Renewable Portfolio Standards across the nation are under re-examination by state lawmakers, aiming to diminish or eliminate these programs. Despite benefits to local economies and environments, some politicians and lobbyists feel the programs are unimportant. To date, a number of proposals have reached State Senate and House floors throughout the country. Many lawmakers hold that RPS programs across the board create unduly costs for electricity consumers and taxpayers in order to support an industry that should be able to stand on its own. However, organizations funded by oil and gas interests like the American Legislative Exchange Council (ALEC), the Heartland Institute, and others have also played a strong role in fostering anti-renewables legislation across the country. Our company has been tracking the movement in many states and provides an overview of legislative progress thus far.
On May 1, 2013, the Delaware Procurement Program announced the final results for their 2013 program. The results show a significant decrease in the contracted price per SREC as compared to the 2012 Pilot Program’s pricing.
This year, the Delaware Public Service Commission approved a new structure for the program which resulted in a competitive bid process for all tiers. This differs from the structure of the 2012 Pilot Program, which included an administratively set price for projects under 250 kW and a competitive bid process for projects above that size. The set price was an attractive, guaranteed price of $260/SREC or $240/SREC for the first 10 years of the contract.
On February 22, the DOER announced their intent to actively develop policy to maintain the growth of the solar PV market in Massachusetts, beyond the 400 MW cap of the current RPS Solar Carve-Out. The DOER released a statement Wednesday, March 13 providing further notice to all stakeholders of two public meetings that will take place this Friday, March 22.
At a morning stakeholder meeting, the DOER will unveil the policy objectives and potential changes under consideration for a post-400 MW solar policy in Massachusetts. The meeting will give market participants a chance to provide comments ahead of any final decision on this key policy. A legislative public hearing will follow in the afternoon, to separately address the on-going rulemaking of the 225 CMR 14.00 regulation of the current Solar Carve-Out Program.
Every month, Sol Systems distributes a newsletter, the SolMarket Project Finance Journal, to our community of solar developers and investors. The journal features solar finance statistics, trends, industry news, and information about SREC markets that we garner from our relationships and experience aggregating SRECs and financing commercial and utility scale solar projects via SolMarket.
We have included excerpts from our December SolMarket Project Finance Journal below. If you have any questions about this information, wish to receive our monthly newsletter via email, or have a solar project for which you are seeking financing, please contact the SolMarket team at email@example.com. We would love to hear from you.
|Project Finance Statistics
Characteristics of “Hot Projects” on SolMarket
Capacity: 149 kW – 3 MW
Average capacity: 1,275 kW
Competitive EPC Costs: We have seen a continued fall in EPC costs. Where costs used to be at $2.75-$3.00, we are now seeing costs of $2.25 to $2.50 – or even as low as $2.10. These decreases will be increasingly necessary as local incentive programs and SREC prices continue to fall.
Feed-in Tariff rates:
Characteristics of Recently Funded Projects
Capacity: 1,000 kW – 12,000 kW
|Trends and Observations
New SolMarket Investor with Interest in Projects in 50 kW – 500 kW Range
Sol Systems is working with an investor who is evaluating projects in the 50 kW – 500 kW size range, particularly projects in DC, MA, and MD. This investor has tax appetite, experience investing in solar, and is comfortable with the underwriting and acquisition process. As always, a given project will be more attractive to this investor if it can be grouped with similar projects into a 1 MW+ portfolio. For example, a given project would ideally be grouped with projects that have the same incentive regime, energy offtaker, set of legal documents, or host.
The Limiting Factor in Solar Development: Tax Appetite
Through our daily communications with solar developers and investors, we are constantly reminded that tax appetite is the limiting factor for solar project development. This challenge has become more pronounced with time given the expiration of the Section 1603 Grant in lieu of investment tax credit in December 2011. While there are corporations with significant federal tax liability, there are two main limitations on getting these entities to invest in solar: lack of familiarity with solar as an asset class and a lack of familiarity with tax investment structures. Additionally, there is a risk that a corporation’s federal tax appetite itself will contract if we hit the fiscal cliff and face another economic recession in 2013. Our SolMarket team is bringing on new (non-banking) corporate investors who have not invested in large scale solar in the past, and we are educating these investors on risks, helping them address them, and working in concert with them to build portfolios of high quality projects.
