,000+ customers within West Virginia. Regarding NEM eligibility, we have considered whether the PSCs current regulations would permit customers with TPO system to net-meter their system as well. The NEM regulations appear to allow TPO systems that are leased, but would appear to prohibit TPO systems that are installed pursuant to a PPA with the host customer. This is because the NEM regulations restrict eligibility to the program for a customer-generator who either owns and operates a NEM facility or leases and operates a NEM facility. Therefore, one should expect a conflict

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similar to New Jerseys net metering situation in which customer-generator was defined as one who either owns or operates an NEM facility, but was later changed to refer to a party that simply uses the equipment. But, as with NRELs findings on Nevadas NEM and interconnection laws, the Vision Statement of the [West Virginia] Public Services Commission specifically states that the body will work tirelessly to assurean increase in business investment, job creation/retention and the states overall competitivenessthat consumers receive the best value in utility service from financially viable and technically competent companies (WVPSC, Mission). With its declaration that net metering further promotes the deployment of solar PV systems, the Nevada Public Utilities Commission has provided a valuable precedent that the WVPSC should review.

West Virginias Alternative Renewable Portfolio Standards


Currently 29 states and the District of Columbia have enacted renewable portfolio standards (RPS) for electrical utility companies. RPS legislation sets a goal for a specific output or percentage of public utility energy to come from alternative or renewable energy sources by a specified date. In 2009, West Virginia enacted an ARPS (Alternative Renewable Portfolio Standard) with a goal of 25% of investor-owned utility (IOU) energy to come from alternative or renewable energy sources by 2025, either through direct generation or through the purchase of renewable energy credits (RECs). The ARPS does not include a set-aside for solar energy. Qualifying renewable energy sources include solar, wind, hydro, biomass, and geothermal. Qualifying alternative energy sources include clean-coal technology, coal-bed methane, natural gas, clean coal, synthetic gas, integrated gasification combined cycle, and many more. The state established benchmark goals that 10% of IOUs with more than 30,000 customers would generate energy from these renewable sources from 2015 to 2019, 15% from 2020 to 2024, and 25% by January 1, 2025. Natural gas may only contribute up to 10% of the total generation to be considered for meeting the RPS; otherwise there is no minimum contribution from renewable energy sources (DESIRE, West) The West Virginian ARPS is a goal, with non-compliance projected to be a non-issue in the coming years largely because the legislation is more an Alternative Portfolio Standard instead of a Renewable Energy Standard, hence the establishment of an Alternative Renewable Energy Credit market instead of the traditional Renewable Energy Credit market (personal interview with Steve Kominar, June 2013). Compliance with ARPS goals will be evaluated by the

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West Virginia Public Services Commission and will be based upon an IOUs required number of ARECs; the PSC will begin evaluation in 2015. One AREC is awarded for each megawatt-hour (MWh) generated by alternative energy resources, two ARECs are awarded for every MWh generated by renewable energy resources, and three ARECs are awarded for every MWh generated by renewable energy sources located on a reclaimed surface mine in West Virginia. The PSC may also grant one AREC to an IOU for every ton of carbon dioxide reduced or offset by RPS compliance and for every MWh conserved via demand-side management technology implementation. ARECs may be generated or purchased from a facility in West Virginia or within the PJM service territory (DESIRE, West). It is quite possible that an AREC will be diminutive in value compared to other REC or solar renewable energy credits (SRECs) because of the absence of a strictly renewable energy requirement, and because the PSC has yet to establish firm noncompliance measures. There are only three other states that have retained a serious commitment to clean coal technologies (coal mine methane, integrated gasification combined cycle, etc.) within their RPS guidelines: Pennsylvania, Ohio, and Michigan. Both Pennsylvania and Ohio have a solar side-aside for 0.5% of total IOU electrical output by 2020 and 2024, respectively, and therefore have solar renewable energy credits instead of simply ARECS. In order to spur a healthy growth of solar within West Virginia, the state should implement a solar set-aside, or carve-out, in a manner comparable to these states with the most similar RPS guidelines as West Virginia (DESIRE, Ohio, Pennsylvania) After establishing the institutional framework for an AREC market, a state with RPS legislation must then implement a process by which an independent energy producer may register with the state to earn actual ARECs. This process varies state by state and is always under the jurisdiction of the states public utilities commission. Here we an alyze the SREC/AREC registration processes of Ohio, Pennsylvania, and West Virginia: Ohio: The entire process of being considered a qualified Renewable Energy Resource Generating Facility may be completed on-line. A registration walkthrough can be found on the Public Utilities Commission of Ohios website, along with all required forms. The applicant must first reserve a case number through the PUCO Docketing Information System, which can be found on the commissions website. Then the applicant completes an online REN (Renewable Energy Resource) form fourteen pages in length. Once the

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application is complete, it must be filed electronically in the Docketing Information System. Finally, once PUCO approves of the renewable energy system, the system owner must register with an AREC tracking system in order to buy and sell credits. Either the GATS (used in PJM territory) or MISO system may be utilized (PUCO, Docketing). Pennsylvania: Similar to Ohio, Pennsylvanias entire AREC registration process can be completed through the states public utilities commission website, which also contains a walkthrough of the registration process and all necessary forms. The applicant must first create an account on the PUC website and proceed to provide information on their alternative/renewable energy facility in the required forms. The applicant must complete an on-line attestation to complete the online registration. Finally, once the PUC approves of the renewable energy system, the system owner must register with the GATS AREC tracking system (PUC, Pennsylvania). West Virginia: The state provides no on-line walkthrough of the AREC acquisition process or required forms. There appears to be no clear registration process our team was directed to prior AREC filings available on the West Virginia PSC website. According to these previous filings, the applicant must petition for certification of certain facilities as a Qualified Energy Resource in accordance with Title 150-34 Rules governing the ARPS rules. The remainder of the registration process is unclear it seems that the applicant will remain in correspondence with the WV PSC to follow up with various renewable energy generation qualification issues until AREC certification is awarded or denied.

