The article observes that regional and state solar grant and rebate programs are being cut back as cash strapped governments find ways to reduce costs. In replacement of the grant and rebate programs, states (like Massachusetts) are instituting performance-based incentive structures, also known as Solar Renewable Energy Credit (SREC) markets. The subsidy for solar development is tied to performance, the value of the subsidy is determined by market and regulatory forces, and the costs of funding the subsidy are distributed to regulated energy suppliers and their customers.

The article concludes that securing long-term contracts for the sale of SRECs provides a solar energy developer with better leverage to secure financing for his or her project because the SREC contract provides a stable revenue stream for the financier. We agree in full. The article also notes, “prices offered in contracts could likely be either the floor price or something perceived as substantially below market”. While this point may appeal to those bullish on the future of SREC markets; we think this article misses a fundamental purpose of SREC markets.

The intended goal of SREC markets and Renewable Portfolio Standards is it to stimulate economies of scale for solar development, driving down manufacturing and installation costs thereby pushing solar energy markets towards grid parity (i.e. making solar electricity competitive with fossil fuel generated electricity). As solar development costs continue to decrease and the number of solar energy projects increases, the supply of SRECs on the market can quickly outpace the demand created by SREC Alternative Compliance Payments which would cause the floor price of SRECs to fall. For example, in Massachusetts the floor price is currently determined by the Clearinghouse Auction price of $285.00. In the event an energy supplier could broker with project owners to secure SRECs at a value below $285.00, the Clearinghouse Auction would freeze up and the market would find a new bottom.

We think one of the reasons investors often favor long-term SREC contracts instead of spot market transactions is precisely because there is certainty about the SREC floor price. Aggregators like Sol Systems, who manage a portfolio of SRECs through long-term contracts with energy suppliers, provide both a stable cash flow for the project developer as well as security against the intended consequence of a successful SREC market and Renewable Portfolio Standard. And, herein lies the paradox: a successful and vibrant SREC market creates exponential solar development, which drives down SREC values and leads to a mature solar market that does not require an SREC market.

Sol Systems’ SREC 3 offer will only be available for a limited time. Interested parties should contact Sol Systems within the next 30 days to sign up. In addition to this offer, Sol Systems will continue to offer its standard 5 year fixed price option as well.

Key components of SREC 3 Offer

• SREC price of $303 is guaranteed for 3 years.
• Systems as small as 1 kW are eligible. Systems larger than 500 kW should contact Sol Systems directly.
• Systems must either be installed currently or installed by November 1, 2010.
• Offer is not valid for customers that have already signed long-term contracts with aggregators.

About Sol Systems

Sol Systems is a Washington D.C. based solar energy finance and development firm that was built on the principle that solar energy should be an economically viable energy solution. Sol Systems enables solar developers, homeowners, and businesses to fully realize the value of their solar energy systems by providing them with a range of options for selling their SRECs. To date, Sol Systems has helped over 1,000 customers with projects ranging from 1 kW to over 1 MW realize the value of their SRECs.

Sol Systems currently operates in Delaware, Indiana, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Virginia, Washington, D.C., and West Virginia and has partnerships in place with over 100 solar installers and developers. For more information, please visit www.solsystemscompany.com.

Contact

Sudha Gollapudi
Director of Strategic Partnerships
Sol Systems, LLC
888-235-1538 x2
srec3@solsystemscompany.com

Because renewable energy credits (RECs) from solar projects are high in value (prices can range from $150-$675 depending on the project location and length of SREC contract), the income associated with selling SRECs can be used in a number of ways to further a school or university’s environmental goals. For example, SREC income from one solar project can be used to finance another solar project on campus or finance another type of environmental project such as implementing energy efficiency or water conservation measures. SREC income can also be utilized to purchase less expensive RECs from other renewable energy sources such as wind. Should a school or university opt to replace their SRECs with wind RECs, Sol Systems can design a seamless transaction to assist with this. Rather than engaging in two separate purchase and sale agreements, Sol Systems can design one contract to meet a school or university’s unique needs.

As fall classes resume and school task forces reconvene, we hope that the topic of utilizing SRECs to meet sustainability goals is incorporated into the decision making process.

Sol Systems is a Washington D.C. based solar energy finance and development firm that was built on the principal that solar energy should be an economically viable energy solution. Sol Systems enables solar developers, homeowners, and businesses to fully realize the value of their solar energy systems by providing them with a range of options for selling their SRECs. Our primary goal is to leverage our expertise and resources to allow our customers to maximize the value of their SRECs. We have helped over 1000 customers across 13 states realize the value of their SRECs.

