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renewable energy funding


									renewable energy funding
                                                                               RESIDENTIAL CUSTOMERS

introduction . . .
Thank you for taking the time to view this publication. Its purpose
is to help residential customers understand financing opportunities
and options other than NorthWestern Energy’s Universal Systems
Benefits (USB) Program. Customers should consider that finance
programs change frequently and the best sources for up-to-date
funding specifics are reputable renewable energy dealers.

The publication also has links and brief summaries to several business and agricultural funding opportunities.
Most business programs deal with considerably higher funding amounts and more rigorous application standards.
These include Small Business Administration and bond funding that are not included in this publication, due to
their complexity.

Because of the State’s relatively low population and large geographic area, many programs found in larger
populations and urban areas have not yet reached Montana. This is especially true with solar and small wind
leasing and local financing. As these types of financing packages become available, RE dealers and installers will
be the most reliable and up-to-date sources for information.

The demand for USB funding for residential energy systems has steadily increased, leading to more applications
and competition. NorthWestern Energy urges all customers to look at all financing opportunities, whether it is
the customer’s intent to utilize them with or independent of a USB grant.

a reminder about usb incentive funds . . .
For an overview and step-by-step description of NorthWestern Energy’s USB Program and how to submit a RE
proposal, please refer to the NWE publication, “Green Sense” - Making Sound Renewable Energy Choices. This
publication is available at, or it can be requested through mail by calling 1-888-700-6878.

In order to qualify for USB funding, the customer must include the “grant requirement” form and cover letter
detailed in Green Sense. NorthWestern Energy does not provide funding for systems under construction or
already in operation.

Funding is dependent on the amount of money available, number of proposals, and the nature of the request.
Selection criteria includes geographic diversity within NorthWestern Energy’s Montana service territory, a unique
educational component for the technology or system, public versus private benefits, and considerations for low-
income customers. In certain cases, the cost/benefit ratio of the project may be a consideration. Renewable energy
research and development (R&D) projects are not considered for funding.
grant and loan terminology. . .
One of the basic, but sometimes misunderstood funding questions, is the difference between a grant and a loan.
Grants consist of funding that doesn’t have to be repaid if the terms of the contract are satisfied, while loans are
paid back to the lender, usually with interest. Loans can be categorized into two types – secured and unsecured.

Secured loans are issued and protected by an asset or type of collateral. The purchased item, such as a home, car
or equipment, is used as collateral and the lending agency places a lien on the collateral. The lender will hold the
deed or title until the lien is paid in full. Secured loans have longer terms (up to 30 years) and relatively lower
interest rates, depending in part on the strength of the collateral. Home secured loans are popular because in
most cases the mortgage interest can be deducted from income taxes.

Unsecured loans are not secured by collateral and usually demand higher interest rates and shorter payback
schedules than secured loans. These types of loans are also called signature loans. The Fannie Mae Energy Loan
is one example of an unsecured energy loan, the terms of which include a ten year payback schedule.

Guaranty loans, which are secured, usually offer special terms and rates. These loans are offered by traditional
lenders to consumers including low-income, minorities and veterans. They come with a “guaranty” by a state or
federal agency as the form of security.

tax credits versus deductions . . .
Although tax credits and tax deductions both reduce the amount of total taxes paid, there are specific distinctions
between the two.

Consumers are allowed certain deductions (like those for dependent children) which reduce the amount of
income that is considered taxable. Tax deductions are figured at the onset of preparing a tax statement.
Conversely, tax credits are taken after the initial tax statement is prepared and the consumer has determined how
much tax must actually be paid. Tax credits are deducted directly from the amount owed to the government.

In some cases and jurisdictions, tax credits may be carried over to future years. This is true in a number of
renewable energy tax incentive programs.