Net Metering Trends


More than 40 U.S. states plus the District of Columbia and four U.S. territories have established net metering policies, and many have subsequently expanded their policies to accommodate expanding solar markets. Net metering is the application of an electrical meter system that monitors customer inflow (consumption) of energy and customer outflow (production) of energy via a distributed energy resource system. The customers produced energy is sent to the grid, at which point the customer will receive a net metering credit to help offset their electricity bill. 20 states (plus the District of Columbia and Puerto Rico) allow net metering for certain systems one megawatt (MW) or greater in capacity. At the upper end of the spectrum, Massachusetts allows net metering for certain systems up to 10 MW, and New Mexico allows net metering for certain systems up to 80 MW. In several states, including Arizona, New Jersey

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and Ohio, there is no stated capacity limit. In many cases, states limit systems to a certain percentage (e.g., 125%) of the customers load so that customers do not intentionally oversize their systems. Furthermore, some states have established individual system capacity limits that vary by utility type, system type or customer type. Some states, such as California and Utah, have increased the aggregate capacity limit for net metering due to the rapidly growing popularity of grid-tied solar. Others, such as Pennsylvania, have either clarified or enhanced provisions governing the treatment of net excess generation at the end of a billing period. Many states now allow customers to carry these resulting net excess generation credits forward to the following billing period at the full retail value of a kWh, either indefinitely or during a 12-month period, in the case of West Virginia. Notably, all state net metering policies include solar as an eligible technology. In recent years, states have commonly extended net metering to other kinds of renewable energy systems as well. Almost all states that have addressed REC ownership for net-metered systems, including Arkansas, Colorado and Florida, have concluded that RECs belong to customers (as opposed to utilities). The issue of REC ownership is increasingly important as utilities seek to meet renewable portfolio standard (RPS) obligations. DSIREs Summary of WV Net metering Net metering in West Virginia is available to all retail electricity customers. System capacity limits vary depending on the customer type and electric utility type, according to the following table (IREC, Vote Solar Initiative, 2012, p. 99). IOUs with fewer IOUs with Customer Type 30,000 customers or more Residential 25 kW Commercial 500 kW Industrial 2 MW than 30,000 customers, municipal utilities, electric cooperatives 25 kW 50 kW 50 kW

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Systems that generate electricity using "alternative" or "renewable energy" resources are eligible for net metering, including photovoltaics, wind, geothermal, biomass, landfill gas, run of the river hydropower, biofuels, fuel cells, and combined heat and power (technically called "recycled energy" in the rules). Net excess generation (NEG) may be carried over to a customergenerator's next bill as a kilowatt-hour (kWh) credit at retail rate and may be rolled over, indefinitely. The credits may only be applied to the energy portion of the bill (not to fixed costs or demand charges, for example). Recently, a handful of states have expanded net metering by allowing meter aggregation for multiple systems at different facilities on the same piece of property owned by the same customer. This is referred to as virtual net metering when multiple meters are accumulated into a single meter. In several states, certain customers may net-meter multiple systems at different facilities on different properties owned by one person, such is the case with a large housing complex. In addition, community net metering and neighborhood net metering, which allow for the joint benefits of a solar project by multiple users, is in effect or under development in a small number of states, including Massachusetts. West Virginia customers may aggregate meters (either physically or virtually) and apply net metering credits earned on one meter to additional meters, as long as they are located within two miles of the point of generation. The associated costs of meter aggregation are the responsibility of the customer. Net metering tariffs must be identical in rate structure, retail-rate components, and monthly charges, to the tariff for which the customer would qualify if that customer were not a customer-generator. Customers on a time-of-use tariff are also permitted to net meter (discussed below). Net metering may be accomplished using a single, bi-directional meter or two meters. In the event that two meters are used, the net number of kWh for billing purposes will be determined by subtracting the amount of electricity flowing from the customer to the utility from the amount of electricity flowing from the utility to the customer. The state has placed a 3% aggregate program capacity limit on the total output of net-metered DER, i.e. utilities may refuse net metering on additional DER systems once 3% of their peak demand, as measured from the previous year, is met by distributed energy systems. The issue of who owns the alternative energy credits (or renewable energy credits) remains unresolved. The PSC must establish rules regarding alternative energy credits for the alternative energy portfolio standard, and as a result, the PSC has not yet addressed credit ownership for

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the purpose of net metering. Finally, each customer with a net-metered system up to 50 kW must carry a minimum of $100,000 in liability insurance. Customers with systems greater than 50 kW and up to 500 kW are required to carry a minimum of $500,000, and customers with systems greater than 500 kW must carry a minimum of $1 million in liability insurance. Regional Accessibility to Net Metering Because net metering policy is carried out by the electric utilty companies as opposed to the state Public Service Commision, accessibility to net metering applications and installation in the PJM region varies from company to company: Ohio Customers of Dayton Power and Light (DP&L) can find information and application forms by searching Net Meter on the companys website (oddly, as a side note, neither Net Metering nor Net Meters yields the correct results). The page walking customers through the process is straight forward and user friendly. As with FirstEnergy and AEP applications DP&Ls application requires documentation, site plans and diagrams. The site also states: Net metering is intended to help customers offset their monthly bill. Your net meter will measure how much power your location produces and consumes. If you produce more power than you use in a certain month, you will receive a credit from DP&L. For example, if you consume 100 kilowatt-hours (kWh) and you produce 110 kWh, you will receive a credit for the excess 10 kWh on your next months bill. Net metering is not intended for customers to sell power to DP&L for profit. DP&L will not approve net metering applications where the expected power production far exceeds the customers electrical requirements. If you would like to sell power as an Independent Power Producer, please email us for guidance (Dayton Power & Light, Install). Neither South Central Power Company nor Consolidated Electric Cooperative Inc. have any information regarding Net Metering on their website. Customers with Duke Energy can find information and application forms on a page on their Customer Generation webpage. This page includes a link to a short form application for interconnection (referring to net metering) as well as a link to information about selling SRECs to Duke Energy (Duke Energy, Customer).

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Note that the descriptions of American Energy Producers And FirstEnergys processes, mentioned below, apply here as well.

Pennsylvania

Champion Energys website has neither a search function nor a clear link for customers interested in net metering. One can find their policy by searching Champion Energy Net Metering. Buried in a document: To be considered eligible to participate in Champions Net Metering Program, residential customers must generate a portion or all of their own residential retail electricity requirements using energy generation equipment located on their premises. Additionally, the residential customer must have a meter capable of measuring the flow of electricity in both directions and the meter must be tested and calibrated by the Utility to assure accuracy prior to commencing services under this Program. When the residential customers interval or hourly net usage results in a net flow of electricity from the customer to Champion, the customer will be credited for the electricity provide to Champion at the rate provided under the applicable service tariff. This Program is available to residential l customers on a first come, first serve basis until the capacity of all participating generators is equal to the maximum Program limit of Champions peak load supplied by Champion the preceding calendar year. Please contact Champion at 1.877.653.5090 or the Utility for additional details about available net metering programs in your residential area (Champion Energy Services, p.3).

Duquesne Lights website has a Customer Generation page that provides a straightforward procedure for application requiring diagrams, site plans, documentation and application fees (Duquese Light, Customer).