The Solar Licensing Database inventories, on a state by state basis, the licensing requirements to become a solar thermal and photovoltaic installer for each state.  This Database also provides useful links to the relevant state authorities who facilitate the licensing.

We think the Database could provide some valuable insights to installers who are  considering branching out into new markets.

In March 2010, the California Legislature passed Assembly Bill 1613, which granted the California Public Utilities Commission (CPUC) the power to set and regulate the purchasing price of electricity produced from Combined Heat and Power sources (CHPs). The CPUC would have required utilities to purchase electricity at fixed rates for 10 years from all CHPs that meet environmental and efficiency guidelines and are under 20 MW. Utilities affected by the legislation pushed back, claiming that the CPUC could not set wholesale electricity prices, a right, they argued, reserved only for the FERC.

In mid-July, FERC responded to the controversy by issuing a ruling stating “setting rates for wholesale sales in interstate commerce by public utilities… [is] preempted by the FPA.” The ruling confirms that FERC has the sole authorization to set and regulate the wholesale sale of electricity and deals a blow to pending FiT legislation in other states across the U.S. While states are allowed to enforce fixed rates upon utilities purchasing electricity from renewable sources, these rates cannot exceed avoided costs. Avoided costs are typically lower than proposed FiT rates, which effectively defeats the intent of a FiT which is to promote renewable energy development through guaranteed premium rates.

A likely result of the ruling is that states interested in establishing and achieving targets for renewable energy electricity generation will continue to turn to REC trading schemes. REC trading schemes have proven to be effective at both providing substantial incentives for renewable energy as well placing safeguards against unreasonably high compliance costs for utilities. For more information on REC schemes versus Feed-in Tariffs, please read Sol System’s recent posting on the issue.

As a residential solar installer, you have without question been challenged by prospective customers regarding the high price tag of solar; a typical residential system (3kW in size) can cost between $18,000 and $24,000. Luckily, there are a number of incentives available at the federal, state, and local levels that you can present to your customers to help them realize that solar can be more affordable than often perceived. Federal and state incentives are relatively easy and straightforward to explain. The concept of selling SRECs, however, is more allusive and harder for customers to grasp.

Because SREC income can significantly improve a project’s economics (reducing costs by 20-40% depending on location) and can increase a customer’s return on investment, ensuring that customers understand their SREC options and take advantage of the sale options available will assist your business with closing more sales. This article provides an overview of SRECs and explains the pros and cons of different SREC sale options.

What Are SRECs?
An SREC is a tradable credit that represents the clean energy benefits of electricity generated from a solar energy system. Each time a solar system generates 1000 kWh (1 MWh) of electricity, an SREC is issued which can be sold or traded separately from the power. SRECs have high value in some states where there is legislation called a Renewable Portfolio Standard (RPS). An RPS requires energy suppliers to either produce solar energy from their own projects or purchase credits from individuals or businesses that own solar energy systems.

How Are SREC Prices Determined?
RPS Compliance fee schedules dictate how much energy suppliers must pay for each SREC they fail to produce or acquire. As a result, SREC prices usually trade at or below the dollar amount of these compliance fees. In some states, the fee remains the same dollar amount year over year while in other states, like New Jersey and Ohio, the fee decreases over time which will result in a decrease of the price for SRECs over time.

SREC Supply
SREC supply will increase in the coming years. As solar panel prices fall, solar will become more affordable and more popular. As more solar systems are installed, more SRECs will be available on the market. Additionally, as credit markets continue to improve, more large projects will become financeable and built, resulting in more SRECs. Both of these trends will put downward pressure on SREC prices.

SREC Demand
SREC demand will also increase in the coming years. The demand for SRECs in a given state is set by RPS legislation that determines the overall number of SRECs energy suppliers are required to acquire each year, and this number quickly increases year over year in every state with an RPS. Because SRECs are a compliance commodity, if there are more SRECs supplied than demanded in a given state market, the pricing for excess SRECs will likely be equivalent to pricing seen on voluntary SREC markets, which today trade at $15-$30 per credit.

What are the Options for Selling SRECs and the Risks of Each Option?
Selling SRECs on the open market is analogous to day trading in the stock market. Your customers may make good money, but there is no certainty with regards to their long-term profitability. If SREC prices fall for any of the reasons mentioned above, they will receive a lot less for their SRECs. This option is best recommended for SREC sellers who do not rely on SREC proceeds to pay for the cost of a solar energy system and have a little extra time on their hands to monitor the market.

