Washington, DC: September 14, 2011 – Less than two weeks after launch, Sol Systems is proud to announce that its new solar finance platform, SolMarket, has increased from $350 million in available investment dollars to $400 million.  In addition, reception by solar installers and developers across the country has been overwhelmingly positive.  SolMarket’s network now includes over 180 companies and 300 users.

SolMarket is a financing platform that will catalyze investment in solar energy projects nationwide by transforming how solar projects are financed.  SolMarket provides investors and developers with the tools they need to efficiently originate, evaluate, finance, and construct renewable energy projects.  It provides a standardized origination platform, a document library, modeling software, and a standardized document suite.  SolMarket will also offer developers group purchase discounts for solar modules and other equipment.  There are no costs for developers to participate in SolMarket.

“We talk to hundreds of solar developers about prospective commercial and utility-scale projects, and unfortunately, many of these solar projects are never built due to an inability to efficiently locate financing,” said Yuri Horwitz, CEO of Sol Systems.  “We have created SolMarket to help drive efficiencies into the solar market and connect investors and developers effectively.  SolMarket will reduce the cost of financing transactions and enhance the tempo of solar project development.”

SolMarket is currently seeking projects ranging from 50 kW to multi-megawatts in size.  Solar developers are encouraged to submit their projects prior to September 30^th, when investors will get their first look at projects.  Projects entered prior to this date increase their visibility and the likelihood of getting included in the investors’ 2011 portfolios.

Sol Systems invites interested solar developers to attend a SolMarket webinar, hosted every Tuesday, Wednesday, and Thursday during the month of September at 2 pm EST.  For more information, please email info@solmarket.com or visit www.solmarket.com.

About Sol Systems

SolMarket is a wholly owned subsidiary of Sol Systems.  Sol Systems is a Washington D.C. based solar finance firm, and the largest solar renewable energy credit (SREC) aggregator in the nation, with over 2,300 customers and over 20 MW of solar capacity under management.  Through its SREC offerings, it has promoted the development of the solar market by providing long-term financing options for SRECs, facilitating over $100 million in solar development.

Contact:

Ms. Sudha Gollapudi, Director of Strategic Partnerships

info@solmarket.com

888-765-1115 x1

SolMarket provides investors and developers with the tools they need to efficiently originate, evaluate, finance, and construct renewable energy projects.  It provides a standardized origination platform, a document library, modeling software, and a standardized document suite.  SolMarket will also offer developers group purchase discounts for solar modules and other equipment.  There are no costs for developers to participate in SolMarket.

“We talk to hundreds of solar developers about prospective commercial and utility-scale projects, and unfortunately, many of these solar projects are never built due to an inability to efficiently locate financing,” said Yuri Horwitz, CEO of Sol Systems.  “We have created SolMarket to help drive efficiencies into the solar market and connect investors and developers effectively.  SolMarket will reduce the cost of financing transactions and enhance the tempo of solar project development.”

SolMarket has already attracted funding from a number of investors and is seeking projects ranging from 50 kW to multi-megawatts in size.  Solar developers are encouraged to submit their projects prior to September 30^th because investors are quickly building out their portfolios for 2011.

Sol Systems invites interested solar developers to attend a SolMarket webinar on Thursday, September 1^st, Friday, September 2^nd, or Tuesday, September 6^th at 11 am EST.  For more information, please email info@solmarket.com or visit www.solmarket.com.

About Sol Systems

SolMarket is a wholly owned subsidiary of Sol Systems.  Sol Systems is a Washington D.C. based solar finance firm, and the largest solar renewable energy credit (SREC) aggregator in the nation, with over 2,300 customers and over 20 MW of solar capacity under management.  Through its SREC offerings, it has promoted the development of the solar market by providing long-term financing options for SRECs, facilitating over $100 million in solar development.

Contact:

Ms. Sudha Gollapudi, Director of Strategic Partnerships

info@solmarket.com

888-765-1115 x1

Georgetown Energy, a student consultancy devoted to helping residents convert to solar electricity, is heading a monumental solar project that involves turning 43 quintessential student townhouse residences to solar electricity in the midst of Washington DC’s historic Georgetown district. Although it is a long-term project to be enjoyed by the generations after many of the current members of the group have graduated, Georgetown Energy students believe that the rewards of such an innovative project are well worth the effort.

