The developer of a $110-$120 million mixed use project in Manchester, Connecticut plans to incorporate a microgrid that taps into opportunity zone federal tax breaks.
The Manchester Broad Street Parkade microgrid will include around 1 MW of solar PV, 2-3 MW of natural gas-fired combined heat and power, batteries, and a water heating loop.
Developer MSL Group forecasts the microgrid cost to be $15-$25 million and hopes to achieve a $0.05-$0.10 per kWh discount on utility rates for residential and commercial tenants.
“The primary mover is to create a sustainable development, which we believe will improve the attractiveness of the entire project dramatically,” said Michael Licamele, president of MSL Group.
The microgrid will be capable of operating continuously in tandem with the utility grid or autonomously, in island mode, in the event of grid outages.
The town of Manchester owns the 23-acre Broad Street Parkade site. MSL Group is leading development of the entire project as the creator of Manchester Parkade I LLC, having won a request for proposals (RFP). The Manchester Board of Directors and the Manchester Redevelopment Agency awarded the company a contract in early July.
Possible March ground breaking
MSL and other project partners, who have yet to be determined, intend to build between 500,000 and 1 million square feet of apartment rental and commercial space, including a hotel and retail outlets along with outdoor and indoor entertainment and recreational venues, Licamele said.
The company is looking to obtain initial sign-off of the complete master plan in September or October and hopes to obtain final approval in November or December, so that it can break ground in March.
“Once we have the master plan we’ll know where the utilities are going, and be able to start doing all the digging and trenching,” Licamele said. “We think we’ll have much more of the plan firm in 60 days or so, then we can get the engineering study done and start work [construction] in March.”
Working with Eversource
Installing the microgrid will be among the first things MSL intends to do, he said.
The Broad Street Parkade RFP included the opportunity to enter into a long-term power purchase agreement (PPA) with electric utility Eversource. MSL has worked with Eversource before to develop commercial-industrial and utility-scale solar power projects. But this will be its first time working with the utility to develop a hybrid, low-emissions microgrid.
“We do both renewable energy and real estate project development…a lot of small and medium-scale solar projects. We do a lot of sub-metering of larger projects that allows us to roll out solar, as well. And we have a few other CHP systems,” Licamele said.
Connecticut opportunity zones & microgrid financing
MSL is exploring various project financing structures along with searching for equity investors and debt financing.
“We’re bringing in some other equity investors interested specifically in Connecticut Opportunity Zone opportunities, investing a bit of MSL money, and exploring a few different options for debt financing,” Licamele said.
Designated as a Connecticut Opportunity Zone provides the mixed-use project with significant federal tax advantages that MSL believes will make it attractive to prospective investors, as well as debt financing providers. Opportunity zone investments are similar to, or “a cousin of solar tax equity credit financing,” Licamele said.
Under the structure, nvestors have 180 days to invest a capital gain into an opportunity fund. By investing in opportunity zones through a qualified opportunity fund, an investor can gain several benefits, according to MSL Group.
- Year 0: Investor reinvests realized capital gain into an Opportunity Zone Fund; the federal tax liability on the capital gain is deferred.
- Year 7: Investor receives a 15% step-up in basis.
- Year 10: Investor sells the asset with the basis stepped up to the fair market value, all post-investment appreciation is tax-free after year 10.
Licamele said that MSL Group also is looking at extending the microgrid, along with the entire project, to include redevelopment of neighboring properties, adding perhaps another 2 MW to the microgrid.
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