Selling SRECs into a long-term contract can be a strategy that provides adequate returns, but with less risk than selling on the open market. A typical long-term contract offers a fixed price per SREC for a 3-5 year term. By choosing this option, your customers will know exactly how much income they will receive over the contract term. However, the true value of a long-term SREC offer depends heavily on what supports that offer.

The most secure offers come directly from energy suppliers as they are the ultimate purchasers of all compliance eligible SRECs. However, very few energy suppliers offer contracts directly to non-commercial system owners. The next best offer is a contract from a select few SREC companies that back up their promises to purchase SRECs with their own long-term contracts to sell those SRECs to energy suppliers. These SREC companies have negotiated to sell your SRECs to energy suppliers at a specific price for 3-10 years at a time and can pass that guarantee on to you. Beware of SREC companies offering long-term contracts that have not negotiated fixed price long-term contracts to sell SRECs. If they have nothing to support their promises, and the market price falls, it will be difficult for them to honor your customer’s contracts.

Selling your SRECs for an upfront, lump sum payment is the SREC market’s version of a risk free investment; the return is a noticeably lower than the other options, but there is absolutely no risk. With this option, you will sell the rights to your future SRECs in exchange for a discounted one-time payment received close to the date of installation. You keep that money regardless of what happens to SREC markets. This option is recommended for solar energy system owners that are risk averse or having trouble with accessing financing through banks.

Educating your customers on all three SREC sale options and helping them evaluate their risk tolerance and financial needs will be a key strategy to selling more solar energy systems. The metrics presented in this article should help you identify the best route for your customers. Regardless of which option a customer chooses, monetizing their SRECs will play a critical role in financing their solar energy system.

George Ashton is Vice President and CFO of Sol Systems, a solar energy finance company located in Washington DC.

According to the Canadian Solar Industries Association (CanSIA), the Canadian Province of Ontario had only 2 Megawatts (MW) of installed solar electric capacity in 2008. In 2010 alone, approximately 100 MW of solar capacity has already been installed in Ontario. Furthermore, CanSIA expects the province to install nearly another 100 MW of capacity in the remainder of this year. The Ontario solar market is booming, and it is because a relatively nuanced Feed-in-Tariff (FIT) program launched in 2009.

A FIT is a production-based incentive, in which a solar energy owner is guaranteed a fixed, above-market price for the sale of their solar electricity over an extended period of time. As an example, in a FIT program, a system owner may be guaranteed a sale price of their gross solar electrical output for $0.20 per kWH for a period of 20 years; meanwhile the weighted average price of electricity could be closer to $0.08 in the system owner’s geographic region. This program allows system owners to secure a stable and significant source of revenue and an appealing return on their solar investment.

After an extended rule making process, Ontario launched its FIT program at the end of 2009. This FIT program is delineated into six different tranches, in which different Feed in Tariff values are determined by the size and type of the solar generator. Below is a schedule of the FIT value for each tranche, and an estimated cumulative value of the incentive in the column to the right (this column estimates the total value garnered for each KW of capacity installed). As the column furthest to the right indicates, investing in solar is not a risky decision in Ontario currently, but a quite profitable one.

In order to finance the project, the school turned to Common Cents Solar – a community co-op that helps homeowners and non-profits finance solar projects. CCS worked with Sidwell Friends School to create the Friends Solar Fund, which consists mostly of parents at the school and local community members. Each member will have partial ownership over the system through the purchase of “solar bonds”. The solar bonds are repaid through tax incentives, the sale of electricity produced by the panels, and the sale of SRECs.

The creative Common Cents Solar “solar bond” approach is a win for all parties involved. It allows members of the Friends Solar Fund to recoup their investment while the Sidwell Friends School can take advantage of fixed electricity rates protected against rising energy costs. Most importantly, the school will not pay any installation costs. Once the cost of the system has been recovered, the panels will be donated to the school under a tax-deductible charitable donation.

Common Cents Solar focuses on implementing community-based development strategies for acquiring solar energy. For more information on the non-profit organization, please click here.

Sol Systems will work with CCS to provide long-term SREC financing for the 27.6 kW installation. Sol Systems is proud to be part of the effort to implement creative financing solutions to install more solar systems within the local DC community. For a complete listing of SREC financing options with Sol Systems, please click here.

The people of California have been trying to create an SREC market since 2006 when the California Assembly passed Senate Bill 107 (the “Bill”). This Bill granted authority for the California Public Utilities Commission (CPUC) to develop and administer a secondary market for Tradable Renewable Energy Credits (TRECs).

