Climate change is here and, as expected, it is impacting low-income community residents most. We need to use every tool available to reduce greenhouse gas emissions and improve neighborhood resilience. Federal Opportunity Zones offer one new tool for the toolkit.
A provision of the Tax Cuts and Jobs Act of 2017, the Opportunity Zones program seeks to spur investment of patient capital in low- and moderate-income communities across the United States. The program allows investors to delay or avoid paying capital gains taxes if they invest in Qualified Opportunity Funds that then invest within Census tracts designated as Opportunity Zones.
Investment managers, clean energy entrepreneurs and affordable housing developers are developing Opportunity Funds to advance clean energy and provide benefits to Opportunity Zone residents. According to Rob Rafson, founder of the Michigan solar developer Chart House Energy, LLC, the Opportunity Zone program has brought new attention to investing in distressed communities. The program’s tax benefits effectively increase his margin on projects by 30%, which allows him to take on projects that he otherwise would not have been able to finance.
Rafson’s 25 years as a brownfield site developer provided him with the experience to work in distressed communities and use programs like the New Markets Tax Credit. He made solar projects with job training for local residents part of his business model in 2009, soon after he completed a study for the Cook County Jail (Chicago) on the feasibility of training detainees for green jobs. Rafson developed a 40-hour training course for detainees to work in the solar industry before turning the program over to the Cook County Jail. Today his niche is providing ground-level and rooftop solar for Michigan nonprofit, government, and other entities that cannot themselves use renewable energy tax credits.
Rafson created the Chart House Energy Opportunity Fund to help finance $15 million for projects he expects to launch in Michigan Opportunity Zones by 2020. He has already completed Opportunity Zone solar projects in Ypsilanti and Detroit and has projects underway in Muskegon, Grand Rapids and Flint. He expects to continue to develop projects in distressed communities through his own fund, as well as dedicated Opportunity Funds formed with investors for larger projects through 2027.
For Rafson, job training is an essential part of his projects: Chart House Energy hires and trains project work teams from the low-income neighborhoods where its projects are located. The company works with community groups and affordable housing managers to find, prequalify and place trainees in a pool ahead of planned projects.
While Chart House Energy Opportunity Fund leads with solar energy, the Solar Chicago Investment Fund sees energy efficiency and solar as a means to create more affordable housing. AJ Patton, the Fund’s founder, named his management company 548 Capital after the address of the Section 8 housing development where he lived as a youth. The Solar Chicago Investment Fund plans to invest in thousands of units of energy efficient, affordable multi-family housing, without displacing current residents from these neighborhoods. 548 Capital intends to raise $100 million in Opportunity Fund capital for Illinois projects and then expand to other states.
The Solar Chicago Investment Fund is focusing on under-leased and empty multifamily residential buildings. The idea is to improve these buildings through deep energy efficiency retrofits and rooftop solar and lease them to existing renters or new renters earning less than 80 percent of area median income. The 30-40 percent utility bill savings Patton expects will cover part of the cost of capital improvements on the buildings. 548 Capital will use all the credits and subsidies available to solar and energy-efficient housing in Illinois. The Solar Chicago Investment Fund will also invest in a 4 MW community solar project; shares in the project will be available to tenants in its buildings. And 548 Capital will support training for community residents to work on the community solar project.
548 Capital expects to break ground on its first projects in September 2019. It has gathered an accomplished collection of local and minority contractors and has raised a few million dollars. Patton is in discussions about additional investment with a variety of investors from family offices to insurance companies.
Chart House Energy Opportunity Fund and Solar Chicago Investment Fund are two of dozens of examples of investment managers, clean energy entrepreneurs and developers pursuing clean economy projects in Opportunity Zones. For more examples and more information on the clean economy opportunity in Opportunity Zones, see:
- Paper by Julia Parzen and Graham Richard, Tapping the Opportunity Zone Program to Accelerate an Equitable Clean Economy
http://juliaparzen.com/wp-content/uploads/2019/07/Opportunity_Zones_6-20-19.pdf
- Article in GreenBiz by Julia Parzen and Graham Richard, Opportunity Zones Could Provide Major Boost for Clean energy and Sustainable Development
- Advancing an Equitable Clean Economy in Ozones LinkedIn Group at https://www.linkedin.com/groups/12254554/