What magic surrounding solar coaxed students to become involved so profoundly?  First, there is a substantial payback for the investment. In a solar lease contract signed between Georgetown University, which owns the student townhouses, and Solar City, a leading national solar installation company, adding 96.6 kW of solar capacity to 43 townhouses will require an initial investment of about $164,000, much less than if the University were to purchase the solar panels. Although Georgetown Energy has partnered with SolarCity for this project and used its solar lease scheme as a model, the project will be offered to various installers at its final stages. In the innovative solar lease scheme, the University will “lease” the roof of each townhouse to the installer, which will design, own, and operate a solar photovoltaic system on each townhouse.  The installer will then sell the electricity produced from each solar project to the residents of the townhouse at a lower price than the traditional competing utility. Savings increase every year and over the 20 years duration of the solar lease contract, students would save a total of $458,856 in their electricity cost. After the contract is over, the student body can decide whether to buy the panels at a low price.

Indeed, another charming aspect of the proposal is that everything is student-owned. Originating from the need to allocate a 3.4 million dollar defunct student endowment, the solar investment will take up only a portion of the available fund and coexist with other student proposals as well as generate profit. Ideally, Georgetown Energy sees the proceeds creating a fund for related projects to further environmental awareness and energy studies on campus.

Is there anything else in it for the university, the students, and the DC area? Sol Systems, a strong force in the fight for better solar incentives in DC, believes so. Not only is being involved in such a movement ideal preparation for a career in renewable energy (two recent graduates and former members of Georgetown Energy actually work at Sol Systems), but there is much potential for the greater DC area too. Of course, cleaner air for the district tops the list. It may even attract more students interested in environmental and energy issues and demonstrate the feasibility of clean energy investments, creating a virtuous cycle of environmental awareness and action in the university community. Perhaps the project may even set an example of a successful clean energy investment that some students may follow individually in the future. Lastly, it is a modern display of service to the community, the crux of the founding Jesuit ideals of Georgetown University.

What stage is the project at right now? In April 2011, a student commission voted in support of the proposal. Now Georgetown Energy students are working with University officials on the details. These include contractual issues, billing mechanisms, pricing, and structural and electrical issues with the houses. The Georgetown Energy students are learning some concrete skills needed for evaluating any type of construction investment. The work done from June-August 2011 will culminate in a final recommendation to be handed to the University on September 1^st after which Georgetown Energy students will have to persuade the rest of the student body off their feet for a concluding student referendum and choose from final proposals from competing vendors and permitting.  If all goes well, the battle will be won one year from today. The panels will be constructed in Fall 2012 and convert ordinary sunrays to a unique opportunity for revenue and intellectual growth – truly magic!

As a background, a solar renewable energy credit is a tradable commodity like a carbon credit. However, unlike carbon credits, an SREC signifies the environmental attributes associated with 1 MWH of electricity, or its thermal equivalent, produced by a solar energy generator.

The value of an SREC is derived by a state’s Renewable Portfolio Standards (RPS). A RPS is a state-specific statute dictating that certain percentage electricity must come from renewable energy generators. Thirty-one states within the US have RPS statutes on the books. Of these thirty-one states, seven require a percentage of the renewable electricity production come from solar energy technologies (i.e. solar carve-out). These seven states also define a Solar Alternative Compliance Penalty (SACP), or the penalty a regulated utility or energy supplier must pay if they fail to acquire the dictated number of SRECs to meet the RPS. For example, energy suppliers in MD and DC must surrender $400.00 and $500.00, respectively, for each SREC they fail to acquire to meet the solar carve out defined within the RPS. The SACP functions as the price ceiling for an SREC market.

Currently, only a very small number of solar thermal generators participate in these SREC markets, because until recently solar thermal generators did not meet the definitional requirements of a solar energy generator within RPS statutes. However this is changing.

