Alternative Energy Loan Program Outcomes Report

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Department of Environmental Quality Energy Bureau

2015 Alternative Energy Revolving Loan Program Page 1

Alternative Energy Loan Program Outcomes Report

October 2015

The Alternative Energy Revolving Loan Program was established by the 2001 Legislature (MCA 75-25-101-103) to encourage Montana homeowners and small businesses to use renewable energy. Loans are made for technologies appropriate to Montana at interest rates below the market average. Loans are processed through a private financial institution. This report tracks activities and accomplishments of the Alternative Energy Loan Program through the end of fiscal year 2015, highlighting the accomplishments of this year. This annual outcomes report is required by statute to address at a minimum:

1) Loan loss ratios, which must be kept under 5 percent;

2) The types of alternative energy systems that provided the best overall results for residences and for small businesses; and

3) The amount of energy that was produced from the alternative energy systems.

The program complies with policies and procedures adopted for outcomes reporting.

FY2015 Highlights

Loan volume increased in 2015, exceeding the program’s goal of $1 million in new loans.

FY15 Applications and Loans

A total of 49 applications were received and reviewed for technical and financial feasibility in FY15. Forty-seven (47) loans closed for a total of $1,185,750.One (1) application was approved, but was unable to be funded because the home-owner’s association would not approve the solar installation. The program has loaned $8,320,770 since the first loan was made in 2004.

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State Federal Total

Loans made in FY2015 $1,016,394 $169,356 $1,185,750

Loan receivable balance $2,818,207 $799,430 $3,617,824

Figures are based on funds processed through DEQ’s Office of Financial Services as of June 30, 2015.

Commercial Loans in FY15

As in previous years, the program is primarily used by individuals. The program issued four commercial loans in the following locations:

Tire retail/warehouse PV Billings 83 kW

Greenhouse Wind Helena 6 kW

Hotel/offices PV Whitehall 12.48 kW

Physical therapy clinic PV Livingston 10 kW

$51,500 $31,990 $256,036 $411,633 $724,197 $853,827 $1,817,970 $935,558 $524,348 $1,009,020 $620,195 $1,185,750 $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 $2,000,000

FY04 FY 05 FY06 FY 07 FY 08 FY 09 FY10 FY 11 FY 12 FY13 FY14 FY15

Loans Issued

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2015 Alternative Energy Revolving Loan Program Page 3 2015 Technologies

The following charts show the types of renewable energy projects financed. Some loans combined financing for more than one system, such as a

photovoltaic and a solar hot water system, so the number of projects is slightly different from the number of loans.

Solar PV – photovoltaic electricity, Solar DHW – domestic hot water, GSHP – ground-source heat pumps, Biomass – wood heat and boilers, ECM – environmental conservation measure

Project Locations and Overall Results

The loan program is widely used across the state. In FY15, loans were made in 24 different communities:

Billings Condon Kalispell Stevensville Bozeman Dell Lavina Three Forks

Bridger Emigrant Libby Vaughn Cameron East Helena Livingston Victor Cardwell Helena Manhattan Whitehall Choteau Hobson MIssoula Wolf Creek

PV, 34 Solar DHW, 3 Biomass, 3 GSHP, 7 Wind, 3 ECM, 4

FY 2015 Technologies

Number of Projects

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2015 Alternative Energy Revolving Loan Program Page 4 The type of systems that provide the best overall results for Montana residences and small businesses varies by site and the amount and type of energy used by the building’s occupants. Solar electric equipment is robust, requires virtually no maintenance and is coming down in price, making solar systems very attractive for almost any Montana location. Ground source heat pumps draw heat from the ground or water to effectively heat structures, and can be configured for almost any location, although costs to overcome barriers at specific locations can make other renewable technologies more viable. A good site analysis and experenced contractors help home- and business-owners decide on the best strategy for their site. Specific benefits of each technology are discussed below.

Solar electric (photovoltaic, or PV) component costs1 have fallen dramatically in the past few years, and the program notes an increase in the size PV systems being installed. In FY15 the average residential system installed was 6.9kW, up from 5.3 kW the year before. Installed costs for net-metered systems averaged $3.34/watt, down from $8 - $10/watt when the program began. Utility and tax incentives have combined to bring the average, net installed cost for net-metered systems down to $2.02/watt for projects installed through this program in FY15.

Wind turbines continue to spark interest in many parts of the state.The program financed 3 turbines in FY15, including the first vertical axis wind turbine (VAWT).

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Assumptions used to calculate solar electric costs:

Actual utility incentives were taken from the loan applications.

Federal tax credits were calculated at 30% of bid, less utility incentives State tax credits assumed $1,000 per system

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The VAWT is from a company that hopes to assemble turbines in Billings as the market increases. This project should provide data on the effectiveness of a newly-available technology in a real world application.

