Flywheel earns a fairly good return on its investments, if not as lucrative as those possible from higher-end real estate projects, Pitts said. The company evenly splits its revenues with host properties for some of its projects, and accepts 30% of the revenues for its Solar for All projects — a skinnier cut that still pays out well, given the program’s generous long-term payments for the solar power generated, she said.
Losing federal tax credits will make solar projects more expensive, which will require lenders to adjust their expectations, but Pitts said she thinks their more community-focused financing partners, like the DC Green Bank and local nonprofit community development financial institutions (CDFIs) will understand that need.
“With that category of financier, there’s a focus on community investment,” she said.
Keeping the affordable solar work going
A large part of why Flywheel can press on with its plans is its partnership with the local government.
Much of its work has been backed by payments from D.C.’s Solar for All initiative, the inspiration for the embattled federal program that offers lucrative payments for shared solar projects that can reduce energy bills for lower-income D.C. residents. To date, Flywheel has installed 6.2 megawatts of solar across 88 sites in D.C. and Maryland.
Finding lenders for these relatively novel solar projects was tough at first, said Miller. The company has primarily worked with CDFIs, which focus on underserved communities.
It also found a crucial partner in the DC Green Bank — one of a growing number of “green banks” that make clean energy, efficiency, and environmental remediation loans in communities that have been shunned by mainstream lenders. Flywheel’s Fairfax Village project received one of the DC Green Bank’s earliest loans in 2020, said Gary Decker, the bank’s chief operating officer. The DC Green Bank has also financed some of ECD’s projects.
The results speak for themselves. Flywheel’s D.C.-backed projects at properties like the Fairfax Village and Perrington affordable condominium communities and Abrams Hall, an affordable senior living community at the former Walter Reed Army Medical Center, have delivered $15.4 million in no-cost electricity to low-income residents of Washington, D.C., Pitts said.
They’ve also provided $4.25 million in lease payments to the properties involved, which have used the money for tasks including replenishing reserve funds and paying for roof repairs.
Flywheel is helping property owners put some of those proceeds toward energy-efficiency upgrades, Pitts said, which would slash utility bills even further.
At the Perrington Condominiums property in D.C., for example, Flywheel combined solar photovoltaic panels that meet about half the building’s annual electricity needs with rooftop solar thermal systems to offset about 40% of the property’s use of fossil gas to heat water. The property plans to invest the money it’s saving on energy into other capital investments, including efficiency improvements, Pitts said.
ECD is encouraging its buildings to do something similar. The nonprofit is working on long-term solar power purchase agreements to hedge against rising utility rates in the region. “We’re not going to be passing on fluctuations in the market,” Fox said.
Any savings ECD can achieve through solar PPAs can be put toward energy-efficiency investments. “We have to run tight buildings. We don’t have a lot of profits to dole out,” Fox said. “Our residents pay 30% max of their living wage on rent plus utilities.”
Plowing energy savings back into properties is key to increasing the financial attractiveness of low-income solar projects to conventional lenders, said Sadie McKeown, president of Community Preservation Corp., a CDFI specializing in affordable multifamily financing. CPC has provided $15 billion in investments and loans over the past half-century for more than 230,000 housing units in 24 states, with a focus on New York.
“We know when you make buildings better, their operating economics improve, and you can do more financing because you improve cash flow,” she said. Energy efficiency has been part of CPC’s approach for decades, she said. ”It keeps rents down. It provides much better air quality and health outcomes. It creates resilience against storms. And yes, it addresses getting carbon out of the atmosphere.”
CPC is hoping to use its share of a $7 billion award from the still-frozen federal green bank program to spur more lenders and investors to “crowd in” to building-sustainability projects like these, McKeown said. “When the money comes back, we are ready,” she said.
Driving down the cost of borrowing to pay for these kinds of sustainability investments is a critical step in reducing the need for incentives or subsidies to make them pencil out financially, she said.
“Niche lenders like green banks and CDFIs are really important actors in the front end of this transition,” she said. “Mainstream private capital doesn’t want to change until they see results.”
