Dear editor
Industrial Revenue Bonds may be issued by state and local governments in Kentucky to help finance industrial buildings including large-scale solar generating facilities. The purpose of the IRBs is to attract investment and create jobs, careers and/or livelihoods. Generally, the issuer (local government) serves as the conduit to provide a lower interest rate to the borrower, but the issuer (local government) is NOT obligated for debt repayment. Bondholders look to the “revenue” that is forecasted to be generated by the project to cover the debt. So what does all this mean?
Let’s look at the E.W. Brown Solar facility that went live in 2016 as an example. This facility with 44,000 solar panels capable of generating 10 Megawatts per hour which is equivalent to a total annual capacity of 87,600 Megawatt-Hours(MWh) per year on perfect clear and sunny conditions from 10 a.m. – 3 p.m. was built on 50 acres on a budget of less than $36 million USD. For this exercise let’s assume the cost to construct was a cool $25 million. Developers typically only like to put up about 5 percent cash on a construction/development project so in this case $1.25 million in cash from the developer. Using LG&E KU live data from their website in 2020, this facility generated 16,484 MWh during the year which is an average 45.16 MWh per day which is equivalent to an annual capacity factor 18.82 percent. The weighted average daily trading price of a MWh on the PJM regional transmission organization that coordinates the movement of wholesale electricity from 12/31/2021 through 7/13/2021 was about $35.10 per MWh. So $35.10 x 45.16 MWh = $1,585.17 per day gross income, therefore in 365 days this intermittent solar generating facility will gross $578,588.40 per year. Wonder how many years it will take to pay back the IRBs of the $25 million investment? Using a simple payback method the $25 million will take about 43 years. However, solar panels only have a lifespan of 20 to 30 years. I know, right!
Don’t forget that industrial revenue bonds are a form of government-backed loans with a sovereign guarantee from a local county or government. Meaning that these get paid back regardless, and that’s right you guessed it, this means increased electrical ratepayer rates will be one of the ways to cover the shortfall. So let’s prepare for the worst-case scenario that the solar panels only last for 20 years before becoming a graveyard. Leaving a shortfall of roughly $13.4 million which will be picked up by all of the Mason County taxpayers.
Meanwhile, the developer gets a 26 percent tax credit from the Federal government on the construction cost of $25 million once the construction is complete and the solar generation site goes live. The developers then get a federal tax credit of $6.5 million on their original cash investment of $1.25 million. The American taxpayers are paying for it on the front end via the tax credit and then we most likely will pick up the shortfall on it on the back end.
In summary, let’s look at what’s been presented to the public thus far from the three solar companies of Acciona, Innergex and National Grid Renewables assuming things move forward in building three 250 megawatt solar farms totaling 750 Megawatts. The scale up cost to construct would be close to about $1,875,000,000. The 750 megawatts would generate about 1,236,300 MWh per year at $35.10 per MWh would generate $43,394,130 per year. So at the 20-year mark these solar farms go away thus leaving a shortfall of $1,007,117,400.00 which will be picked up by all of the Mason County taxpayers. So do IRBs seem like the right vehicle for the local Mason County government to apply for and use to fund these projects that will create only 12 to 16 jobs over the entire 20-30 year period?
Jason Sheppeck
May’s Lick