West Virginia While customers with FirstEnergy can find the required information and forms to begin the process by simply searching Net Metering on the companies site. American Electric Power (AEP) does not provide access to the forms online. AEP users must call the customer service line and request the forms by mail or email. The application process for FirstEnergy interconnection

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requires submissions of documentation, diagrams and site plans of the facilities being registered but the process is outlined with step-by-step guidance. By comparison, AEPs informational handout for registration is a 32 page packet filled with definitions, equipment requirements, conditions of service, provisions and 7 appendices. Though the content provided by both companies is relatively similar, FirstEnergys format of presentation is much more accessible and user-friendly (FirstEnergy, Mon). In light of these inconsistencies in accessability to net metering options for PJM region electrical consumers, we recommend that the WV PSC enforce stricter standards for access among utility companies operating within West Virginia. Time-of-Use Time-of-use pricing is a variable-rate billing method for electricity constructed upon time-ofday-dependent rates instead of a flat per-kWh rate. The premise here is that electricity is more expensive when in high demand (e.g. by air conditioners in the afternoon on hot, sunny days) and that variable pricing should help reduce demand during these hours. Thus, time-of-use rates are higher when electric demand is higher. Charging higher electricity prices during peak demand has the effect of shifting demand to those times of the day corresponding to when energy is least expensive (up to 50%+ less costly). This in turn means that fewer new power plants will be necessitated to meet peak load, helping utilities to reduce exposure to stranded costs. The time-of-use billing system has expanded to include bi-directional net metering programs (referred to as time-of-use metering). As with consumption, utilities that offer time-of-use metering tier the value of the customers generated energy in accordance with daily and seasonal energy demand schedules. For instance, customers of the California-based Pacific Gas and Electric Company (PG&E) receive credits for energy generated between the hours of 12PM and 7PM throughout the summer that are worth more than three times those credits for energy generated during off-peak hours. Utilities such as PG&E have developed bi-directional rate schedules with on-peak and partial-peak periods in order to better reflect the utility costs of generating power at various times of the day, especially during high demand (PG&E, Time). Customer generators on a time-of-use rate schedule can optimize their net energy bill by earning more valuable credits for energy generated during peak hours while simultaneously shifting their consumption to off-peak hours. PV systems can be very financially attractive when

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combined with time-of-use metering because solar output is the strongest precisely during peak load. Daily variable rates are new to most public utilities commissions, and policy development in this arena has been slow. Typically, regulators first make decisions about advanced metering infrastructure (AMI) deployment. Only later do they work out the details of variable pricing. The California Public Utilities Commission has set forth a plan to make time-of-use rates the commercial standard for all of the states major electric utilities. Many other states are now looking to follow suit. However, customers, by and large, remain unaware of time-of-use billing options. As TOU becomes more widely implemented, solar PV deployment will continue to become more economically feasible. IRECs Best NEM Policies and Freeing the Grid Grades IREC has established the following best practices for net metering policies:

All utilities (including municipal utilities and electric cooperatives, not just IOUs) should be subject to the state policy. All customer classes should be eligible. The individual system capacity should not exceed the customers service entrance capacity. Otherwise, there should be no individual system capacity limit. There should be no aggregate system capacity limit. Any customers net excess generation at the end of a billing period should be credited to the customers next bill as a kWh credit (at the utilitys fu ll retail rate) indefinitely, until the customer leaves the utilitys system.

Utilities should not be permitted to impose an application fee for net metering. Utilities should not be permitted to impose any charges or fees for net metering that would not apply if the customer were not engaged in net metering. Utilities should not be permitted to force customers to switch to a different tariff. Customers should have the option to switch to a different tariff, including a time-of-use tariff, if they so choose. If a customer is on a time-of-use tariff, when net metering they should be credited for the appropriate time-of-use period in the billing period.

Customers should have ownership of any RECs associated with the customers electricity generation. Customers should be permitted to offset load measured by multiple meters on the same property using a centrally located system.

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The state public utilities commission should adopt comprehensive interconnection standards for customer-sited systems.

In its annual publication, the team that develops Freeing the Grid assigns each state a letter grade (A through F) according to its net metering policies as well as its DER interconnection procedures. In 2012, West Virginia received an A for its net metering policies namely for the states 12-month NEM credit lifespan policy, its approval of aggregate net metering, and its consumer protection practices that prevent the net metering customer from having to pay for unspecified additional equipment, fees, etc. While the state received a strong letter grade, the IREC withheld more praise for the states net metering policies due to the prescribed 3% aggregate program capacity limit and states lack of details regarding REC ownership (IREC, et al., 2012, p. 99). As for DER interconnection procedures, West Virginia received a B grade. High points of the states procedures include lenient external disconnect switch requirements and tiered insurance requirements for DER systems. The IREC was dissatisfied with the states interconnection process requiring timelines longer than the FERC standards and the individual system capacity limits, mentioned above (p. 99). In the context of virtual rooftop solar, a key component to Virtual Power Plants, the Freeing the Grid report is particularly relevant. The report awards an additional bonus point within its grading criteria to a state with a community shared renewables program: For a variety of reasons, customers may be unable to host an on-site renewable energy systemForward looking states are beginning to address this program gap and expand opportunities for customers to participate in renewable energy through shared renewables programs. Under a shared renewables program, customers are allowed to invest in an off-site renewable energy system and still participate in net metering and other state-level incentive programs (p. 14). West Virginia did not receive this additional bonus point because the state does not have such a program in place. A virtual rooftop solar program would function similarly to the community shared renewables program as described above; therefore we should like to see policy changes to where Freeing the Grid would be able to consider the state for the shared renewables bonus.

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Other Considerations for WV Net metering We strongly recommend that the following be considered when developing a VPP based market for solar development: Penetration Screening Revisions: Distributed energy systems may often fail a fast track interconnection process due to the penetration screen criteria ensuring that a DER system will have a minimal impact on the utilitys grid. The scree n is incorporated into the Federal Energy Regulatory Commissions Small Generator Interconnection Procedures (SGIP) and is reflected in most state interconnection procedures. Failure to pass the screen prevents an interconnection request from proceeding along an expedited path, and this typically occurs when the aggregate generation on a line section exceeds 15% of the line sections annual peak load. Generators that exceed this standard fail the fast track review and will either proceed to a supplemental review that is heavily dependent on utility discretion or will face a lengthy, costly, and potentially unnecessary full study process. Both Hawaii and California have circumvented this issue by offering an objective supplemental review process allowing the utility to study the generators in question without requiring a full study. Recommendation: Review both Hawaiis rule 14H and Californias rule 21 for best practices (IREC, et al., 2012, 106). Model Net Metering Rules: Interstate Renewable Energy Councils model net metering rules have been highly influential in New Jersey and Colorado, which are widely considered to prescribe the best net metering policies in the United States. IRECs model rules apply to systems rated up to a customers service entrance capacity (p. 115). Recommendation: Review these rules available at: http://www.irecusa.org/NMmodel09 Model Interconnection Procedures and Procedures for Small Generator Facilities: IRECs model interconnection procedures incorporate the best practices of smallgenerator interconnection procedures developed by various state governments, the FERC standards, the National Association of Regulatory Utility Commissioners (NARUC), and the Mid-Atlantic Distributed Resources Initiative (MADRI). IRECs model standards include four levels of interconnection. Recommendation: Review these standards at: http://www.irecusa.org/ICmodel09 Perceived Cross-Subsidization Through Net metering: The primary complaint from utilities is that net metering is built on a subsidy, that every purchase of a kWh that a net metering customer avoids shifts the burden of recovering the fixed costs of

