Posts Tagged ‘SRECs’

Anna Noucas

Formal Rulemaking Process Begins for Massachusetts SREC-II Program

On January 3, 2014, the Massachusetts Department of Energy Resources (DOER) announced that they filed revisions to the Renewable Portfolio Standard (RPS) Class I regulation, thus beginning the formal rulemaking process for establishing a framework for the SREC-II program.  The official version of the draft regulation will be published in the Massachusetts Register on January 17, 2014, but in the meantime, the DOER has provided an unofficial version on their website.

Timeline for the Formal Rulemaking Process

The formal rulemaking process begins with a public comment period which includes holding a public hearing.  Written public comments will be accepted from January 3 through 5:00pm on January 29, 2014 and the public hearing will be held on January 24, 2014 from 1:00 to 3:00 pm in the Gardner Auditorium of the Massachusetts State House in Boston.  Following the public comment period, the DOER will submit this proposed final regulation to the Joint Committee on Telecommunications, Utilities and Energy and will incorporate any changes deemed prudent from the public comments.  Within the following 30 days, the Joint Committee will review and submit comments on the regulation back to the DOER.  To conclude, the DOER must consider the Joint Committee’s comments for a period of not less than 30 days, and thereafter, the final regulation will be promulgated as soon as possible.  Based on the estimated outline in the table below, the SREC-II program should become effective in April 2014.

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Anna Noucas

Everything You Need to Know about the Most Recent Updates to Massachusetts SREC II

Massachusetts Department of Energy Resources (DOER) Commissioner Mark Sylvia recently shared the DOER’s most recent developments regarding its SREC II program.

Massachusetts Department of Energy Resources (DOER) Commissioner Mark Sylvia recently shared the DOER’s most recent developments regarding its SREC II program.

Massachusetts Department of Energy Resources (DOER) Commissioner Mark Sylvia recently shared the DOER’s most recent developments regarding its SREC II program with a packed house at the recent Electricity Restructuring Roundtable on Solar in New England and California.  The official draft has not been published for the public, but is expected to be filed any day now.  Here’s what you need to know.

  1. SREC-II Policy Objectives: Unchanged

The overall policy objectives remained unchanged under this most recent draft. The DOER’s main goals are still to provide sufficient economic support, control ratepayer costs, and create competitive, robust, and progressive market conditions that will maintain and expand PV installations in Massachusetts to reach Governor Deval Patrick’s 1600 MW goal by 2020.  The most significant updates and changes to the original SREC-II draft regulations came instead in the announcement of the key design features, which will drive the structure of the SREC-II Program.

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Anna Noucas

Ohio’s Renewable Portfolio Standard under Attack… Again

The Ohio SREC market in 2013 is projected to be more than two times oversupplied with an expected 129,000 SRECs to be issued compared to a demand of only 60,000 SRECs.

The Ohio SREC market in 2013 is projected to be more than two times oversupplied with an expected 129,000 SRECs to be issued compared to a demand of only 60,000 SRECs.

As the Ohio General Assembly approaches the final few months of its 2013 legislative session, attention has been brought to the Senate Bill introduced to repeal the state’s Renewable Portfolio Standard. Ohio State Senator Kris Jordan introduced Senate Bill 34 (SB 34) which, if passed, would “repeal the alternative energy resource requirements imposed on electric distribution and electric services companies to provide, by 2025, 25% of their electric supply from alternative energy.” To put it simply, if passed, this legislation would repeal Ohio’s Renewable Portfolio Standard (RPS), and the Ohio SREC market would be dismantled.

This is not the first time that Senator Jordan has attacked the Ohio RPS; similar legislation was introduced by Senator Jordan in 2012, but those previous bills failed to gain any support.  It remains to be seen how SB 34 will move forward in this current legislative session, as it has only been assigned to the Public Utilities Committee. A hearing has yet to be scheduled.

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Keith Glassbrook

Sol Systems to Speak at Distributed Solar Summit 2013

Sol Systems to Speak at Distributed Solar Summit 2013

Sol Systems George Ashton and Andrew Gilligan to Speak at Distributed Solar Summit 2013

Another week, another conference.

Next week, Sol Systems will speak at the Distributed Solar Summit in San Diego, California. Sol Systems CFO, George Ashton, and Senior Associate, Andrew Gilligan, will both be featured on Monday, November 18 during the U.S Distributed Solar Markets: Outlook and Analysis portion of the conference. George will speak about policy and incentive frameworks in New Jersey’s solar market. Andrew will discuss the solar policy and incentive frameworks in New York.