The SREC landscape for solar thermal generators is now open for system owners in MD and DC. Effective January 1, 2012, the Maryland RPS will allow solar thermal generators to earn SRECs. To earn SRECs in Maryland the following conditions must be met: (1) the system must be installed on or after June 1, 2011, (2) if the system is residentially owned, the facility must meet the Solar Rating & Certification Corporation’s (SRCC) OG-300 standards, (3) if the facility is commercially owned, the components installed must meet the SRCC’s OG-100 standards and an OIML certified meter must be installed to measure generation at the facility, and (4) the facility must be located within Maryland. To participate in the DC SREC market, (1) residentially owned systems must meet the SRCC OG-300 standards, (2) commercially owned systems must utilize components that meet the SRCC’s OG-100 standards and have an OIML meter installed to measure generation, and (3) pending new legislation, the facility must be located within the District.

In light of these recent legal changes, solar thermal developers can now participate in two lucrative SREC markets. In 2015 alone, the Maryland SREC market alone will have a ceiling value of over $100 million. Or, put another way, more than 195 MW-eq. of new compliance appetite is legislated in DC and MD over the next 3 years. To learn more about SREC options available to you, please visit www.solsystemscompany.com. As the country’s oldest and largest SREC aggregator, we can craft the solution that is right for you.

With this incredible growth, it is useful to examine the key drivers behind the acceleration of the solar market. One key driver is the continuous reduction in PV cost, as prices for solar panels have declined by around 75% in the past 10 years. Solar panel prices in the U.S. specifically are set to drop by U.S. $0.20 per watt in 2011, bringing the average panel price to U.S, $1.40 per watt.

The second key driver is government policy and incentives. German and Japanese governments have been two of the leaders in the solar industry because they have legislated high incentives for solar deployment at the federal level. In the United States, however, state policies and utilities have played a larger role in growth, which has been impressive. In fact, the U.S. solar industry experienced a year-over-year growth of 67 percent. Furthermore, this growth is no longer simply due to California; over 16 states installed more than 10 MW in 2010. Solar Energy Industries Association (SEIA) CEO, Rhone Resch said, “the Mid-Atlantic region is beating California as the largest market in the U.S. for PV installations”.

Solar growth in the Mid-Atlantic and Northeastern region is due primarily to policies at the state level, which include both incentive programs and Renewable Portfolio Standards (RPS). These state programs award money to owners of solar systems to help offset the initial cost of the system. Renewable Portfolio Standards that include specific requirements for solar (i.e. solar carve-outs) mandate energy suppliers and utilities to generate or procure a certain percentage of electricity from solar or risk paying a steep Alternative Compliance Penalty (ACP).

Both measures have been effective, but solar carve-outs in the RPS represent a sustainable, market-based approach to solar financing. These solar carve-outs make Solar Renewable Energy Credits, or SRECs valuable, allowing solar system owners to realize the financial benefits associated with clean energy production. The percentage of solar electricity that energy suppliers must obtain increases each year until 2025 for most states with an RPS, guaranteeing that there will be a market for SRECs. Furthermore, an RPS is budget-neutral, and thus state governments do not have to worry about running out of funds prematurely, which has happened to several state solar rebate programs.

The Mid-Atlantic and Northeastern U.S. will have need for more than 3 gigawatts (GW) of new photovoltaic capacity by 2015, which is due in large part to these state solar carve-outs. The new capacity will be a mix of residential and business systems as well as utility-scale projects. Furthermore, with continued reductions in PV cost, there may actually be more solar deployment than is needed to satisfy the RPS. This makes the value of SRECs hard to predict in the short and long term; however, it does not change the fact that SRECs will remain an important piece of the solar financing puzzle for the next decade.

Looking forward, consistent and stable policies coupled with technical improvements will allow the solar industry to continue its remarkable growth.

A solar REC, or SREC is a tradable credit that represents all the clean energy benefits associated with 1000 kWh of solar generated electricity. Solar system owners can monetize these SRECs because energy suppliers must procure a certain percentage of their electricity from a solar source or pay a steep Alternative Compliance Penalty (ACP). Therefore, energy suppliers look to buy large sums of these SRECs for each compliance year and naturally will attempt to buy these SRECs at a low cost. However, energy suppliers understand that the SREC market, like almost any commodity market, can be volatile and subsequently the majority of energy suppliers hedge their risk by buying some SRECs through the spot market, and some SRECs through forward contracts.