Ground-source heat pumps (GSHPs) continue to be a popular choice where electricity or propane (higher-cost heating fuels) is used for heat. Heat pump systems move heat from the ground into buildings, and can provide hot water and air conditioning as well. The high installation costs can be off-set fairly quickly by the reduced heating costs over the life of the system.

Solar water heating isone of the most cost-effective renewable energy strategies on the market today. It is a particularly good match for car washes, laundries, hotels and other buildings that use large quantities of hot water.

Biomass heating systems are very popular in areas where wood is plentiful. Montana has a large inventory of beetle-killed trees that can be used to heat buildings, and the AERLP can be used to install efficient, low emission equipment that can take advantage of local resources.2

On the Horizon—Community solar

As equipment prices have fallen over the past few years, the cost effectiveness of larger solar arrays has improved significantly. Community solar (or wind) projects allow consumers to own a portion of a renewable energy project that is not directly attached to their property, earning credits on their utility bills

commensurate with their share of the project.

Flathead Electric Coop is the first utility in the state to break ground on a community-owned solar project, offering their members an opportunity to purchase shares of a 100 kW test project.

The program plans to evaluate allowing customers of community solar or wind projects to finance their shares in the project through the AERLP.

FY15 Estimated Energy Production Installed Capacity

Solar pv 276.68 kilowatts

Biomass 664,000 btu/hour

Geothermal 27.5 tons

Solar DHW 3 systems

The amount of energy produced is determined based on standard engineering calculations and assumptions. The calculation for estimating solar PV energy produced uses the National Renewable Energy Lab’s PV Watts program, and is

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based on the average solar radiation in Great Falls. Ground source heat pump estimates are calculated based on the equipment specifications, location and building type, and are shown in millions of btus of heat produced per year.

Each technology has been converted to millions of btus per year for comparison purposes.

System Verification

Installations are verified by photographs provided by the borrower or the installer. In addition, DEQ conducts a minimum of five site visits each year. Staff

conducted 5 site visits in FY15. Site visit locations:

Hamilton Helena (3) Livingston

Loan Losses

Loan losses to date for the portfolio are 0.85 percent, well under the statutory 5 percent limit. A total of seven loans have defaulted over the program’s eleven year history. Loan balances are not written off until all efforts to collect have been exhausted. Three loans have been recorded as losses, three additional loans are in active collection proceedings and funds were recovered through collection on one. The 0.85 percent loan loss rate at the end of FY15 was based on total loans issued ($8,320,770) and the loan losses written off ($71,027). $3,870 in principal and interest fees were recovered through the collection process in FY15. The total amount currently in active collection is $65,859, and another loan will go to collection in FY16, adding $7,044 to the potential loan loss total. If no funds are recovered from the loans currently in collection proceedings, the loan loss rate would be 1.6 percent, based on total loans issued ($8,320,770) and the loan loss amount ($136,886). The additional loan would change the loan loss rate to 1.7 percent ($143,930 potential loss).

Administrative Costs

DEQ administers the loan program and covers staff salaries, travel, printing, promotional materials, and office support for the program. In addition, DEQ contracts with a financial institution to complete credit checks, loan origination, and monthly payment collection. Statute allows the program to use up to 10 percent of the outstanding loan balance for program administration. In FY15, the

Solar PV (kWh/year) Solar PV (MMBTU) GSHP (kWh/year) GSHP (MMBTU) Solar thermal (kWh/year) Solar thermal (MMBTU) 367,553 1254.09 257,017 877.2 8,498 29

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program could have used up to $382,024, but used only $210,763, or 5.98 percent of the loan balance.

Marketing and Outreach

The program is marketed through a combination of direct communications and print advertising to the targeted audience of Montana consumers and small businesses that may be interested in renewable energy. A program brochure is available through DEQ and is provided to renewable energy businesses. The Energy bureau maintains a website at www.energizemontana.com containing information about alternative energy technologies and the loan program, and links to Montana renewable energy dealers and utility incentive programs. Loan applications can be downloaded from the site.

DEQ participates in many local events that bring awareness about renewable energy technology and opportunities to Montanans. FY15 events included

meetings, workshops, agricultural shows, and other events in Billings, Bozeman, Butte, Glendive, Great Falls, Helena, Miles City, Missoula, and Sidney.

DEQ partners with other organizations to deliver information about renewable energy incentives and finance options. Key partners include: the Montana

Renewable Energy Association, comprised of dealers and installers of alternative energy systems; the Alternative Energy Resources Organization, a grass roots non-profit organization that conducts renewable energy and sustainable living tours across the state; utilities, such as NorthWestern Energy, Montana-Dakota Utilities, and rural electric cooperatives that encourage or provide incentives for renewable energy; and the U.S. Department of Agriculture, which offers grants and loans through the Rural Energy for America Program.

In 2015 the majority of applicants learned of the program through their alternative energy installer or equipment dealer (55 percent). Newspaper advertising is beginning to be noted on loan applications, and two loans this year were to returning loan program participants who installed additional equipment.