SolMarket Investors Seeking Projects in Connecticut & Vermont
Projects in the Vermont SPEED program are starting to get attention from our investor clientele. In particular, projects that have received their Certificate of Public Good (CPG) are generating interest. The CPG indicates that a project is fully permitted, has a conditional interconnection agreement, and has received a notice to proceed.
There are also three categories of Connecticut projects that may be attractive to our investor network:
Please reach out to the SolMarket team if you have Vermont or Connecticut projects that meet these criteria. If you have an LOI or lease/PPA with a credit worthy host, we would be happy to help you set an ZREC bid price and help you identify prospective investors.
North Carolina and Tennessee Valley Authority Solar Markets Proving Tight
We continue to see several stranded projects in North Carolina, where the number of good projects outweighs the number of investors with NC state tax appetite. Until we are able to bring on an investor with significant state tax appetite, North Carolina will be a challenging market for large scale solar.
We have also seen some portfolios of 2+ MW projects within the Tennessee Valley Authority region; however, the local incentives are not very rich, and the individual project limit of 50 kW makes it difficult to create portfolios with desirable returns. With falling incentive levels in 2013 and a total program limit of 10 MW, the market will likely become even more difficult in the coming months.
SREC pricing did not change for any Sol Annuity and Sol Upfront solutions for the month of December. If you are interested in our Sol Brokerage clear prices and price movements on the spot market, please view our Q3 SREC clear prices, which were updated at the end of November.
The SolMarket community also has the opportunity to view historic SREC marks and model future marks using their own market assumptions. To utilize our SREC supply and demand model, please visit www.solmarket.com/srec_prices.
About Sol Systems
Sol Systems is a solar finance firm and a leader in financial innovation in the renewable energy industry. Since its inception in 2008, Sol Systems has partnered with 350 solar installers and developers to bring over 3,000 solar projects from conception to completion by offering innovative financing solutions for residential, commercial, and utility-scale projects.
Sol Systems’ financing programs catalyze investments for a broad set of solar projects by simplifying their origination, diligence, and financing processes. Developers seeking financing for solar projects can access over $2.5 billion in capital through the Sol Systems investor network.
In addition to providing financing, Sol Systems also offers project due diligence, deal structuring, and asset management services – all designed to reduce overhead and transaction costs and quicken project development timelines.
For more information, please visit www.solsystemscompany.com.
During the May 17th Senate Environment and Energy hearing, the New Jersey committee passed legislation to alter the state’s current Renewable Portfolio Standard. In addition, S1925 underwent several key revisions that will hopefully promote an even stronger and far-reaching fix to the declining SREC market.
The Committee decided to further lower the Alternative Compliance Payment (ACP) by 8% each year in order to decrease the overall cost of noncompliance. The proposed ACP is approximately 50% less than the existing ACP under current legislation. The rationale behind these modifications is to bolster the SREC market by 1) increasing yearly demand for solar energy and 2) making it dramatically less expensive (the ACP is still more than double current SREC prices) for suppliers to meet their solar energy obligations. Finally, S1925 provides a 15-year roadmap of ACP that is established statutorily, not by the BPU. This offers investors, developers, and suppliers a secure, long-term picture of the price for non-compliance and similarly, the “worst-case scenario” cost of the program.