Since there is good reason to believe that SREC prices will trend downwards over time, energy suppliers will typically be able to negotiate lower prices for the SRECs they are purchasing in multi-year contracts than the ones they buy on the spot-market. However, for various reasons, energy suppliers and utilities don’t typically meet all their SREC needs with multi-year contracts (perhaps they want some flexibility for their solar obligations in case SREC spot market prices drop dramatically or they plan to build solar power plants so that they can generate their own solar energy). Thus there are two distinct markets for SRECs: the spot market and longer-term agreements.

For an individual owner of a solar energy system, the decision of which market to enter is all about risk preference and their view of future SREC prices. Customers who are willing to accept more risk because they believe SREC prices will remain high are going to prefer a spot market solution, like the Sol Brokerage option, where Sol Systems acts as a broker and seeks out the highest SREC price. The spot market option allows customers to maximize their revenue from SRECs provided there is strong SREC demand in the market into which they are selling. Furthermore, it does not lock them into an agreement that will prevent them from taking advantage of an unexpected increase in SREC prices.

Other potential customers may be more risk adverse and would prefer for Sol Systems to take on the majority of the market risk. In that scenario, the customer may find it more appealing to lock into a fixed price per SREC, through an agreement like Sol Annuity, for the next 3 or 5 years. A fixed price allows clients to more accurately calculate their payback period as well as shifting risk away, even though they may be giving up some revenue per SREC.

However, in states like Pennsylvania and D.C., customers who entered into long-term contracts with Sol Systems several months ago will be receiving higher prices per SREC that those available on today’s spot market because the market in those states became oversubscribed. Thus in these examples, the multi-year contracts will actually maximize revenue over the course of the agreement. States like New Jersey and Massachusetts currently have very robust SREC markets and high spot prices, meaning many customers are likely to prefer Brokerage agreements because they can see those rates are higher than the Annuity prices. Yet, if those states follow the trend of DC and Pennsylvania and become oversubscribed, the solar REC price may drop substantially at some point.

For the individual customer, there is no “right choice” on how to sell SRECs. It truly depends on their risk preference and market outlook. However, for the SREC market overall, long-term contracts are more desirable because they provide stability, consistent volume, and liquidity. At Sol Systems, we have been able to enter into multi-year agreements with energy suppliers for the sale of SRECs, which has allowed us to become a preferred supplier instead of the supplier of last resort. This is important because it allows us to back up our contracts to solar system owners with agreements and provide them with reliable ways to ensure their solar energy investment pays off.

An SREC is a tradable credit that represents the clean energy benefits of electricity generated from a solar electric system. Each time the electric system generates 1000 kWh, a SREC is issued that can be sold or traded separately from the power. SRECs are financially valuable because many states have Renewable Portfolio Standards (an RPS) with specific solar carve-outs that require energy suppliers to incorporate a certain percentage of solar generated electricity into their portfolio. Most energy suppliers do not have enough solar capacity to satisfy the RPS requirements with their own power and subsequently must purchase SRECs to meet the state requirement. This allows owners of solar systems to trade their SRECs as commodities and receive payments for them.

SRECs have functioned as an important tool for making solar systems more affordable, and therefore SRECs are typically a significant part of the sales pitch that installers use when explaining the economic benefits of going solar. Furthermore, as state grant and rebate programs diminish, SRECs represent a bigger piece of the way to finance solar. For example, in Ohio and D.C., state funds for solar rebate programs are currently depleted, and homeowners must now rely solely on the federal tax investment credit, SREC payments, and energy bill savings to offset the cost of their system.

In many states, the RPS requirements (that make SRECs valuable) increase annually until 2025. This leads some people to assume that SREC values will also increase annually as energy suppliers will need to purchase more SRECs to meet the solar carve our requirement. However, this is not necessarily the case. The amount of solar capacity is increasing along with RPS requirements, which means that in most states, the SREC values are actually coming down. For this reason, installers need to be honest and careful when describing the future value of SRECs, so that customers do not have false expectations about the ROI of their solar energy system.

In addition to the RPS requirement, the two key factors in determining SREC values are the Solar Alternative Compliance Penalty (SACP) and SREC supply.

The SACP is a fee that a regulated entity must surrender in the event they do not procure a sufficient amount of solar electricity. This fee acts as a price cap because a rational energy supplier would not be willing to purchase SRECs for greater than this value. The SACP is defined on a state-by-state basis, and virtually every state has a declining SACP schedule. For example, in Ohio the SACP declines by $50.00 every two years. The SACP alone will not determine the value of an SREC, but a declining SACP schedule will push the maximum value of SRECs down over time.