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building and operating the utility grid to non-paying customers (p. 107). This is exactly the sentiment addressed by the EEI in its January 2013 report, that utilities will face higher costs to integrate DER, and non-DER customers will subsidize the grid usage of DER customers. IREC advocates for solid research that includes credible data and utility as well as stakeholder participation regarding each localized issue of the costs and benefits of an interconnected net-metered system. In recognizing that there is much debate over the true value net-metered DER electricity, we recommend that West Virginia remain with a one-for-one net-meter credit on the customers bill.

WV PSC Petitions for Rulemaking


Our team researched the question of how interested parties might initiate a proceeding before the West Virginia Public Utility Commission to modify a regulation or Commission rule. Our understanding is that the need for Commission action may result from a change in legislation defining the scope of rights and obligations under the WV net metering law. Our overall conclusion is there is little legal or decision precedent describing how the Commission responds to rulemaking petitions or whether it has any obligation to respond to rulemaking. We believe this is because it is generally accepted that citizens and organizations have the right to request action by state administrative agencies. And it appears to be the practice of the Commission to entertain and respond to petitions for commission action. This is consistent with long standing principles of Administrative Law, grounded in the Constitutional rights of citizens to petition the government for redress of grievances. A more difficult question is whether the PSC could be compelled to respond to a petition for rulemaking. While it is at times difficult to force an administrative agency to respond to rulemaking requests, our team believes the WV Commission would have an enforceable obligation to change Commission rules to conform to a statutory modification. That action could be sparked by a motion to initiate a general investigation or by a petition for a declaratory ruling from an interested party.

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Examples of petitions for administrative action considered by the WVPSC City of New Martinsville v. WV PSC, __WV Supreme Ct. _____, June 11, 2012; Mon Power and PE, Case No. 11-0249-E-P, Commission Final Order, November 22, 2011 (granting utility petitions for declaratory order and for interim relief seeking a ruling that utilities are entitled to the alternative and renewable energy resource credits (credits) generated from three "qualifying facilities" (QFs) under the Public Utility Regulatory Policies Act of 1978 (PURPA) pursuant to Electric Energy Purchase Agreements (EEPAs or PURPA Agreements) with the QFs. On October 12, 2010, the Kanawha County Commission on behalf of itself, its Metro 911 agency and several emergency service providers, filed a letter requesting a general WV PSC investigation to review protocols for local exchange carriers to notify 911 centers during significant telephone service outages, and require the carriers to provide prompt notice of outages.

Decoupling
In the 2013 Edison Electrical Institute report discussed above, the EEI concludes that the public electrical utility industry must implement many changes to the current revenue recovery method. The EEI suggests that one regulatory policy in particular may simultaneously help incentivize renewable energy growth, ensure stable revenue for utilities, and stabilize energy prices for consumers revenue decoupling. The term decoupling refers to the concept of separating a utilitys revenue from the volume of its energy sales. Whereas a non -decoupled utility can only increase its revenue and its profits by increasing electricity sales, what is referred to as the Throughput Incentive, decoupling allows for routine price adjustments so that the gap between a utilitys projected revenues and its actual revenues are either fully or partially insured. Revenue decoupling fundamentally differs from the traditional rate charging system: while traditional regulation sets prices, then lets revenues float up or down with consumption, decoupling sets revenues, then lets prices float down or up with consumption (RAP, 2011, p. 10). As of 2011, 30 states had implemented decoupling mechanisms across various electric and gas utilities. The decoupling mechanism typically functions using the following procedures:

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The utility determines its allowed revenue for a given billing period based up on a test period. Allowed revenue is an all-inclusive cost it is the sum of net expenses, taxes, and the allowed rate of return to investors.

Variable costs, most notably fuel costs, are already recovered through separate fuel and purchased-power rates. Thus, the decoupling mechanism is directed towards recovering fixed costs, i.e. non-production costs. Most decoupling is based upon a return per customer model, whereby allowed costs are primarily a function of total customer count (NREL, 2009, p. 9). The Regulatory Assistance Project (RAP) explains, customer count is somewhat more closely related with growth in non-production costs, stronger than either growth in system peak or growth in energy sales. These data support using the number of customers served as the driver for computing allowed revenues between rate cases (RAP, 2011, p. 16). Therefore the allowed revenue is calculated period-toperiod based upon a test period and a projected customer count.

Once an allowed revenue has been agreed upon by the utility and the public services commission, the utility can use one of two methods for setting rates deferral decoupling or current period decoupling, both of which are illustrated here:

Ratemaking Equation With Deferral Decoupling =

Ratemaking Equation With Current Period Decoupling

We strongly suggest adopting a deferral decoupling mechanism which uses a balancing account to keep track of discrepancies between projected revenue and actual revenue. The balance, either positive or negative, is credited to the succeeding allowed revenue and is therefore passed on to consumers in the form of higher or lower per unit rates. With current period decoupling, rates are adjusted for each billing cycle, ensuring stable utility revenue at all points.

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There are several different levels of decoupling policies full, partial, and limited. Full decoupling insulates a utilitys revenue collections from any and all deviations of actual sales from expected sales. Deviations result in a true up, i.e. a price adjustment. The NREL claims that full decoupling is the most widely practiced form of decoupling (NREL, 2009, p. 6). Partial decoupling insures a certain percentage of the actual/projected revenue discrepancy will be recovered by a true up. Finally, limited decoupling insures revenue recovery only under certain circumstances such as severe weather. The benefits of decoupling are many and all are rooted in the fact that through this process, improved generational efficiency is the only means by which [utilities] can boost profits, because sales are accounted for previous to revenue generation (RAP, 2011, p.45). First off, energy efficiency is no longer an enemy to the utility under decoupling. Secondly, customers bills will average a constant price over time true up adjustments generally fall under $2.00 per month, which is usually under 1% of a customers bill according to RAP. Finally, as decoupling reduces the volatility and risk of a utilitys net earnings, the utility becomes more appealing to credit rating companies this may also help avoid the vicious cycle scenario described by the EEI. The higher credit ratings will improve the utilitys access to low-cost capital, a cost that will be factored into the allowed revenue figure and eventually passed onto the consumer in the form of lower electricity prices. The RAP estimates that The overall impact is on the order of a 3% reduction in the equity capitalization rate, which in turn can produce about a 3% decrease in revenue required for the return on rate base, or about a 1% decrease in the total cost of service to consumers (p. 38). During this period of slow (or even declining) growth in revenues, a weak economy, and a more energy-conscious society, it is recommended that the West Virginia Public Services Commission implement some sort of decoupling mechanism policy, even if it is not full decoupling.