Failing to meet compliance obligations can impose significant costs on utilities, as they must pay the ACP per megawatt hour of solar energy they are unable to supply. The ACP is also generally much higher than SREC prices, thus encouraging suppliers to purchase SRECs instead of paying the penalty. Since the substituted legislation contains a slightly more aggressive solar requirement, lowering the ACP will lower the risk and cost of non-compliance- a cost that invariably passes onto consumer. If there were a situation of undersupply in New Jersey, the lower ACP would also cushion the subsequent impact on the utility and ratepayer. Additionally, a more aggressive demand schedule will, in effect, decrease the currently prodigious oversupply and allow SREC prices to return to levels that will sustain investment and deployment.
|Energy Year||Current RPS (GWh)||RPS as introduced||Substitute RPS||Current ACP ($)||ACP as Introduced ($)||Substitute ACP ($)|
|2011||306||306 GWh||306 GWh||675||675||675|
|2012||442||442 GWh||442 GWh||658||658||658|
|2013||596||596 GWh||596 GWh||641||641||641|
The amended legislation also includes substantially higher solar energy obligations for each Energy Year. Starting in EY14, the substitute bill will further increase the RPS by approximately half of a percent per year. This was intended to confront stakeholders’ concerns that the introduced legislation did not establish a demand schedule aggressive enough to dent the oversupplied market. Reactions to the second reading will unveil as to whether or not the adjustments will actually reinvigorate the market.
Another important modification made before passing S1925 involved a plan to address consistent oversupply in the future. The proposed legislation included a plan to automatically increase the solar RPS by 20% should there be three consecutive years of excessive supply. The contingency plan takes into consideration the necessity for flexibility and dynamism in a market that is clearly volatile. However, the substitute bill that passed out of committee failed to include this language, and replaced it with an investigation of methods to mitigate future market instability. This means, barring any significantly radical conclusions and recommendations from the investigation, that future adjustments to the RPS resulting from oversupply or any other shock will most likely have to endure the legislative process- a long and uncertain process in a situation that requires expediency and clarity.
S1925 was passed out of Committee for its second reading on the Senate floor as a “substitute bill.” This means it will go through one more round of amendments, then ideally return for a third reading on the Senate floor. If the bill succeeds, it will then proceed to the Assembly for approval.
The revisions to the legislation are more conducive to improving current SREC prices, but subsequent modifications should be expected upon second reading. Some in the industry still fear that even with the legislative fix, the market will remain oversupplied in the near-term given current annual installment rates.
Sol Systems will continue to track the process of S1925 through the legislative process.
A full-text version of the amended bill can be found here.
About Sol Systems
Sol Systems is a solar energy finance and development firm that was built on the principle that solar energy should be an economically viable energy solution. With thousands of customers and hundreds of partners throughout the United States, Sol Systems is the largest and oldest SREC aggregator. We provide homeowners, businesses, solar installers, and developers with sophisticated financing solutions that help make solar energy more affordable. Sol Systems also helps energy suppliers and utilities manage and meet their solar RPS requirementsefficiently by providing them with access to diverse portfolios of SRECs. For more information, please visit http://www.solsystemscompany.com.
Next week, the Sol Systems team will be traveling to Dallas, Texas to attend the Solar Power International conference. SPI is the largest solar power and trade show in North America, and with over 24,000 professionals attending, the conference represents an exciting networking opportunity for the solar industry. With the first convention occurring in 2006, SPI has quickly become one of the most important and comprehensive events of its kind.
On Tuesday morning, Sol Systems’ CEO, Yuri Horwitz, will be moderating a panel called “Outlook on SREC markets.” The panel will discuss the successes and failures of the SREC market and offer insight into future trends and prices. As an expert on all things SREC, Yuri will be sure to lead a thought provoking discussion.
The panel, Outlook on SRECs, will meet at 10:30 am on Tuesday, Oct 18 in room C140 of the Dallas Convention Center.
About Sol Systems
Sol Systems is a solar energy finance and development firm that was built on the principle that solar energy should be an economically viable energy solution. With thousands of customers and hundreds of partners throughout the United States, Sol Systems is the largest and oldest SREC aggregator. We provide homeowners, businesses, solar installers, and developers with sophisticated financing solutions that help make solar energy more affordable. Sol Systems also helps energy suppliers and utilities manage and meet their solar RPS requirements efficiently by providing them with access to diverse portfolios of SRECs. For more information, please visit http://www.solsystemscompany.com.