Developers interested in financing options for New Jersey or New York solar projects can contact our project finance team at finance@solsystemscompany.com or (888) 235-1538 ext. 2.  Our team is happy to discuss your project with you and assess financing opportunities. Solar installers with customers in need of SREC options in New Jersey can contact our SREC services team at info@solsystemscompany.com or (888) 235-1538 ext. 1.

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Keith Glassbrook

Sol Systems Welcomes Bridget Callahan

Sol Systems Welcomes Bridget Callahan

Sol Systems Welcomes Bridget Callahan to help with the firm’s SREC operations and analytics.

Sol Systems is continuing to expand to accommodate its rapid business growth. This week, Sol Systems is proud to announce the arrival of our new SREC Operations Analyst, Bridget. Welcome to the team, Bridget.

Bridget Callahan joins Sol Systems after graduating from the University of Michigan. Prior to joining Sol Systems, Ms. Callahan worked with the State of Michigan, as well as with several environmental non-profit organizations. As SREC Operations Analyst, Ms. Callahan answers inquiries for Sol Systems’ 4,000 person customer network, manages customer meter readings and production monitoring, conducts policy research and analysis, and interacts with the various public utilities commissions for SREC registrations. She holds a Bachelor in Arts in Public Policy from the Gerald R. Ford School of Public Policy, with a concentration in environmental policy.

At Sol Systems, our biggest asset is our team, and we will continue to hire sharp, passionate team members. We are currently hiring for a Controller. To learn more about careers with Sol Systems, please visit our careers page.

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Amber Rivera

Massachusetts SREC-II Market Outlook – The New Market Equilibrium?

Sol Systems has put together a prospective view of the supply and demand dynamics of the SREC II market in Massachusetts, based on the DOER’s recent presentation of proposed policies for the program.  The principle takeaway for solar developers in the MA market is that the SREC Factor they bid in a competitive solicitation for projects in the ‘Managed Growth Sector’ will need to be determined at the time of bidding, as the SREC-II market dynamics will be ever-evolving.  They should do this by analyzing the market using the project and SREC data that the DOER is promising will be extensive in the SREC-II program.  This should give project owners assurance that they will not have to blindly determine a competitive SREC Factor to bid for their projects.  

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Anna Noucas

Legislation Introduced in 2013 to Increase the Pennsylvania Solar Carve-Out

On February 25, 2013, Representative Greg Vitali introduced House Bill (HB) 100 to the Pennsylvania House of Representatives, legislation that would amend the Pennsylvania Alternative Energy Portfolio Standards. HB 100 was later referred to the House Environmental Resources and Energy Committee, and hearing has not yet been scheduled. If passed, HB 100 would take steps to revive the suffering PA SREC market. Similar legislation (HB 1580 and SB 1350) was introduced to the PA legislature in 2012; however, neither of these bills made significant progress in the General Assembly.

The original Pennsylvania Alternative Energy Portfolio Standards Act currently requires Pennsylvania’s electric utilities to obtain eight percent of their power from renewable sources by 2021, and of that eight percent, 0.5 percent of their power must be generated by solar energy systems.

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Anna Noucas

PUCO Releases New Generation Start Date Eligibility

The Public Utilities Commission of Ohio (PUCO) recently ruled on changing the generation start date for all eligible renewable energy resource generating facilities submitted for approval to the PUCO in 2013.

The Public Utilities Commission of Ohio (PUCO) recently ruled on changing the generation start date for all eligible renewable energy resource generating facilities submitted for approval to the PUCO in 2013.

The Public Utilities Commission of Ohio (PUCO) recently ruled on changing the generation start date for all eligible renewable energy resource generating facilities submitted for approval to the PUCO in 2013.  For all applications received after December 31, 2012, all facilities submitted to the PUCO for approval will have a generation start date of the date the application was filed with the PUCO.

Credit will not be given for generation that occurred before the date of the facility’s application for certification as an eligible Ohio renewable energy resource generating facility. Facility owner’s will be able to report generation from the date of application for Ohio’s purposes, unless the facility is not yet online, in which case the facility owner can begin reporting from the in-service date.

Previously, solar facilities submitted to the PUCO for approval would receive a generation start date beginning on the date the application for the system was approved by the PUCO (which is 61 days after the date filed), or a facility could receive retroactive credit back to the date the facility began reporting so long as there was supporting documentation from a remote monitoring system.  Solar facilities will no longer be able to submit remote monitoring information or documentation to the PUCO for retroactive credit.

This generation start date change will only affect facilities located in OH and adjacent states. Sol Systems has reviewed these generation start date changes and is making the necessary changes to our registration service to allow for timely registration of solar facilities to the PUCO.  Please continue to follow our blog for any further updates to the registrations process.