Some types of renewable energy systems may qualify the homeowner for a property tax exemption. This is meant
to stimulate renewable energy activity and is based on providing relief on RE equipment and systems that will
increase the assessed value of a property. The exemption is intended to offset the increased value of the property
as a result of the RE system. There is a specific time limit that the system can be subject to no or reduced taxes.

federal renewable energy tax credit . . .
United States residents may claim a personal tax credit of 30% for
qualified expenditures on a renewable energy system that serves as a
“dwelling unit” for the taxpayer. The acceptable expenditures include
system components, assembly and installation, labor and on site
preparation costs, and necessary wiring and/or plumbing. For existing
homes, the credit is valid when the system is completed. For new homes,
the occupancy date is used. Tax credits that exceed liability may be
carried forward to future years.

Homeowners should consult their tax professional before purchase and
installation of a system. Reputable RE dealers and installers will also
have a thorough understanding of tax incentives.
The 30% tax credit has specific requirements for different technologies, including equipment specifications and
ratings for solar heating and heat pumps.

The 30% federal tax credit is valid until December 31, 2016. The latest revision removed the former maximum
credit amount for all eligible technologies except fuel cells; however systems purchased and installed before
January 1, 2009 are still subject to the appropriate capped tax amounts which were in place prior to the increase to

montana alternative energy tax credit . . .
                                            The State of Montana offers homeowners a maximum $500 tax credit
                                            for qualified renewable energy systems installed after December 31,
                                            2001. Married couples my receive credit up to $1,000 if filing joint
                                            returns. This tax credit is valid for the component and installation costs.
                                            Systems must be new and installed with required performance and safety

                                            The Montana Tax Credit can be carried over for a period of four years.
                                            Most renewable technologies are acceptable, with the exception being
                                            hydroelectric systems over one megawatt or hydroelectric systems placed
                                            on impoundments over 20 acres in surface area.

The State of Montana Alternative Energy Tax Credit incorporates crossover technologies popular in Montana.
Both low-emission wood stoves and passive solar space heating are eligible for the credit. Solar space and solar
water heat are also covered by the incentive. More information is available at
under the “Tax and Other Incentives” header of the Renewable Energy section, or by contacting the Department
of Revenue at (406) 444-6900.

montana geothermal systems tax credit . . .
Geothermal heat pump systems, which can be used for both heating and cooling a dwelling, are eligible for up to
a maximum $1,500 personal tax credit. The system must be installed in a resident’s personal dwelling and covers
the installed cost. The tax credit may be carried forward for up to seven years.

Builders of “spec” homes may also take the tax credit prior to the sale of the home. The new homeowner is not
eligible to claim the credit again.

montana re property tax exemption . . .
Montana residents can claim a 100% property tax exemption on the assessed value of eligible renewable energy
systems. This is available for both residential and multi-family residential properties. It is capped for single-family
renewable energy systems up to $20,000 and multi- family units up to $100,000.

Low-emission and biomass combustion systems may qualify for this exemption. Renewable energy systems are
classified as Class 4 property and are currently taxed at slightly over three percent of assessed value. The tax
exemption may be taken for 10 years.

montana re investment tax credit . . .
Personal investments of over $5,000 may be eligible for up to a 35% tax credit against individual or corporate tax
on investment generated income. It is important to remember that eligible facilities and activities are subjective
and professional tax consultation is recommended before the investment is made.
Eligible facilities can include plants developing renewable energy equipment. The tax credit can be carried over
and applied against state tax liability for up to seven years. Investments in generation facilities or on a reservation
can be carried over for a period of 15 years.

This exemption may not be used in conjunction with other Montana State investment or energy tax benefits or
with the property tax exemption for renewable energy systems. It is available to both new facility construction and
for the purchase of an existing facility.

state of montana alternative energy revolving
loan (aerlp) program . . .
The State of Montana has a loan program that awards loans to
individuals, small businesses, local governments, university system
units, and nonprofit entities. The requirements include that the
loan be used to generate energy for the applicant’s own use. The
Montana Department of Environmental Quality (DEQ)
administers the program and the majority of funding for the
program is provided from air quality penalties levied by the DEQ. Additional funds from the American Recovery
and Reinvestment Act have led to an increase in available loan amounts, as well as some additional requirements
regarding such things as project verification and reporting.