As Sol Systems continues to grow, we are looking for bright, motivated individuals to become part of our team and contribute directly to the success and sustainability of our business. Currently we have the following opening:
Position: Solar Analyst Intern
Company: Sol Systems is a solar energy finance firm primarily involved in the purchase, aggregation, and sale of solar renewable energy credits (SRECs) in the Northeast, Southeast and Midwest. Sol Systems was founded with the intention of facilitating the development of the solar energy market and is now the largest SREC aggregator in the country. The company is based in Washington DC. A Part-Time Solar Analyst would have the opportunity to become intimately engaged in the day-to-day operations of the company as well as long-term strategy decisions.
Requirements: The ideal candidate will be a current student that is: resourceful, detail-oriented, and passionate about the development of renewable energy. A successful candidate will possess the following skills and attributes:
- Enthusiasm and a great attitude
- Intermediate to advanced understanding of Microsoft Excel
- Excellent research and persuasive writing skills
- The ability to understand a complex and evolving market
- A demonstrated interest in energy, renewable energy, energy finance, project finance, entrepreneurship, renewable energy legislation and regulations
Description: A successful Solar Analyst Intern will be critical to the success of a dynamic company in a nascent industry.
The Analyst will be expected to provide clearly defined deliverables, related primarily to administrative tasks. The position will require attention to detail, excellent record keeping, and efficient allocation of time and resources. Through this position, the Solar Analyst Intern will gain familiarity with solar legislation, solar finance mechanisms, industry news, and industry language, as well as new product development in a fast paced, start-up environment. The position will provide a fantastic launching pad for a career in renewable energy.
Our Approach: We are a group of passionate and capable individuals dedicated to making a lasting and positive change to our energy infrastructure and resources. We are involved in a challenging environment and a competitive market with a high level of intensity.
Location: The Solar Analyst Intern will be expected to work out of our centrally located office in downtown Washington, DC.
Commitment & Compensation: The internship will last for a term of 4 months (with the understanding that students will take time off for the holidays). Applicants will be expected to work 20 hours each week. Solar Analysts will receive compensation, which will be specifically determined on a case by case basis and dependent on time commitment and experience. Successful candidates will be eligible for a full time position.
To Apply: Please submit a resume and cover letter (no more than one page each) to firstname.lastname@example.org. Qualified candidates will be subsequently asked for a writing sample and three professional or academic references.
Deadline: Applications for this position will be accepted immediately. We will review applicants on a rolling basis.
Many definitions of solar renewable energy credits (“SRECs”) say that an SREC is equivalent to one megawatt-hour (1,000 kilowatt hours) of electricity generated by a solar facility. While this is mostly true, it’s not always the case that 1 MWh of solar = 1 SREC. In order for an SREC to be created (or “awarded”), the system must receive certification from the state where that SREC will ultimately be sold – and the system must be registered with the regional transmission organization, such as PJM GATS or NEPOOL GIS. These organizations are the entities that acknowledge solar electricity production of 1 MWH and award the system owner with 1 SREC.
In other words, if a solar energy system is not registered with at least one state and registered with PJM GATS or NEPOOL GIS, the system may produce solar electricity without producing any SRECs. This is important because if no SREC is created, no SREC can be sold.
To further complicate matters, each state has different rules about retroactive SRECs — or how far back SRECs can be awarded. In select situations, SRECs can be retroactively awarded years into the past, whereas other circumstances only allow SREC creation from the state’s certification date forward.
Most often, systems are registered with the state in which they are located, but in certain circumstances, SRECs from one state may be sold into another state which has an open SREC policy and a higher price for SRECs. In cases where the SREC will be sold into a different state, the system must be registered in the state where the SREC will be sold.
In order to ensure that a solar energy system is producing SRECs, the system owner must complete various forms with one or more state agencies. This paperwork can be submitted by system owners themselves, or it may be done through the installer, or an SREC aggregator, such as Sol Systems — the nation’s largest and oldest SREC aggregator.
Once a system is registered and producing SRECs, the SRECs can be sold to entities that are willing to buy them.
Why would anyone buy an SREC?