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.

Anna Noucas

Connecticut Small ZREC Program Open and Accepting Applications

Sol Systems is currently aggregating several small ZREC projects, specifically projects that are 50 kW or larger, have or will be submitted into the CT Small ZREC Program, and are looking for third party financing.

Sol Systems is aggregating projects that are 50 kW or larger submitted into the CT Small ZREC Program and are looking for third party financing.

Connecticut Light & Power (“CL&P“) and United Illuminating (“UI“) officially opened the window for submitting applications into the Connecticut Small ZREC Program on January 8, 2013.  This program will be accepting applications through January 22, 2013.

The Small ZREC Program offers a unique opportunity for projects under 100 kW (AC) to receive financing through a fixed price ZREC contract for 15 years.  The pricing differs between CL&P and UI and is based on the weighted average price of the approved medium ZREC contracts, awarded to projects between 100 kW and 250 kW in later 2012 through a competitive RFP bidding process.  The pricing for each utility is as follows:

UI Rate: $148.89/ZREC
CL&P Rate: $164.22/ZREC

To participate in the Small ZREC Program, projects must meet the following criteria:

  • Located behind contracting utility revenue meter and have a dedicated REC meter
  • Must not have received funding or grants from the Clean Energy Investment Authority or its predecessor, the Connecticut Clean Energy Fund
  • Projects must be in service on or after July 1, 2011
  • No larger than 100 kW (AC)
  • Must have zero emissions – this may include solar, wind, and hydro
  • Developers must have site control

The total number of applications selected will be based on a set budget of committed funds, which is approximately $2.7 million between the two utilities.  In total, $2.36 million is attributed to CL&P and $552,310 is attributed to UI.  The selection process is a first come, first serve process based on date and time of application submission.  All projects submitted in the two week window does not exceed the allotted budget, then all applications will be accepted.  If the total number of projects submitted does exceed the allotted budget, random selection will occur.

Sol Systems is currently working on behalf of several investors who are interested in ZREC-eligible projects.  Our team is currently aggregating several small ZREC projects, specifically projects that are 50 kW or larger, have or will be submitted into the CT Small ZREC Program, and are looking for third party financing.  By aggregating a pool of smaller projects, Sol Systems is helping to bring capital to project sizes that traditionally lack capital, while also providing our investors with the opportunity to diligence and purchase multiple projects in one round of transactions.

If you have a project that has been awarded a ZREC contract and is looking for financing, please contact our team at info@solmarket.com or (888) 235-1538.  Our team would be happy to discuss your project with you and assess financing opportunities.

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.

Solar Opportunities in Maryland, D.C., and Virginia

By Josh Garrett for Sol Systems

In preparation for the MDV-SEIA Conference in Washington DC on November 28, we will be previewing some issues and trends to be addressed at the conference. This blog is a brief examination of the solar market conditions in Maryland, Virginia, and Washington, D.C.

In today’s highly fragmented U.S. solar market, regional solar energy incentives run the gamut from highly supportive to non-existent. In the mid-Atlantic region, we have seen fairly strong support for growth, but the level of support certainly varies from state to state. Both DC and Maryland have encouraged the solar renewable energy credit (SREC) market by increasing the SREC requirements. DC has also introduced new pieces of legislation that would provide additional incentives to push DC residents towards solar. Meanwhile, Virginia is creating new incentive programs.  Below, we  provide an overview of policy and SREC market conditions in Maryland, Virginia, and Washington D.C. as a way to explore the overall prospects of each state’s solar industry.

Maryland

Over the last year, the Maryland legislature has proven its support of solar. It remains to be seen the impact the Maryland legislature will have on solar in 2013; however, previous legislation encourages a promising outlook.

Policy: The Maryland legislature showed continued support for solar in 2012, when Governor Martin O’Malley signed the Renewable Energy Portfolio Standard for Solar Energy and Solar Water Heating Systems Bill (SB 791 and HB 1187) into law. This legislation amended Maryland’s existing renewable portfolio standard (RPS) for solar generation, requiring 2% of the state’s power to come from solar by 2020 instead of 2022. To meet the accelerated schedule, Maryland’s Renewable Portfolio Standard will increase beginning in compliance year 2013 and continue through 2020. The period of greatest demand growth from the RPS is anticipated to be 2016 through 2020. While the new law will have a significant impact on the Maryland solar market over the next eight years, the Maryland legislature has not introduced any further legislation to incentivize the solar market.