The supply of SRECs in the market is another essential factor to consider when predicting future values. Naturally, if there is a surplus of SRECs, then SREC prices will come down. This dynamic has already happened in states such as Pennsylvania and D.C., and solar system owners that locked into a long-term fixed contract are receiving higher values than those trying to trade on the spot market.

Since there is a lot of uncertainty about the future of SREC values, installers should make it clear that SRECs are a commodity and that their pricing can be quite volatile. They should also help their customers make an informed choice about how to sell their SRECs that accommodates their tolerance for SREC market risk. Installers will find that customers who have a good understanding of the SREC market volatility may be willing to accept a lot of risk and enter shorter contracts because they are bullish on the future of SREC markets. However, others may be risk adverse, and would prefer to lock in a fixed price for their SRECs for 3, 5, or even 10 year periods.

As long as installers adopt a cautious approach when discussing SRECs with clients, customers will sort themselves along the lines of risk preference.

Developers like the model because the PPA contract ensures that the developer will be able to sell the solar electricity for a fixed period of time at a pre-determined rate. The PPA contract also removes negotiation and transmission costs that could be associated with solar projects that do not have a guaranteed energy buyer.

Businesses benefit from the federal and state incentives in place for owning a solar system. Specifically, Solar PPAs in the United States rely on the federal solar investment tax credit, which was extended for eight years under the Emergency Economic Stabilization act of 2008 and then amended with the passage of the American Recovery and Reinvestment Act of 2009 so that the solar investment tax credit can now be combined with tax exempt financing. This investment tax credit covers 30% of the expenditures on a solar system. Several state rebate programs also reduce the capital necessary for PPAs by providing grants corresponding to the size of the solar system.

The host business that is buying the solar generated electricity does not receive any of these tax credits or rebates directly, rather, the developer or company that finances and subsequently owns the system receives these benefits. However, the developer passes these benefits on to the host in the form of lower fixed rates for their electricity.

Because the developer fully maximizes all the incentives associated with a solar energy system, in some situations a PPA can be a better deal than ownership of a system. For example, non-profits cannot receive tax credits, implying that a PPA would be the better financial decision since the developer could access the tax credits and consequently provide solar electricity at a reduced rate to the non-profit. Furthermore, a solar developer can raise funds for a project (or portfolio of projects) through tax equity investors.

Similarly, businesses and developers engaging in a Solar PPA can take advantage of Solar Renewable Energy Credits (SRECs). An SREC is a tradable credit that represents the clean energy benefits of electricity generated from a solar electric system. Each time the electric system generates 1000 kWh, a SREC is issued that can be sold or traded separately from the power. Therefore, the legal owner of the system can sell their rights to SRECs to utility companies that need SRECs to comply with state Renewable Portfolio Standards. This represents another substantial method to offset the cost of the system and allow businesses to reduce their net costs and ultimately the PPA rate. As state rebate programs diminish, SREC values will become more important for financing solar.

As PPAs and new solar financing tools become more prevalent, it is important to understand the difference between a PPA and a lease. A solar lease is another common financing tool where a solar company builds a solar energy system on a host’s property and then the host pays a lease payment for the benefits of the system’s electricity production. This is different from a PPA where the host pays directly for the solar power. Many companies that began exclusively in solar leasing are now offering the PPA model to customers as well. Typically, nuances in state laws or consumer preference determine whether a developer will offer a PPA or lease. Solar developers who offer solar PPAs have encountered a large number of interested customers. For example, Wal-Mart, Safeway, and Macy’s all use solar PPAs, and some estimates say that in 2008 PPAs represented over 60% of California’s non-residential solar market.

In short, PPAs allow businesses to take advantage of all sorts of solar incentives like SREC values, federal, and state incentives – all without any upfront capital. As large facility owners and tenants continue to demand solar without high upfront costs, PPAs will become more and more popular.

