Last January, New Jersey-based Nautilus Solar Energy LLC acquired three yet-to-be-built community solar projects in Wells, Fryeburg and Sanford, with financial backing from its Canadian parent.
In March, Nautilus purchased eight pending solar projects spread from Sanford to Athens, initiated by a company with a global footprint.
Shortly afterward, Nautilus announced that it would invest $100 million to build this portfolio of 11 community solar projects, which would let thousands of Mainers save money on their electric bills by subscribing to a share of the generation.
These acquisitions help illustrate how Maine's new wave of solar developers locate sites and secure permits, line up millions of dollars in capital from far-flung investors and — as happened here — sell the projects they have launched to companies better suited to take them across the finish line.
But none of this activity would have occurred without a 2019 Maine law that expanded the scope and incentives in a program that promotes solar energy development, a policy called net energy billing.
Now the provisions of the net energy billing law are under review by the Legislature. At issue is whether the incentives that have attracted a stampede of solar investment to Maine are too generous and should be trimmed.
It's a debate that is underway in other states, too, as policymakers try to find the sweet spot for encouraging enough renewable energy development to hit clean-energy and climate goals, but do it in ways that offer the greatest overall benefit to electric customers.
As Maine's review process moves forward in the coming months, the mechanics and financial arrangements that made the Nautilus solar deals come together — and the role of net energy billing — may be is instructive. So might this declaration: Each of the three companies involved independently stated that their backers wouldn't have invested in Maine without expanded net energy billing.
"Clearly, we wouldn't be in Maine if we didn't have those provisions in the law," said Jim Rice, Nautilus' co-founder.
It was the law, three companies and three men with Maine ties that set this $100 million investment in motion.
Having served as a nuclear submarine officer at the Portsmouth Naval Shipyard, Rice was familiar with Maine. And as head of a national solar development company, he saw the state as part of an expanding market for community solar projects.
Henry Weitzner was no stranger to Maine when he began looking for land to locate solar energy projects in 2019 for his company, Walden Renewables. The chief executive of a New York City-based wind and solar development company with financial backing from a German energy firm, Weitzner has a camp in Southwest Harbor. Two members of his leadership team have homes in Maine.
Greg Lucini also had local connections and a global reach. His company, ISM Group of Rhode Island, has office locations that include India and China, while Lucini's family has a home on Thompson Lake in Oxford.
In January, Nautilus announced that it had acquired three of Walden's yet-unbuilt projects. In March, Nautilus said it had purchased eight additional pending projects from Lucini's subsidiary, ISM Solar Development.
Lucini said he had been watching Maine's policy changes and had been lining up sites. He said mandates from Gov. Janet Mills and the Legislature that set aggressive clean-energy targets gave the company confidence to move forward.
"We were watching it develop, and when they passed it, we were ready to go," he said.
ISM Solar was sold to Nautilus, Lucini said, because the projects need a long-term operator. The two companies also had made a similar transaction in Rhode Island and became comfortable partners.
"We like to get projects before they are shovel-ready and own them for the long term," Rice said.
At Walden, Weitzner and his team started making contacts in solar-friendly towns with suitable sites near power distribution lines in 2019, "on a hope and prayer," he said, that policy changes were coming with the Mills administration.
Walden sold the three projects to Nautilus, Weitzner said, because his company is more focused on the larger-scale ventures. Nautilus has more expertise in community solar, he said, which includes finding and maintaining a base of customers.
In Maine, both Walden and ISM Solar are working on other solar ventures. Their top managers say they always expect some fine-tuning in public policy. But as they watch the legislative process play out, they each indicated that the blossoming of solar development in Maine will wither without consistent, stable policies that support planning and investment schedules that can span years.
"The key to all this is certainty," Lucini said. "We really need to know what the rules are.
LAW UNLEASHES FLOOD
Net energy billing provides a generator with credit for renewable power it has produced and sent to the electric grid. Prior to 2019, eligibility was restricted to small projects rated below 660 kilowatts of capacity and fewer than 10 customer accounts. Those arbitrary caps reflected the opposition from former Gov. Paul LePage and many Republican lawmakers, and translated into restrictive rules at the Maine Public Utilities Commission.
The rules changed drastically in 2019, following the election of Mills and a Legislature dominated by Democrats. Eligible capacity was boosted to under 5 megawatts; account caps were eliminated.
Those changes unleashed a flood of community solar projects, such as the ones being developed by Nautilus.
With community solar, developers sign up customers who want to offset their bills with solar energy but don't want or can't afford to buy and install panels. In a typical arrangement, electric customers receive a share of a project that matches their annual power use. They receive a monthly credit for that amount, which the developer invoices, minus a 10 to 15 percent discount. That's how customers save money with solar.
With revenue from billing customers, the developer covers the project's expenses and pays off a range of investors who lent money to help build the project.
In the Nautilus portfolio, the 11 projects would have a total generating capacity of roughly 54 megawatts, enough energy to offset the power demand of 13,000 average homes.
The new net energy billing rules had another provision. It set a separate rate for commercial projects, called a tariff rate. It's adjusted annually by the PUC and currently runs between 12 and 15 cents per kilowatt-hour.
In Central Maine Power's service area, for instance, the rate for small commercial customers is roughly 12.5 cents. That figure reflects the full value of the PUC's standard offer power supply rate, plus 75 percent of the transmission and distribution rate.
