On June 28, the Connecticut Clean Energy Finance and Investment Authority (CEFIA) established the CT Solar Lease 2 program, a first-of-its-kind, public-private partnership that will invest $60 million in the deployment of solar photovoltaic (PV) and solar thermal hot water systems in Connecticut.

CEFIA, the successor organization to the Connecticut Clean Energy Fund, is a quasi-public agency created by the Connecticut legislature in 2011. CEFIA is commonly referred to as the nation's first green bank and its mission is to support Connecticut's strategies to achieve cleaner, cheaper, and more reliable sources of energy through clean energy (renewable energy and energy efficiency) financing. CEFIA programs are funded from a variety of sources including a surcharge on residential and commercial electric bills. CEFIA is focused on transitioning clean energy programs away from government-funded grants, rebates, and other subsidies, and towards loans and financing programs that promote and leverage private dollar investment in clean energy.

CEFIA's newest program, CT Solar Lease 2, is an example of the financial innovation possible at the state level utilizing the "green bank" model.

CT Solar Lease 2 Program builds on the success of CT Solar Lease 1, the nation's first residential PV financing program to combine ratepayer funds with private capital to leverage federal incentives. The program used a combination of solar rebates, investment tax credits, and accelerated depreciation to help Connecticut residents gain access to affordable solar energy with a simple monthly payment without a large upfront outlay. The first Solar Lease program was active from 2008 through 2011 resulting in 855 solar PV systems (6.3 megawatts) leased to Connecticut residents. CT Solar 1 Lease was honored by the Clean Energy States Alliance with a State Leadership in Clean Energy Award in 2012.

Competitive Market

Ever since the first Solar Lease program ended in late 2011, Connecticut's independent solar PV installer base has been urging CEFIA to revive the program, without which these firms are at a competitive disadvantage against the national solar PV leasing companies (e.g., SolarCity, Astrum, etc.).

These smaller firms are at a disadvantage not on the basis of the cost of their systems or the quality of their workmanship, but due to complex federal tax incentives which favor large pools of capital that can take advantage of the 30 percent investment tax credit (which individual homeowners can also claim) but also accelerated (five-year) depreciation and other structural benefits that lower the cost of capital. The independent installer is unable to compete without an independent source of capital which, like the first Solar Lease program, can aggregate capital requirements and enable these companies to offer "no" or "low" capital outlay leases to consumers.

The CT Solar Lease 2 is a public-private partnership between CEFIA, US Bancorp, First Niagara Financial Group, Liberty Bank, Webster Bank, Peoples United Bank, Assurant, and AFC First Financial Corp. The program turns myriad complex incentives and financing arrangements into a simple monthly payment without a large upfront outlay for Connecticut consumers looking to install solar PV and solar thermal systems on their home. In addition to the advantages offered to Connecticut residents under the first program, CT Solar Lease 2 will offer the following benefits:

• The program will reach credit scores as low as 640, making solar energy systems more accessible to low- and moderate-income Connecticut homeowners.

• Twenty-year, no-money-down leases will be offered to qualified homeowners, who will pay a low monthly price based on the cost of the system. Leases can be "bought down" with an optional upfront payment.

• After the fifth anniversary of the lease, and annually thereafter, homeowners have the option to buy the system.

• The program is an open platform where homeowners can work with qualified installers of their choice, ensuring that Connecticut's solar installer base will remain robust, diverse and able to reach all Connecticut residents.

• A portion (20 percent) of the fund will be available to non-residential solar PV end-users. Cities and towns will be eligible for power purchase agreements (PPAs) through the facility for solar PV. High credit quality companies (rated AA or better) would also be eligible for the lease program. In addition, non-rated credits can qualify by using CEFIA's C-PACE program to secure the solar lease payments — a major nationwide breakthrough.

Raising Capital

The capital raise CEFIA has achieved for CT Solar Lease 2 differs in three major respects from the first Solar Lease program. In the first program, the Connecticut Clean Energy Fund provided roughly half of the capital requirement with the balance provided by US Bank, as the tax equity investor.

In CT Solar Lease 2, CEFIA provides only one-sixth ($9.5 million) of the capital requirement and attracts more than $50 million in private capital. Of the $50 million, U.S. Bank is providing $23.6 million in tax equity financing and a bank syndicate, led by First Niagara, is providing $26.7 million in senior debt financing. CEFIA's capital contributions include $7.2 million of sponsor equity and $2.3 million in subordinate debt. This leveraged and syndicated fund is an innovation previously unachieved in residential solar PV leasing and is a much more efficient use of rate payer dollars as compared to just handing out grants.

Another difference in the structure of the two programs is the ownership of the Special Purpose Vehicle (SPV), a limited liability company which will hold the executed leases (as well as PPAs from cities, towns and schools), provide the structural mechanism for the capital to be raised from the capital providers and deployed into the solar assets, and deal with payment collection and distribution.

CT Solar Lease 2 works in conjunction with another CEFIA incentive program. The second incentive is utilized by CT Solar Lease 2 to reduce the monthly cost of the lease. CEFIA's shared ownership of the SPV allows for a mechanism by which, over the life of the program, all ratepayer funds paid as part of this second incentive will be returned to CEFIA, to be used toward financing more renewable energy. This approach maximizes the use of ratepayer dollars.

Lastly, by using $3.5 million of federal stimulus dollars for a loan loss reserve credit enhancement, CEFIA was able to significantly improve the debt service coverage ratio for the senior lenders and enabled CEFIA to further lower the cost of capital raised.

CT Solar Lease 2 is an innovative public/private financing program that will provide Connecticut residents, municipalities, and businesses with a no-money down leasing/power purchase agreement option to install solar PV and start saving money on their electrical bills from day one. This program is estimated to deploy 14 megawatts of new solar PV capacity and 4,600 MMBTU of solar hot water systems in Connecticut.

Programs like CT Solar Lease 2 that use minimal public funds to attract and leverage private investment in clean energy will be key to the growth of the clean energy economy in this era of shrinking state and federal budgets.•