Recently Proposed Legislation Related to Renewable Energy Incentives


H. B. 2118 The West Virginia Renewable Energy Act This bill, proposed and sponsored by delegate Nancy Guthrie, would establish an investment cost recovery incentive for customer-generated electricity from renewable energy systems. The incentive amounts to $0.15 per kilowatt hour of developed capacity multiplied by a factor of 2.4 if the electricity is generated using solar modules manufactured in-state, by 1.2 for any other renewable system manufactured in-state, and by 0.8 for all other renewable systems, but not

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to exceed $2000 per year for each recipient. The act also establishes rates and terms for sales of customer-generated electricity to utility companies (1) For ten year contracts the rate is $0.15 per kilowatt hour (2) for twenty year contracts the rate is $0.32 per kilowatt hour and (3) for electricity generated from solar modules, solar inverters or solar energy systems manufactured in the state the rate is $0.54 per kilowatt hour. Lastly, the act would provide tax credits to electric light and power companies that purchase customer-generated electricity. These credits would equal twenty-five one-hundredths of one percent of the businesses' taxable power sales or $25,000, whichever is greater. Our take: Taking the form of a feed-in-tariff, this bill provides strong incentives for future distributed solar development and manufacturing in West Virginia. However, the rigid premium rates being proposed for those selling to utility companies will quickly distort the price of solar specifically and electricity rates in general. Though premium rates above retail electricity prices are proven to encourage investment in renewable energy, long contract periods with no rate adjustments could negatively impact the free market functioning of the solar market by prohibiting solar prices to fall. Our team recommends a re-examination of the issues associated with feed-in-tariffs, with attention paid to how this has stifled innovation and kept prices high in the Spanish and German solar markets. H. B. 2141 The Renewable Portfolio Standards Sustainable Energy Act This bill, proposed and sponsored by delegate Barbara Fleischauer, would overhaul current West Virginia energy portfolio standards to require providers to generate or acquire electricity from renewable energy systems (defined as biomass, geothermal energy, solar energy, wind and low impact, small hydroelectric and micro hydro projects). Current legislation allows providers to comply with portfolio standards with energy obtained from alternative energy systems, including fossil fuels, with no renewable energy requirement. The bill establishes a timeline for increases in the renewable portfolio standards through 2025, at which point no less than 15% of the energy sold by providers must be obtained from renewable sources. Lastly, the bill proposes a renewable energy fund supported by a $0.02 contribution made by providers for every kilowatt-hour they sell to retail customers in the state. Our take: Given that current ARPS standards in West Virginia are easily met with clean coal and natural gas generation, electricity and power providers are not being incentivized to expand renewable generation. This bill properly addresses this issue by

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establishing a renewable carve-out. In addition, perhaps considering the innovative nature of the ARPS in incentivizing energy integration should be further examined such as setting specific energy generation thresholds where direct integration may receive a multiplier (e.g., coupled generation between coal and biomass). H. B. 2176 to modify The Alternative and Renewable Portfolio Standard H.B. 2176 aims to amend and re-enact the Alternative and Renewable Portfolio Standard, establish the legal ownership of renewable energy credits for the generator of the energy until sold or otherwise traded. The bill also requires utility companies to credit any excess customer-owned renewable generation delivered to the utilitys electrical grid under a net metering agreement, and that they pay this customer-generator for any unused energy credits at an average annual rate based on the electric utilitys avoided-cost rate. Finally, the bill increases the allowed kilowatt capacity for interconnected customer-generators to 50 kW for residential systems. Our Take: The Legislatures acknowledgement of the generators ownership energy credit is promising in the context of expanding DER, especially given the fact that the bill will help create opportunities for third-party ownership to expand within WV. The increase in allowed capacity is also welcomed given that IREC estimates that the average size of a DER system in 2012 was 18 kW, not far from the current residential capacity limit of 25 kW. H. B. 2316 to modify the Alternative and Renewable Energy Portfolio H.B. 2316 would remove language from the current alternative and renewable energy portfolio standards that limits utility companies to no more than ten percent of the credits used each year to meet the compliance requirements are acquired from the generation or purchase of electricity generated from natural gas. It also removes the ten percent ceiling for credits acquired from supercritical technology (i.e. clean coal). Our take: This bill would only serve to further weaken the renewable energy development incentives of an already quite ineffective Alternative and Renewable Portfolio Standard especially when one considers our proposed integrative path forward.

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H. B. 2348 West Virginia Energy Expansion Fund This bill would create and implement a fund to encourage the development and use of renewable forms of energy and efficiency programs, projects and enterprises. The fund would draw from a mandatory charge of $0.00035 per kilowatt-hour on all electricity consumers of the state. The public purpose of the fund is to generate the maximum economic benefits over time from renewable energy and energy efficiency for the ratepayers of the state through a portfolio of initiatives and programs that advance and promote increased availability, use, and affordability of renewable energy and energy efficiency. The fund would also foster the formation, growth, expansion, and retention of renewable energy and energy efficiency measures and their related enterprises, institutions and projects to serve the state. To these ends the fund may make grants, contracts, loans, equity investments, bill credits and rebates to customers, to provide financial or debt service obligation assistance. Systems employing the following technologies would be eligible for funding: Solar photovoltaic and solar thermal electric energy; wind energy; geothermal energy; fuel cells; landfill gas; waste-to-energy which is a component of conventional municipal solid waste plant technology; naturally flowing water and hydroelectric; low emission, advanced biomass power conversion technologies; anaerobic digesters and storage and conversion technologies. Our Take: The proposed fund is a much-needed supplement to the incentives already in place for renewable energy investment in West Virginia. Unfortunately H.B. 2348 does not properly incentivize either the consumer or the utility to invest in DER or DSM technologies by obscuring price signals (e.g., stranded cost, vicious cycle, etc.).This issue should be addressed before this more supplemental legislation is enacted. Additionally, developing an integrated path forward as opposed to primarily focusing on renewable energy alone should be considered. H.B. 2564 to Modify the Alternative and Renewable Energy Portfolio This bill would add a clause to the current Alternative and Renewable Energy Portfolio Standard legislation to delay the implementation of the enumerated standards, so long as any coal is imported into the United States. Our Take: We do not have any suggestions concerning this proposed modification as it does not fall in line with our proposed integrated path forward.

