SOUTH PORTLAND – South Portland city councilors are hoping for a bright future after voting unanimously Nov. 5 to enter into a deal with ReVision Energy of Portland that will see the installation of photovoltaic solar panels atop the planning and development office at 496 Ocean St.

Because the funding model that makes the project possible includes federal tax credits that could soon expire, construction is expected to be complete before the end of the year.

“The federal solar energy credit has been authorized in the past,” said City Manager Jim Gailey, “but because we don’t now what Congress will do, the city needs to proceed with installation of the panels this fall.”

“This project allows us to dip us in the water so to speak into solar energy,” said Mayor Patti Smith. “I feel comfortable this is a good pilot project. Hopefully we will learn a lot from the experience without a lot of risk.”

Under terms of the agreement, ReVision will install $76,459 worth of solar panels at no cost to the city. It will own the panels for six years and lease them to the city for a nominal fee under what it calls a “power purchase agreement.”

During that time, the city will buy its electricity from ReVision at a rate guaranteed to be 2 cents less per kilowatt hour than the rates South Portland pays under a bulk purchase deal with Maine Power Options.

After six years, the city could continue to buy the electricity generated by solar panels on the roof of the planning office, or it could buy the solar panels outright for $20,000.

Because the roof of City Hall has a smaller area that faces less directly to the south, ReVision could only promise a 1 cent per kilowatt hour savings there, prompting the city pass on that option. The city also decided not to install panels on the Community Center on Nelson Street. The steep pitch of the roof over the public pool put the infrastructure cost need to the hold the panels in place out of reach, said City Manager Jim Gailey.

According to ReVision’s director of financing, Steve Hinchman, the reason his company needs to own the equipment for the first six years is due to strings attached to the stimulus money.

The primary funding model is an investment tax credit worth 30 percent of the installation cost for solar panels. The catch is that only taxpayers are eligible for the credit and South Portland, as a municipality, is tax-exempt. Other credits include a federal “bonus depreciation” up to 50 percent of equipment value in the year of installation, with declining rates for the following five years. That’s the incentive that runs out at the end of the year. Maine also has a capital investment credit equal to 10 percent of the federal bonus depreciation.

“Those three things together add up to almost 60 percent of the installed cost of a project,” said Hinchman, when introducing the project to the council in August. noting the additional availability of a $4,000 per project state solar rebate for commercial-grade installations.

Maine also allows the transfer of renewable energy credits, trading at $50 per megawatt hour, as well as net metering, under which a site that produces more energy than it consumes can trade that power “back to the grid.”

Added together, the various government incentives can lower the cost of solar power to 6 cents per kilowatt hour for 20 years, said Hinchman. South Portland pays 8.8 cents/kwh at City Hall and 12 cents/kwh at the planning office.

“Solar would be cost effective then for anybody with a long-term view, but you have to be a taxpayer to get the incentives,” said Hinchman. “Since you don’t pay taxes, the industry has created this sort of Byzantine structure that allows us to capture the tax subsidies for nonprofits.”

As part of the proposal, ReVision will create a “single purpose” LLC known as South Portland Solar. The LLC will design, build, own and operate the solar panels on roof space leased from the city for a nominal fee for six years – the minimum the feds say a company getting tax credits must retain ownership of the equipment.

South Portland Solar would funnel all the tax credits to ReVision. Once ReVision is able to sell the solar panels, it would do so at a cost equal to whatever it needs to recoup the balance of its installation costs. Although Hinchman said his company can make a profit on tax credits alone in Massachusetts, which is more aggressive in incentivizing solar conversions, his company will make its money in South Portland on the six years it spends selling the city electricity generated on its roofs – electricity Mueller promises will cost the city less than it is paying now.