The result is a strange dichotomy of a manufacturing industry undergoing rapid growth and simultaneously undergoing a stressful reallocation of resources and a fairly pessimistic outlook on Wall Street. The WilderHill Clean Energy Index, which includes solar and other alternative-energy stocks, fell 5.3 percent last year, compared with a 12.8 percent rise in the Standard & Poor’s 500 index. Companies like SunPower, Yingli, JA Solar, Trina, Canadian Solar, MEMC, Suntech and others all produced significant negative returns, some upward of negative 20 percent.

This fall in module prices, and the corresponding difficulties for module manufacturers, will likely continue through 2011 as the world’s top solar market, Germany, further cuts its solar subsidies and a growing supply of photovoltaic modules outstrips demand, putting pressure on prices and producers’ profits. As others have noted, a weak euro will compound the problem for Chinese and U.S. manufacturers. Last year, Germany, Spain, France, Italy and Czech Republic all cut back their solar subsidies. Further cuts are expected in Germany and France in the first half of 2011 and in Italy in the second half. Those three markets account for around 70 percent of the global market, according to Bank of America Merrill Lynch. Next year may be the first year in which more solar is built in the United States than in Germany.

For the solar installer and developer community this is presumably welcome news (ignoring the risks, of course, that similar reductions in incentives may take place here). As solar module costs decline, so are total system costs since modules compose a significant portion of the overall costs of a solar system.

However, cost reductions do not uniformly impact the solar community. Because of economies of scale, module costs account for a much larger portion of commercial-sized solar system’s costs than residential. The impact is still more powerful with regard to utility sized projects. As a result, falling module costs disproportionately benefit larger systems, as illustrated the figure below (care of SEIA).

Not only are commercial and utility costs already significantly lower than residential costs, they are also falling more rapidly. Indeed, utility projects are falling in price at three times the rate that residential projects are. This is an interesting window into the solar industry in the United States, which is that solar systems will undoubtedly get BIGGER.

To compound this trend, as states drastically reduce or altogether cut their rebate and grant programs for residential and small commercial systems, the economics that once favored smaller projects are starting to disappear. States like New Jersey, California, Maryland, Pennsylvania, Ohio and many others have all gutted their tax-funded rebate or grant programs. American Recovery and Reinvestment monies that flowed through the states in much of 2009 and 2010 are nearing their ends. Although module costs are falling significantly, they are not falling (nor could they) by two to three dollars a watt , which was often the size of grant and rebate monies. The result is a further shift upward in size. In Massachusetts, for example, given the emphasis on a solar renewable energy credit (SREC) market, many developers are starting to focus exclusively on commercial and utility scale projects.

For residential focused installers and developers, this may be an opportunity or a challenge. Presumably, those firms that can secure large economies of scale in purchasing power will better weather these changes than those that cannot. Additionally, because size matters, the industry may see consolidation. Hopefully, it will also see aggregation or collaborative models, where residential and small commercial installers work together to secure better financing opportunities and engineer more sophisticated acquisition models. This, of course, is a primary focus of financing firms like Sol Systems. Additionally, power purchase agreements and lease agreements may gain prominence if effective costs rise for residential customers in the absence of rebates.

For commercial and utility developers, a move upward in size means a necessary move towards more complex financing instruments. It becomes a bit more difficult to make a pure equity play on a multimegawatt project – a blended debt/tax equity/first loss equity product is typically required to reduce risks and bring down the costs of capital. To see this approach succeed, the capital markets will have to open further to solar projects. A lack of access to debt markets and tax equity was a big part of what has slowed the growth in wind and large-scale solar in the last few years. So this may be a challenge. On the other hand, Chinese banks continue to push into the US market to debt finance multi-megawatt portfolios, so it may not only be Chinese modules the US industry is using, it may also be Chinese money.

In sum, as the industry grows, there will be a continued movement towards larger projects. To succeed, players will have to become more sophisticated. This will favor players in the residential space who are able to collaboratively or individually leverage economies of scale and acquisition models and players in the commercial and utility space who are able to better secure complex financing instruments.

RPS programs with a solar carve-out define a set percentage of electricity that each utility or energy supplier must procure from solar energy generators. To comply, an energy supplier can develop its own solar projects, or procure Solar Renewable Energy Credits (SRECs) from SREC aggregators or individual solar energy system owners.