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H.B. 3080 to modify the Alternative and Renewable Energy Portfolio This bill would add language to the current Portfolio Standards to include solar renewable energy credits (SRECs) and distinguish them from ARECs. The bill provides terms and provisions for the distribution and trading of SRECs as well as a portfolio requirement of two percent of electrical output represented in SRECs by 2025 and a further requirement that twenty-five percent of SRECs are obtained from distributed solar renewable energy resources by that same year. Our Take: A solar carve-out would be the fastest, most well explored manner of encouraging solar development. The twenty-five percent distributed generation requirement will spur growth in smaller systems while (hopefully) allowing adequate space for utility-scale solar to grow as well. Unfortunately, this carve-out will most likely face devastating resistance from energy-partisans. For this reason, developing an integrated path forward as opposed to primarily focusing on renewable energy alone should be strongly considered.

Policy Recommendation Regarding WV SB 441


Under West Virginias current business tax code, corporations are subject to a range of three taxes. Any one firm can be subject to one or several of the following: the Corporate Net Income Tax (CNIT), the Business and Occupations (B&O) tax, and the Business and Franchise (BF) tax. Electric power producers must comply with the 9% CNIT on standard operating income revenue derived from electricity sales and alternative/renewable energy credits minus expenditures as well as the B&O tax. Public utilities and electric power producers may take a credit equal to the amount of West Virginia Business Franchise Tax liability multiplied by the percentage that gross income subject to Business and Occupation Tax is of total West Virginia gross receipts, and hence are effectively not subject to the BF tax should all of their business activities reside within West Virginia. The mechanics of the Business and Occupations tax are as follows: & = $. Taxable generating capacity is defined as the product of a generating units capacity factor and its nameplate capacity. The capacity factor is usually calculated by the energy industry as the amount of actual energy produced in a given time period divided by the maximum possible amount energy that could have been produced were the generating unit operating at full load

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over the same period. West Virginia tax code designates two different capacity factors, one for generating units in operation between the years of 1991 and 1994 and one for all generating units constructed after 1994. For the older units, the capacity factor is average four -year generation divided by the units maximum possible annual generation the typical definition of capacity factor. If the generating unit was brought online within this four year timespan, January 1, 1991 but prior to December 31, 1994, then the average four-year generation is computed through the annualization of the average monthly net generation of such unit during its months of operations between 1991 and 1994. For all newer electrical generation, the capacity factor for all energy sources except wind power is 40% regardless of a generation units ability to produce energy in a given time period. Wind power generation is subject to a tax benefit in West Virginia by Senate Bill 440 by allowing all wind turbines constructed after 2007 a 12% capacity factor. Over the course of a year, a wind turbine will only produce about 12% of its maximum annual generation due to the systems dependence on suitable weather patterns - it is an intermittent energy source. Similarly, solar energy generation is intermittent. The Energy Information Administration estimates that solar system capacity factors range from 11% - 26%, depending on region and local weather patterns. Thus, subjecting a solar electric power producers in West Virginia are subject to a taxable generating capacity relying on, in some cases, over a 100% overestimation of the capacity factor, corresponding to similar levels of over-taxation (via the B&O tax) on a solar systems actual electrical output. For example, suppose a 10 MW solar array is built in Kanawha County, and it has a capacity factor of 18%. Subjecting the system to a 40% capacity factor would result in a tax liability of $91,120 per year, whereas using the actual capacity factor would lead to a 55% lower tax liability of $41,004 per year. Seeing that wind power already benefits from legislation recognizing the intermittency of wind turbine output, solar power should be treated similarly for one simple reason: different energy resource technologies cannot be taxed as if they all functioned in one manner. Additionally, the West Virginian State Legislature should allow for the free market amongst renewable energy industries; by unduly burdening the solar energy industry with excess taxes the Legislature is in effect picking winners and losers. Currently, the fossil fuel industry does not pay its fair share of the B&O tax the EIA estimates that coal generation plants utilize an 85% capacity factor, and conventional natural gas generation uses an 87% figure. When the West Virginia Department of Revenue sets the capacity factor at 40%, the fossil fuel industry is effectively paying less than half of what their B&O tax burden should be.

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Our team recommends an amendment to SB 440, specifically regarding section 11-13-2o. The amendment should read: For taxable periods on or after the first day of January, two thousand thirteen, the taxable generating capacity of a generating unit utilizing solar energy technology, either solar photovoltaic cells or solar thermal, shall equal twenty percent of the official capability of the unit.

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Utilities Best Case Scenarios


With distributed energy resources and demand-side management slated to significantly impact public utilities revenues, potential for growth, and overall sustainability, the industry must consider new business models and customer services. For example, customers with solar units are (a) exerting additional costs onto the utilities by the increased cost of supporting a network capable of managing and integrating distributed generation services while (b) lowering their demand for utilities energy, thus exposing the industry to unrecoverable capital investments stranded costs. Under the current majority business models, only non-DER customers are projected to subsidize these additional costs imposed by DER and DSM. By revising tariff structures, e.g. implementing tiered rates and decoupling, and by becoming champions of energy efficiency instead of foes, many electrical utility companies have already mitigated many of the significant risks mentioned in the EEIs 2013 report and positioned themselves well for future success. Below we discuss several of these examples, as well as scenarios that West Virginian utilities may seek for similar success.

Examples
Here are listed the top ten utilities in terms of solar generation according to the Solar Electric Power Associations 2012 Top Solar Ranking report. A description of a couple of these utilities, as well as other notable players in the DER/DSM-integrated utilities environment, should serve as the industrys best examples.

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Pacific Gas & Electricity Co: The aforementioned PG&E Company has the largest solar holdings in the United States. Currently, it owns and operates more than 100 MW of its own solar generation capacity, and PG&E Co recently entered into twenty-year power purchase contracts with the owners of the 150 MW Copper Mountain Solar Facility and the 10 MW El Dorado Solar Plant, both located in the Mojave Desert. PG&E also has a PPA with the operators of the 230 MW Antelope Valley Solar Ranch, located in the Mojave Desert as well. The IOU administers the California Solar Initiative, an incentive program for persons hoping to install distributed solar systems. For systems under 30 kW in capacity, the customer may choose between a one-time up-front payment based on an estimate of the system's future performance or monthly payments from PG&E for five years based on the amount of kWh produced. The monthly payment option has varied rates based on residential, commercial, and non-profit customer kWh production (State of California, et al., How). PG&E Co offers its customers four rate structures, traditional flat rate and time-of-use being two of them. The utility also operates under revenue decoupling, allowing for it to aggressively pursue smart grid technologies they offer a smartphone application that notifies a customer who is approaching on-peak usage and energy efficiency initiatives. All of the information can be found by navigating the utilitys website, www.pge.org. This IOU is an excellent model for the traditionally operating utilities industry.