Three years later, in March 2010, the CPUC issued a decision establishing the rules and regulations that would structure California’s future secondary SREC market. The regulations proposed an alternative compliance penalty of $50.00 for 2010 and 2011; this amount would effectively serve as the ceiling value for the TRECs. (This is a relatively low value when compared to more robust SREC markets such as New Jersey and Maryland). However, the CPUC sidelined their decision in May 2010, and that is where the secondary SREC market sits today in California. The decision was sidelined in response to concerns expressed by investor owned utilities (IOUs) and energy suppliers.

However, a new bill in the State Assembly proposes a legal framework for a secondary SREC market in California. The details of this new bill are not firm enough to offer a good viewpoint on what a future SREC market may look like in California.

In the meantime, California solar energy system owners must sell their electricity and attributes bundled.  Systems sited outside of the state of California can enter into Power Purchase Agreements with California IOUs, to sell their bundled electricity and attributes.  However these systems must be located within the Western Regional Energy Generation Information System (WREGIS).  If, and when, California’s laws change, Sol Systems will be there to develop the SREC market for our customers.

This analysis is good news for those of us in the solar energy space; however, the stated assumption is that governments, like the United States, will implement more concerted policies to facilitate solar energy. Even as some argue that solar energy will soon pass cost parity with nuclear energy, solar energy will likely remain at a competitive disadvantage to traditional fossil fuels unless governments implement policies that recognize the numerous positive externalities of solar energy.

One may wonder: is this political support likely in a country that has failed to pass a comprehensive energy bill? Are the key political drivers that change how our government engages and incentivizes the development of solar and other renewables changing? Will they in the future?

Answer: Almost certainly so. The political and economic interests that have prevented a significant comprehensive approach to solar energy and other renewable energies are changing, and will continue to change dramatically.
Perhaps the single largest driver for political change is the economic change that has taken place in this country in the last two decades. As detailed in a fascinating article in the Washington Post by David Callahan, the United States has moved from a country where thirty-seven percent (37%) of the wealth for the country’s top 400 individuals came from oil and manufacturing in 1982 to merely seventeen percent (17%) in 2006. An overwhelming number of the richest individuals (and the largest political contributors) now represent industries such as finance and technology.

The political implications of these changes are enormous. Currently, according to Open Secrets, an estimated 17.4 percent of all state and national campaign dollars come from the top 100 donors, a hugely disproportionate share. As the political clout of traditional energy wanes, the clout of other industries has grown.

As Callahan points out, although John McCain far outraised Obama among employees of energy and natural resources companies in 2008, pulling in $4 million from this group, Obama simply went elsewhere, and raised $25.5 million from the finance and technology sector. Similarly, he oil and gas industry has been a traditional source of GOP cash and was consistently among the top 10 sources of money for federal candidates for decades, according to the Center for Responsive Politics. In 2008, it moved down to 16th. The entire energy and natural resources sector gave $77 million in campaign donations while lawyers gave $234 million, more than three times as much.

Moreover, many of the individuals in the financial and technology sector are committed to renewable energy. Last year, for example, George Soros pledged to make $1 billion in renewable-energy investments and other billionaires, including Warren Buffett, Bill Gates, John Doerr and Vinod Khosla, are also investing in the sector. Companies are doing the same. Google recently became an independent power producer with the creation of its affiliate, Google Energy LLC, so that it could purchase renewable energy for its large data centers and also purchase energy futures to hedge against an increase in electricity prices.

To make things more interestingly, Google’s most recent purchase of wind energy was from NextEra Energy Resources. NextEra is none other than large utility Florida Power and Light, which changed its name in January of 2009 to better market its commitment to renewable energy. Other utilities, including Duke, First Energy, Pepco Holdings Inc. and others have all made similar commitments to developing renewable energy resources either through direct development, or by helping to finance other projects. Exelon Energy, for example, recently developed a 10 MW solar project called City Solar that will provide energy to over a thousand homes.

In sum, the economic constituency is shifting towards solar energy and other renewables, and so too will the political constituency. The new economy is producing a powerful group of companies and individuals that are committed to fundamentally changing the politics and economics of renewable energy; politicians, both Republicans and Democrats alike, will not be able to ignore this constituency.

The result is an emerging political consensus, among both Democrats and Republicans, traditional energy businesses and financial ones, that renewable energy resources like solar must be supported. This may be through a carbon cap and trade legislation, but more likely the proliferation of solar energy systems will occur through a more incremental approach such as a national renewable portfolio standard and economic incentives like solar renewable energy credits (SRECs). In either case, renewable energy will emerge in the next five years as a non-political issue, and our guess is that the required market incentives to ensure the success of solar energy and other technologies will be implemented.