In contrast, a FIT is a solar energy subscription program in which a solar energy owner can sell their electricity at a premium to the government or regulated energy suppliers. The solar electricity premiums, like the one in Ontario, Canada can be very lucrative. The stable cash flow from a state body minimizes the risk for the financier. The returns are defined for a 20-year period, the O&M costs of the facility are typically very low, and the project developer can seek financing with the FIT contract in hand.

These two policy models share similar objectives; they accelerate the deployment of solar energy technologies, build economies of scale that reduce technology costs, and carve out a space for solar within the electricity market. Both models also have unique strengths and proven track records of creating exponential growth in solar energy markets.

In some circles, FITs are held as the gold standard in stimulating solar development, while RPS programs are held in a lesser regard. Advocates of FITs can point to solar success stories like Germany and Ontario, Canada and like to discuss how a FIT could be effectively administered in America. Yet, these discussions are premised on the assumption that FITs are better for solar than an RPS. In an attempt to reframe these discussions, we would challenge this assumption and suggest that, in the mid-term and long-term, an RPS program is a more sophisticated policy instrument which is capable of creating a healthier and sustainable solar market.

The fundamental difference between the two models is that an RPS is a self-correcting model based on incentivizing individuals through secondary markets, while a FIT is a subscription program that sustains a solar market to the extent that governments continually allocate sufficient funds or political will. FITs allow solar developers to secure long term financing for solar development, but they do not create an incentive structure which encourages developers to continually reduce costs. An RPS program, as compared to a FIT, does not provide such security. In states with an RPS and an SREC market, system owners recoup their investment through the Investment Tax Credit (ITC), local rebates or incentives, and through the sale of SRECs.

While the ITC and state rebates tend to be reliable, the value of SRECs on the spot market can fluctuate dramatically over short periods of time. This spot market variability thus creates risk for the system owner and financier. And, if we were to stop the analysis here, it might seem clear that FITs are better for solar energy than an RPS. However, this conclusion would overlook the mid-term and long-term growth of solar markets in favor of robust short-term growth (and it would also ignore the fact that system owners can lock into multi-year guaranteed rate SREC contracts).

In fact, one should recognize that the price fluctuations in SREC markets are a result of supply and demand, and are part of the way that RPS markets adjust themselves. The supply is set by the amount of solar energy installed, and the demand is defined by the compliance requirements as established in the RPS. In the event a solar market witnesses exponential growth in solar development and SREC supply outpaces growth in demand, prices will be pushed down for SRECs.

And, to be clear, this is the goal of both an RPS program and a FIT: drive economies of scale and create a competitive market for solar technologies. If prices are pushed downwards in SREC markets, system developers will be incentivized to reduce the costs of the development in order to maintain margins. In the event prices are too low, the supply of SRECs will be short, energy suppliers will be required to pay higher prices for SRECs, and the market will receive the stimulus needed to push development forward again.

In a state with an RPS program and a robust SREC market, the winners will be those that can stay ahead of the curve in developing systems at lower and lower costs compared to other developers. The losers will be those that continually lag in developing systems at lower costs compared to other developers in the market. In so doing, an RPS program creates competition in the market that will ultimately drive down the costs of solar energy and make it more affordable for more people.

FITs, on the other hand, do not create the same sort of competition between developers to reduce costs. Depending on the FIT premium and the payment schedule, developers can maintain strong margins whilst making no investments in efficiency. The result is FITs can become oversubscribed, burn through allocated funds, and then come to a halt because the market never weans itself off of the crutches of government support. Because of the amount of capital required to fund these programs, FITS are also subject to political scrutiny, and if political change occurs, it can wipe a market out almost overnight (i.e. Spain).

For all these reasons, we would conclude that short-term FITs can create spectacular growth in solar markets, but are less sustainable compared to an RPS program which can adjust to the basic laws of supply and demand.

About Sol Systems:
Sol Systems is a Washington D.C. based solar finance and development firm that is committed to making solar energy more affordable. We enable homeowners, businesses, and solar developers to finance their solar energy systems by providing a conduit for solar renewable energy credit (SREC) monetization and long-term price stability. With more than 1,200 customers across 13 states, Sol Systems has become a critical player in developing SREC markets and financing solar energy systems. We are proud to be the oldest, most sophisticated, and largest SREC aggregator in the country.