Sacramento Municipal Utility District: SMUD is the 6th largest customer owned electric utility. In accordance with the EEIs advice, SMUD has developed numerous new business models and services that continue to keep it ahead of its RPS requirement 20% renewables by the end of 2013 and financially secure. Beginning in 2014, SMUD will implement a tiered-price system using Base Usage and Base Plus energy rates whereby customers pay different rates depending upon a threshold amount of consumed kilowatt-hours (the threshold depends on the season). This system will remain in effect until the end of 2017 when it transitions into a residential time-of-use system, where electricity rates vary significantly between the summer peak hours of 4 PM 7 PM Monday through Friday, and the rest of the week. This system aligns [the rate structure] with the cost of providing electricity service (SMUD, 2013, Preparing). Not only has the utility developed its own air conditioner, the 31% more efficient AquaChil1 AC system, but SMUD is planning to have 600,000 smart meters installed in the near future. Finally, the utility also offers a Home Performance Loan that allows

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residents to finance energy efficiency measures that result in a minimum of 15% energy savings. Tennessee Valley Authority: Currently, the TVA owns and operates 14 solar PV sites. Customers may further TVAs investment in solar and renewable energies buy opting into the Green Power Switch: customers pay $4 per month for 150 kWh to be offset by solar, wind, and biomass (TVA, Q&A). The TVA has also partnered with Nissan North America, the State of Tennessee, and other institutions to develop and deploy solar powered electric vehicle charging stations. The first station was unveiled in 2011, included a storage unit, and pumped excess energy into the grid as well. As part of the TVAs 2011 Integrated Resource Plan, the utilitys Energy Efficiency and Demand Response Program will be responsible for saving at least 5.9 GWh of energy by 2020 (TVA, 2011, p.112). In June 2012 The Clarion newspaper reported the TVA has found its cheapest option for lowering its cost is to reduce demand. The have a set goal to reduce energy usage by 3.5% by 2012, which is enough to avoid building two new power plants (The Clarion, 2012). Although there is no decoupling policy in place for the TVA, In 2010 the Chattanooga Gas Co. [a TVA subsidiary] was granted an increased monthly charge for fixed costs to more properly align the interest of ratepayers and utilities in better promoting energy efficiency. The approach is approved for a three-year trial, according to the American Council for an Energy Efficient Economy (American Council for the Energy-Efficient Economy, Tennessee). Xcel Energy (Colorado)/Public Service Company of Colorado: Xcel is a private investorowned utility company operating in ten states. In Colorado, the local Public Utilities Commission regulates Xcel, where it operates as the Public Service Company of Colorado (PSCco). By November 2011, Xcel had predicted that it would meet the states 2020 RPS mandate of 30% renewable energy generation in 2012 8 years ahead of schedule (Vote_Solar). The company has also expanded its DSM program to curb electricity usage by 11.5% by 2020 (American Council for an Energy Efficient Economy, Colorado). According to the firm, investment in renewable energy saves money, because the future costs of fossil fuels are expected to fluctuate immensely. For example, Xcel recently entered into a 200 MW, 25-year PPA with Limon Wind II LLC., an agreement projected to save Xcel around a present-valued $100 million (The Vote Solar Initiative, Colorado). PSCco, like the soon-to-be SMUD model, operates on a pricetiered system: customers pay a lower electricity rate for the first 500 kWh consumed, and rates increase for all energy consumed in excess of that threshold. According to the

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Colorados Public Utilities Commission, these rates more accurately reflect the cost of producing electricity (State of Colorado PUC, About). By encouraging energy efficiency, Xcel diminishes its need for further capital expenditures on additional generation facilities, therefore reducing its exposure to stranded costs.

Possible Scenarios for WV Utilities


Based upon current trends, both market and legislative, and seeing as neither the West Virginia State Legislature nor the West Virginia Public Utilities Commission have enacted policies that, besides for the $2000 income tax credit for residential solar, directly encourage the deployment of solar systems, there are numerous policy options that will incentivize renewable energy development, energy efficiency, and sustainable revenue practices for the states public utilities. So as to encourage the public electric utilities operating within West Virginia to come in line closer to those leading the way in utility-integrated solar, e.g. those mentioned above, the following practices should be considered, especially in a synthesized manner: Decoupling: In 2011, FirstEnergys West Virginian utilities, Potomac Edison Company and Monongahela Power Company, established energy efficiency programs under a larger Energy Efficiency and Conservation Plan. The EEC Plan calls for a 0.5% reduction in demand through 2016. Here are two such programs: the Residential Low Income Program targets low-income households for energy efficiency improvements, and the Non-Residential High Efficiency Lighting Program provides non-residential customer rebates on certain high efficiency lighting systems. Neither program achieved their first year targets (FirstEnergy Co., 2012, pp. 6,7). FirstEnergy fell short of its goals because it simply has no revenue incentive to decrease demand. Decoupling would only make FirstEnergy immune from the harmful effects of decreased demand; the policy itself does not encourage energy efficiency. A sliding scale limited decoupling mechanism can. Should FirstEnergy fall short of its allowed revenue projection, it would recover a certain percentage of the discrepancy between allowed and actual revenues based upon the success of its energy efficiency programs like those specified in the EEC Plan. Solar deployment would be much more feasible within West Virginia if public utilities were insured against lost revenue that would result from widespread DER integration.

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Table 1: Summary of Actual Residential Low-Income Participants and Savings

Number of Participants 2012 Yr End Plan 533 240 773 Actual 522 208 730 % 98% 87% 94%

MWH Energy Savings 2012 Yr End Plan 588 266 853 Actual 377 232 609 % 64% 88% 71%

Mon Power Polomac Edison West Virginia

Table 2: Summary of Actual Non-Residential High Efficiency Lighting Participants and Savings

Number of Participants 2012 Yr End Plan 396 134 532 Actual 21 6 27 % 5% 4% 5%

MWH Energy Savings 2012 Yr End Plan 5,362 1,807 7,170 Actual 2,777 297 3,074 % 52% 16% 43%

Mon Power Polomac Edison West Virginia

Smart meters: The deployment of more smart meters across West Virginia, especially if combined with a decoupling policy, would allow the utility customer more information on their energy usage and subsequently more means to reduce or reorganize consumption so that on-peak demand can be shaved. This would lower utilities operational costs, making the chances of the EEIs vicious cycle scenario less likely due to lower grid costs and fewer required additional generation facilities. Although FirstEnergy and AEP have advanced metering infrastructure (including smart meter technology) programs, West Virginia remains untouched with virtually zero smart meter penetration according to the EEI:

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Rate schedule restructuring: Similar to the Sacramento Municipal Utility District, West Virginia utilities should consider a more organized on-peak and off-peak rate system or even TOU tariffs. Currently, Potomac Edisons peak hours are between 7AM and 10PM, which are very broad compared to more developed price-tiered models (Potomac Edison Company 2012). A revised rate schedule would more accurately reflect the cost of energy generation and distribution, thus preparing the utilities to better equip themselves for a changing energy landscape of integrated DER and DSM. The more transparency regarding electricity rates the better, because then customers can make educated decisions on their energy consumption, eventually leading to lower fixed costs. Additionally, in the same way that the three utilities discussed above are using energy efficiency to shield themselves from stranded costs, a West Virginian utility should be able to better assess the need for additional capital expenditures when their customers are aware of their consumption habits and the true price of the energy they consume.