One of the unique qualities of AERLP loans is that energy conservation measures can be included in the loan
when combined with an acceptable renewable energy technology. The DEQ has staff professionals who review and
approve both renewable system and conservation/renewable combination submissions.

Loans can be given for up to $60,000. The loan terms are written for up to 15 years at a fixed interest rate (4.0%
in 2010). This rate is determined on an annual basis by the DEQ. Funds are limited and projects are ranked
according to criteria including return on investment, system performance and reliability, and avoided fossil fuel
consumption. Once a loan is approved, money is disbursed when funds become available.

fannie mae and freddie mac re loans . . .
                               The Federal National Mortgage Association (FNMA), commonly called Fannie Mae,
                               is the largest home mortgage funding source in the United States. The company
                               funds both consumer loans for renewable energy and efficiency and works with
                               energy based mortgages on the secondary level.

Fannie Mae’s “Showing America a New Way Home” program, launched in 1994, is meant to provide up to one
trillion dollars for minorities and special housing needs. As part of this, the company is working with utility
companies to finance energy efficiency improvements.

Both solar heat and solar PV are eligible for funding under Fannie Mae’s Residential Energy Efficiency
Improvement Loan Program. This program provides below market interest rate financing and focuses on a
bundled approach to energy improvements. The loans are done in partnership with utility companies and are

Fannie Mae energy loans are typically granted for amounts up to $15,000. Payment terms are usually 10 years.

Freddie Mac is the common name for the Federal Home Loan Mortgage
Corporation (FHLMC). Freddie Mac is different than Fannie Mae in that it is a
secondary mortgage lender that purchases mortgages from lenders, packages them,
and sells them as investments.
Mortgage lenders use Freddie Mac proceeds to fund new mortgages. To promote energy efficiency and both solar
thermal and solar PV, the institution has specific criteria for Energy Efficient Mortgages (EEM’s) which they will
purchase on the secondary market.

Freddie Mac will purchase EEMs up to 10% above the base loan on mortgages up to $240,000. The loan terms are
traditional 15,20, and 30 year plans and also include 30 year balloon type loans. Freddie Mac EEM’s are fixed at
market rates and are secured at 95% loan to value.

veterans affairs (va) loans . . .
Veterans and service persons can obtain home loans guaranteed by the U.S. Department of Veterans Affairs (VA).
The guarantee typically allows military personnel to acquire loans with favorable rates and no down payment.

Although there is no maximum loan amount, banks typically will not exceed $203,000 for a home loan. Terms
and amounts are also dependant on property value and the borrower’s income and history.

VA loans may be increased by up to $3,000 based on documented energy efficiency or
renewable energy improvements, or up to $6,000 if the increase in the mortgage
payment will be offset by decreased utility bills. These amounts are valid for both new
home purchases and home improvement loans. A refinancing loan cannot exceed 90%
of the home value plus the cost of the improvements.

VA energy improvement and renewable loan specifics are determined and approved
on an individual basis. In new construction, a solar PV or solar thermal system can be
included in the appraised price of the home.

VA loans are granted for either 15 or 30 years at fixed rates. First mortgages are funded at 100% loan to value,
plus costs.

energy star home loans . . .
Currently, there is an emphasis on Energy Star homes that sometimes incorporate
renewable energy technologies. Working in conjunction with national lenders, the
Environmental Protection Agency’s (EPA) Energy Star Financing Program provides
underwriting guidelines to home buyers which allows the homeowner to borrow from
10-24% higher than their qualification on a traditional, non-Energy Star rated home.

In order to qualify, Energy Star homes have to be certified and are 30% more energy
efficient than homes constructed to the model energy code. Renewable energy systems
must be grid-tied and have a 10 year payback limit.

First mortgages on Energy Star rated homes can be financed for up to 120% of the home’s cost. In addition,
lenders often offer cash discounts at closing that reduce closing costs. Interest rates are competitive with
conventional mortgages.

private financing opportunities . . .
In the past several years, there have been several solar PV and small-scale wind manufacturers who have teamed up
with national lenders to provide financing on equipment and installations. At the time of this publication, there
are several dealers in Montana providing financing packages.