Today, that 12.5 cents is four times higher than the rate some of the largest, utility-size projects are receiving. There's an economy of scale in solar, developers say, and bigger projects tend to be more cost-competitive.
So it is here, in the gap between the economics of the largest solar farms and projects under 5 megawatts, that the policy debate will likely be centered.
COMMUNITY VS. UTILITY-SCALE
A critical element of that debate is whether a target in Maine's solar policy that's embodied in one of the key bills — L.D. 1711 — is worth preserving in its current form. That target calls for attracting 375 megawatts of renewable energy capacity by 2024 from smaller, so-called distributed generation projects that include community solar.
Supporters like these projects because they give thousands of Mainers a chance to engage in the clean-energy transition. They also can generate power closer to where it's used and be sited on so-called brownfield locations, such as closed landfills.
Many municipalities want these projects, too. A group of six towns — most in York County — recently formed the Southern Maine Solar Collaborative. Banding together to achieve an economy of scale and lower price, they've issued a joint procurement to find a developer to sell them power for 20 years.
But some critics, namely manufacturers and big power users represented by the Industrial Energy Consumer Group, say that 375 megawatt target should be repealed and incorporated into the goals of another key bill — L.D. 1494. Through provisions in that law, the PUC conducts a bidding process for larger-scale renewable projects that sell power to the state's utilities. Winning bidders have been able to offer very low rates that compete with natural gas, which makes up the largest share of generation in New England.
Weitzner and Walden Renewables have been able to take advantages of scale.
The company won a competitive bidding process last September at the PUC aimed at contracting for power from bigger projects. The five Walden projects, totaling 112 megawatts of capacity, signed 20-year, fixed contracts with CMP and Versant Power in the range of 3.5 to 4 cents per kwh.
"Solar projects work very well when they have longer-term guaranteed cashflows," Weitzner said.
Walden has financial backing from RWE Principal Investments USA, a subsidiary of a German multinational energy firm. Another subsidiary, RWE Renewables, is a partner in the New England Aqua Ventus wind demonstration project off Monhegan Island.
THE CAPITAL STACK
Confidence that solar farms will generate a predictable amount of energy and revenue is what underlies the new investment coming to Maine.
Solar investing typically relies on three distinct components to raise money. These components make up solar's "capital stack," as it's called, the layers of financing that go into each deal.
The first layer is sponsor equity. In the case of Nautilus, the $100 million investment comes from Power Energy Corp. and its parent, Power Sustainable, a global asset manager based in Montreal that's focused on sustainable energy ventures.
Another element that makes solar investing attractive is federal tax incentives. There's currently a 26 percent solar investment tax credit available, plus accelerated depreciation that allows developers to more quickly write off costs on their taxes. Tax equity is the second layer of the capital stack.
But most developers don't have enough tax liability to take advantage of the federal incentives, so they bring on investors who owe enough taxes to use the credits. These are often regional and large banks. Switzerland-based Credit Suisse Group is one example of a Nautilus tax equity financier.
Bank loans make up the last layer of the capital stack. This debt financing typically makes up half the money needed for a deal. Seminole Financial Services of Florida is an example of a debt equity lender for Nautilus.
Once a community solar project starts operating, Nautilus will invoice subscribers for their share of the credit on their electric bills, minus a 10 percent discount. That revenue, multiplied by thousands of customers, pays the cost of operating the project, making a profit and reimbursing the various investors. The rate of return for investors on a typical project ranges from the high single digits to 10 percent, developers say.
Nautilis declined to specify when its first project would go on line. But the company has begun a marketing campaign and is signing up subscribers. Based on information on its website, early subscribers in southern or central Maine would get credits from a solar project in Farmingdale, one of the eight sites Nautilus bought from ISM Solar.
COSTS AND BENEFITS
For Maine lawmakers, the challenge now is how to refine solar policy so that it continues to attract this sequence of investment decisions, while offering the greatest value for electric customers.
In recent weeks, the legislative committee that handles energy matters has hosted presentations from the PUC and Daymark Energy Advisors, an energy industry consultant hired by solar and renewable energy lobbying groups. Both the PUC and Daymark studied the impact of net energy billing on customers, but arrived at differing opinions of the overall value. The PUC saw steep costs to ratepayers under certain situations; Daymark saw overall benefits. Drilling down into those calculations will help inform lawmakers on how to proceed.
Also in play are solar-related bills introduced by lawmakers. Some introduced by Republicans seek to trim or roll back the incentives. One seeks to set a brief moratorium on solar projects while the issue is studied.
In a work session last week, the committee that handles energy issues agreed to set up a bipartisan subcommittee to look at the bills and make recommendations.
Rep. Seth Berry, D-Bowdoinham, the committee's co-chair and sponsor of the moratorium bill, said he's optimistic that the panel will reach a consensus before month's end. Berry said he hopes Maine can set clear goals for additional community solar development that bring added benefits, such as co-locating battery storage with solar farms to increase their availability.
"Maine's transition to clean energy has only just begun," he said. "There will inevitably be growing pains along the way, as there is during any period of rapid transition. Our job as policymakers is to make sure this transition is as rapid and affordable as possible, while leaving no one behind."