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Appendix A
US Solar Jobs Subsector Installation Manufacturing Wholesale Trade Other Total Market Size (MW) 2010 Jobs 57,177 29,742 16,005 16,093 93,502 1800 2011 Jobs* 68,931 32,313 19,549 18,649 117,855 3300 26.0% 80% Growth % 21% 9% 22% 16% 24,353 2012-2013 New Jobs #* 11,754 2,571 3,544 2,556 % Total of

49.4% 23.2% 14.0% 13.4% 100.0%

*Estimated *Estimated (2011 Market Size is Estimated from 2010 Market Size with the CAGR of Solar from 2006-2009) 2009 2010 Workers per MW (Without Manufacturing): 66 50 Workers per MW with Manufacturing: 94 73 (Formula Used for Without Manufacturing: (Total-Manufacturing-20% of Wholesale Trade/MW; With Manufacturing: Total/MW) West Virginia New Jobs Potential (Installation) (Formula) 75% National Average per MW without Manufacturing, Rounded Down 75% of per MW National Average Jobs 37.58124224 (Rounded Down) 37 (All Numbers are from the Estimated 2011 Jobs, 75% because of Utility Scale) West Virginia New Jobs Potential (Manufacturing) (Formula)Estimated 2011 National Total Manufacturing Jobs times the % of US Total, Rounded down % of US Total 0.5% 1.0% CAGR of Solar Growth from 2006-2009 Solar Jobs in Surrounding States Solar Jobs State Ohio Pennsylvania Maryland Virginia Kentucky West Virginia Total 2010 1,088 3,193 867 208 266 20 7,652 2011 1,153 3,869 1,094 276 313 30 8,746 Change 65 676 227 68 47 10 1,093 Fossil Fuel Electric Generation Jobs 2010 5,053 4,100 2,032 1,648 1,695 3,937 20,475 2011 4,881 3,826 2,133 1,620 1,652 3,837 19,960 Change (172) (274) 101 (28) (43) (100) (516) 61% 1.5% 2.0% New Jobs 169 339 509 679 MW 5 10 15 20 New Jobs 185 370 555 740

Source of Information: National Solar Jobs Census 2010 by The Solar Foundation, Cornell University ILR School, and Green LMI (Published October 2010)

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Appendix B
Sustainable Williamsons research team utilized the National Renewable Energy Laboratorys Jobs and Economic Development Impact (JEDI) model in assessing the Integrated Energy Park models potential for job creation across the state. A very conservative estimate of 60 IEP friendly sites across the Southern Coalfields alone renders a coupled-generation plant (10 MW natural gas, 2 MW solar) a solid investment in economic diversification. Our methodology for counting potential sites is as follows: (1) Suitability of natural gas reserves when a site is located far away from an interstate natural gas transmission line: a. 10 AM active or A2 active, reclamation surface mine sites across six counties (Logan, Wyoming, Mingo, McDowell, Kanawha, and Lincoln) were identified using GPS coordinates found on mining permits available through the West Virginia Department of Environmental Protections website. b. For each site, data for 200 wells within a five mile radius was aggregated through the Oil and Natural Gas Wells map available on the West Virginia Geologic and Economic Surveys website. c. Proceeding by manner of proximity, each wells annual production was averaged (in Mcf) for 2008 2012. If years were missing, only the available years between 2008 and 2012 were used. If production was reported as 0 for fewer than 6 months of the year, then a conservative estimate for the average of all of the production months were used as a substitute for the non-production months, so as to more helpfully assess the wells capacity. d. Some wells have not been in production since before 2008 or were classified as Final Type Unsuccessful, in which case the well was not included. e. The average annual production amongst the 200 wells sampled across the 10 different active surface mining sites was around 8700 Mcf, or 725 Mcf per month, i.e. 23.8 Mcf per day. f. The company supplying the natural gas generators has informed our team that each 2 MW generator, five total, will consume 2100 cubic feet of processed natural gas per hour in order to produce peak output. This figure translates to 10.5 Mcf per hour under peak load, or 252 Mcf of processed natural gas per day. g. Using conservative assumptions that the gas derived from the wells is only 80% methane and that standard processed natural gas is 95% methane, it would take 299.25 Mcf/day of unprocessed natural gas to achieve peak output. This correlates to a 13 wellhead-per-site rule-of-thumb. (2) Across Kanawha, Mingo, McDowell, Lincoln, Fayette, Logan, Wyoming, Boone, Wayne, Raleigh, and Clay counties, active surface mining permits (AM-active and A2-active, reclamation) were identified. There are more than 60 permits for active surface mine sites, but for a conservative estimate, the team crosschecked only 60 of these sites with Google Earth to verify mine locations. Within five miles of each site are indeed situated in excess of 13 wellheads, thus each site may qualify as a potential IEP location, given that financing is available for onsite CO2/H2S/hydrocarbon processing equipment should the IEP be located

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a significant distance away from an interstate transmission gas pipeline. A map of these pipelines is included here:

(3) JEDI models for solar and natural gas projects 2 MW and 10 MW in respective capacity were run. The job projections below are an estimate, but keep in mind that they do not include any jobs created by the hopeful implementation of biomass for the generation of ethanol and bio-thermal energy as well as that the solar component of any IEP is modular, meaning that a 2 MW array can be easily expanded given viable financing. According to Mark Muchow from the West Virginia Department of Revenue, each IEP site is subject to the business and operations (B&O) tax, which is equal to nameplate capacity * 40% * $22.78/kw. Together each IEP will secure around $109,000 in state B&O tax revenue per year. This gross tax can be reduced by the Industrial Expansion and Revitalization Tax Credit, which may reduce B&O tax liability by up to 50% according to Muchow. This yields $54,500 in B&O taxes per IEP, and this revenue goes to West Virginias General Revenue Fund, half of which is specifically dedicated to primary and secondary education. According to Jeff Amburgey, also from the states Department of Revenue, the average property tax rate within a West Virginian municipality was 2.85%, and outside a municipality the average rate was 2.21%. These rates

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would then apply to 60% of the assessed property value for each IEP. Needless to say, the IEP model would greatly benefit the tax streams of some of the most economically depressed counties in the country.

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