Some states in the U.S. have created Renewable Portfolio Standards (RPS) that require energy suppliers and utilities to produce a minimum amount of their energy from renewable energy sources. These pieces of state legislation essentially create a marketplace for renewable energy at a premium price and thus stimulate the development of renewable energy markets. Some Renewable Portfolio Standards have specific provisions that require a portion of the electricity to come from solar (a “solar carveout”), and these states typically have strong solar energy markets and robust SREC markets.
When faced with an RPS with a solar carve-out, utilities have three options: build solar power facilities and produce the solar energy themselves, purchase Solar Renewable Energy Certificates (SRECs) or pay a Solar Alternative Compliance Payment (SACP) – a set price for each Megawatt-hour (MWh) of renewable energy they fail to acquire.
The price at which SRECs are sold is dependent on 3 market factors: supply, demand, and the level of the alternative compliance payment (ACP). Demand is driven by state RPS requirements and supply is driven by the number and size of individual solar energy systems which are certified to produce SRECs in a given state. In markets that are undersupplied, the ACP tends to set a ceiling price on the price of SRECs, so a state with a high ACP often leads to high SREC prices – at least until supply catches up to demand. Depending on the intersection of supply, demand, the level of the ACP, as well as the terms of the SREC contract – SREC prices can vary widely.
For more information about SRECs, please visit www.solsystemscompany.com.
Yuri Horwitz, Sol Systems’ CEO, has spoke extensively about the United States’ SREC markets at a number of recent conferences, including a presentation at PV America, held in Philadelphia Pennsylvania on April 3-5th, Novogradac’s Financing Solar Energy Conference in San Francisco, held on April 28th, and a number of presentations locally in the District and Maryland. Mr. Horwitz typically presents on the technical and core drivers in the solar industry’s relatively nascent solar renewable energy credit (SREC) markets, as well as best practices for policymakers. More recently, Sol Systems has been focused on communicating some of the inherent risks in the SREC market, and also best practices to deal with some of these risks.
“It’s terrific to be communicating with the industry in scale like this. The SREC markets are our creation, and we have the responsibility to be stewards for these markets, and help guide policy-makers craft legislation and regulations that work for all,” said Mr. Horwitz. “As the SREC markets continue to grow by 50% annually, these markets will grow in complexity, and so our efforts must grow in focus. We at Sol Systems take this responsibility very seriously.”
Sol Systems has been meeting with policy makers in DC as well as Pennsylvania over the last year to help stabilize what are increasingly volatile SREC markets. Sol Systems has also been meeting with state policymakers hoping to craft SREC legislation in order to help guide policy that is dynamic in a changing market, but also stable as the industry continues to scale.
“We were leaders in establishing these markets, and so we must be leaders in helping to ensure they succeed. We’re absolutely dedicated to these efforts, and a significant part of our job is educating others about how these markets work, and if we want to see them succeed, how we must work together to ensure this success.”
Sol Systems is proud to welcome a new member to its team. Andrew Gilligan will be joining the company full-time beginning in late June as an Analyst and will be responsible for customer relations, state registrations, and providing research support on a wide variety of solar topics. Many of Sol Systems’ SREC customers and partners may have already had the pleasure of speaking to Andrew, as he has been an intern with the company for the past 4 months.
“A hard work ethic, leadership ability, and passion for the solar space are characteristics that are hard to find when searching for new employees,” said Yuri Horwitz, President and CEO of Sol Systems. “Andrew has all three traits and more. During the course of his internship, he has proved to be a valuable and committed employee and we are excited he will be joining us full-time. I’m confident our customers and partners will enjoy working with Andrew.”
Andrew comes to Sol Systems from Georgetown University, where he recently graduated magna cum laude with a degree in Science, Technology, and International Affairs and also a certificate in Business Diplomacy. While at Georgetown, Andrew spearheaded launching and running the Georgetown Solar Co-op, a student run organization created to ease the solar procurement process for homeowners. Under his leadership, the Georgetown Solar Coop educated hundreds of prospective customers on the benefits of solar, negotiated price discounts from solar vendors, led numerous homeowners through the solar procurement process from start through installation completion, and participated in local lobbying efforts for shaping the D.C. renewable portfolio standard.