Consumers should be aware of financing options with high interest rates, fine print, and excessive penalties
(similar to credit card financing). There have been reports of companies in more populated areas that promote
“credit card” type financing on systems. Caution should also be used when purchasing financed systems with
regard to tax credits and renewable energy credit (REC) assignments.

A good rule-of-thumb to follow is that the financing package should come through the manufacturer rather than
local sources. These loans usually have lower interest rates, are less punitive, and have a more favorable model
based on volume and marketing of the specific system.

residential renewable energy leases . . .
One of the emerging financing options, especially with solar PV, is the
residential solar lease option. RE leases can be compared to those common
in the automobile industry, and while there are different types and lease
specifics, the concept is fairly straightforward.

Rather than purchasing a system outright, a homeowner enters into a timed
lease agreement with a lessor (who is the actual owner of the RE system)
and agrees to make monthly payments while benefiting from the electricity
generated. In most agreements, the homeowner also enters into a contract
with the local utility and receives the benefits of net metering.

In a productive situation, the reduced monthly utility bill will offset the lease payment. Additionally, at the end of
the lease agreement, the homeowner can usually extend the agreement for a reduced cost or purchase the system
outright for the fair market value of the depreciated equipment.

Homeowners should consult their tax professional when reviewing lease versus buy options for renewable energy
systems. This issue has moved to the forefront based on the January 1, 2009 lifting of the cap on the residential
investment tax credit (ITC). The lifting of the cap limit has impacted the residential solar PV leasing industry, as
well as brought into question the validity of financing and taking the tax deduction through a home equity loan.

Most companies that lease renewable energy systems (primarily solar PV) also include provisions for monitoring,
maintenance and repair in the lease agreement. A minimum production value is also included with some systems.
Both of these are attractive options for homeowners.

In most cases, the renewable energy company providing the equipment and entering into the agreement with the
homeowner is backed by a financial institution. The institution is the tax equity investor in the project and claims
both the ITC and the depreciation benefits. The RE company and/or financial institution will typically claim the
Renewable Energy Credits (REC’s) for the system, where applicable. They then will bundle credits from all
homeowners and sell them.

It is important for homeowners to consider that both leasing and company financing are relatively new to the RE
market and are targeted at the present time for larger markets and states with aggressive renewable energy
portfolios. However, some of the more progressive Montana RE companies are beginning to explore the potential
of these options and the homeowner should inquire about all financing options.

usda reap programs for agricultural producers
and rural small business owners . . .
The 2002 Federal Farm Bill introduced the Rural Energy for America (REAP) Program. REAP funds are intended
to assist both agricultural producers and rural small businesses with purchasing renewable energy systems. Rural
Montana consumers should recognize that the program is not intended to power rural homes (farm or ranch
residences) and that a separate meter is required for the home to ensure this is adhered to.
REAP grants will fund up to 25% of a RE project costs. In 2008, the program
began including funding for feasibility studies, which are required for projects
with a total cost of $200,000 or more. Funding for studies is also set at 25%
of the cost of the study or $50,000, whichever comes first.

Most RE technologies are suitable for REAP funding. The minimum grant
award is $2,500 and the maximum amount is $500,000. On a nationwide
basis, $70 million is allocated for fiscal years 2011 and 2012. According to the
USDA, approximately 95% of the funds are dedicated directly to renewable
energy and energy efficiency projects.

The USDA also estimates that 20% of the funds are available for grants totaling $20,000 or less. These smaller
grants do not require feasibility studies and are funded out of a special fund at the national level. Most of the
grants that have been funded in Montana to date are in this category.

The REAP funding also includes stand-alone guaranteed loans and grant/loan combination packages. Together,
the loan and grant cannot exceed 75% of a project’s costs. The maximum guaranteed loan amount is $25 million.
Applicants can only solicit one renewable energy and one energy efficiency grant at a time, and the yearly total
awarded to an individual applicant cannot exceed $750,000.

There has been some confusion about whether consumers who are awarded REAP funds are eligible for other
government and private funding. This could potentially be an issue for awards at the majority of funding levels.

The USDA guidelines suggest that other federal grants used in conjunction with a REAP grant will reduce an
applicants allowable benefits. However, federal money that is considered “pass-through”, in that it is administered
by state or local governments, would not decrease the benefit amount. Applicants applying for a project
utilizing several government funding sources should clarify funding amounts and grant overlaps with the
appropriate involved agencies.

Private funding and grants received from private sources do not reduce REAP funding.

funding summary overview . . .
Name                             Type               Overview                                                       Web Site
Federal Renewable Energy Tax     Federal Personal   √ 30% maximum - can be carried over.                 
Credit                           Tax Credit         √ Most RE technologies eligible (with restrictions).
                                                    √ Credit available until December 31, 2016.
Montana Alternative Energy Tax   State Personal     √ $500 -single, $1,000 married maximum - can be carried
Credit                           Tax Credit           over for four years.
                                                    √ Most RE technologies eligible (includes low-emission wood
                                                      combustion devices).
                                                    √ Systems need to be in compliance with statutes.
Montana Geothermal Systems Tax   State Personal     √ $1,500 maximum - can be carried over seven years.  
Credit                           Tax Credit         √ Must be installed on a personal dwelling.
                                                    √ Builders can use on “spec” houses but the credit can only
                                                      be claimed once.
Montana Renewable Energy         Property Tax       √ 10 year exemption up to $20,000 for single family and
Property Tax Exemption           Exemption            $100,00 for multi-family dwellings on assessed value of RE
                                                    √ Includes low-emission wood and biomass combustors.
Montana Renewable Energy         State Personal     √ 35% credit on RE investments over $5,000. In most cases,
Investment Tax Credit            and Corporate        credit may be carried over for seven years.
                                 Tax Credit         √ Credit may only be claimed on net income generated by the
                                                      RE equipment or by related business activities. Professional
                                                      tax advice is suggested before investment.
                                                    √ Credit may not be taken with other state energy or
                                                      investment tax incentives.
Name                                Type              Overview                                                          Web Site
Montana Alternative Energy          State RE Loan     √ Loan amounts up to $60,000. Loan terms up to 15 years.
Revolving Loan Program                                √ Energy conservation measures can be funded if included
                                                        with the RE system.
                                                      √ Interest rates are set annually and are fixed for the term of
                                                        the loan. (Loan terms were 4.0% in 2010)
Fannie Mae Energy Loan              RE Home Loan      √ Unsecured loans up to 10 years. Usually up to $15,000.
                                    and Efficiency    √ Loans for specific RE systems and energy efficiency
                                    Improvement         upgrades.

Freddie Mac Energy Loan             RE Home Loan      √ Funds solar PV and solar thermal to 10% above base loan
                                                      √ Varying loan terms and interest rates on EEMs.

Veterans Affairs (VA) Energy Loan   RE Home Loan      √ Funds solar PV and solar thermal to 10% above base loan
                                                        value.                                                          lenders.htm
                                                      √ 15 and 30 year fixed rates. Total home/system financing up
                                                        to $230,000.
ENERGY STAR® Loan                   RE Home Loan      √ Funds solar PV and solar thermal on homes 30% more    
                                                        efficient than code.
                                                      √ 30 year mortgage. Loan amount follows Fannie Mae and
                                                        Freddie Mac guidelines.
                                                      √ 10 year payback on systems is required.
Private RE Financing                RE System Loan    √ Financing terms and rates highly variable.                      NA
                                                      √ Consumers should understand tax and REC terms before
Residential Leasing Programs        RE System Lease   √ Similar as vehicle lease with buyout at fair market value       NA
                                                        usually offered.
                                                      √ Consumers should understand tax and REC terms before
REAP Grants                         RE System         √ Funds up to 25% of project costs. $2,500 - $500,000.  
                                    Grant             √ Intended for agriculture and rural small business.
REAP Loans                          RE System Loan    √ Funds up to 75% of eligible costs up to $25 million.  
                                                      √ Terms differ with specific loan items (i.e.. real estate,
                                                        equipment, working capital).
                                                      √ Can be used in conjunction with REAP Grant.

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