SREC Market: Considering the lack of introduced legislation and the oversupply that existed in the 2012 MD SREC market, prices for vintage 2012 SRECs in Maryland have declined year-to-date by 2%, with bids at approximately $160 per SREC and offers at about $185.  However, the volume of trading in SRECs at these price levels is limited. Trading of 2013 SRECs is taking place at higher prices, around $215 per credit, most likely as a result of the boost to the solar RPS requirement in May 2012.  This legislation will truly begin to show its impact starting in 2013.  Sol Systems’ analysis and modeling shows that 2012 will see an oversupply of SRECs, but that 2013-2015 will shift toward undersupply.

Virginia

For a state without its own SREC market, Virginia has begun to show more support for solar over this past year; however, it is important to note that Virginia is reliant on the SREC market in Pennsylvania, thus legislation in Pennsylvania will continue to have an impact on the Virginia solar market.

Policy (in the state of Virginia): Currently, most Virginia utilities meet their RPS mandates by purchasing RECs from existing facilities, leaving little to no room for creating new solar jobs and expanding solar capacity in the state. However, the State Corporation Commission of Virginia is currently considering two solar energy programs proposed by Dominion Virginia Power that seek to expand solar capacity within the state. The first program would allow the utility to directly finance new solar installations totaling 30 MW of capacity on large rooftops inside the Commonwealth. The second program is a residential solar purchasing plan capped at 3 MW of capacity, which has been dubbed a “demonstration program.” These programs will look to expand solar outside of the mandated RPS requirements to create an additional incentive for VA system owners to go solar.

Policy (in the state of Pennsylvania): Many Virginia solar energy systems that are eligible to produce SRECs must sell into the Pennsylvania SREC market, as DC and Maryland recently closed their borders to out-of-state systems. These Virginia system owners could be affected by Pennsylvania’s Senate Solar Bill (SB 1350), a three-part bill that was introduced in the state legislature but has not yet reached committee consideration. The Solar Bill would increase the solar carve-out requirements in Pennsylvania’s Alternative Energy Portfolio Standard (AEPS) during compliance years 2013 through 2015, hold them steady from 2016 to 2019, and reduce the requirements in 2020 while extending the overall AEPS through 2025.  The bill would also raise the price of Alternative Compliance Payments (ACPs) to $285 per SREC during compliance years 2013 through 2019 before reducing solar ACPs by 2% per year thereafter. Finally, the Solar Bill would enable solar thermal facilities to qualify for SREC production. If carried forward into next year, the bill could combine with its counterpart introduced in the state House of Representatives in 2011 to promote changes to the AEPS and solar carve-out, which would in turn increase SREC prices in Pennsylvania.

Pennsylvania SREC Market: Considering that most SRECs from Virginia can only be sold into Pennsylvania, it is important to note for Virginia system owners that SREC prices are in the midst of a steady decline in the Commonwealth of Pennsylvania, with bids currently at $23 per credit. Offers for SRECs in Pennsylvania are at approximately $27 per credit, with most volume trading around $26 per credit.  Expectations are that the market will be four times oversupplied (though that estimate does not take into account SRECs that will be retired in neighboring states). Unlike DC and Maryland, the Pennsylvania SREC market may continue to decrease if legislative action is not taken.

Washington, D.C.

With the passage of legislation in late 2011 to increase the RPS and solar requirement, DC set a high bar for solar growth.

Policy: To support solar growth, the DC Council introduced two new solar bills in 2012. The DC Council is currently considering the Community Renewable Energy Act of 2012 (B19-715), which was introduced in March 2012. The bill expands the accessibility of solar energy for D.C. residents by establishing Community Generation Facilities and enabling virtual net metering protocols. If passed, residents could invest in a solar facility in their community and reap the energy savings in proportion to their investment through virtual net metering performed by their electric utility.

In addition, the Council approved the Energy Innovation and Savings Amendment Act (B19-0749), known as the Property Tax Exemption bill, in a first vote on November 1, 2012. If enacted, the new law would exempt solar energy systems from the District’s personal property tax, reducing the tax burden on solar energy systems and further incentivizing the construction of solar energy projects. The bill will potentially require one or two additional approvals from the Council before proceeding to the Mayor for final approval. As we look into the start of 2013, it seems DC will remain a strong market for solar.

SREC Market: The positive effects of the 2011 legislation to increase the solar requirement began to ring true in 2012. With energy suppliers focusing on meeting compliance targets at the end of 2012, prices for SRECs started to climb at a steady rate of 5% per month. As of this month, 2012 SREC bids were consistently above $300 per SREC. The Legislation passed in 2011 will take effect starting in 2013 by increasing the District’s RPS while disallowing SRECs from out-of-district systems (those that were not approved before 2012). We expect those changes to drive 2013 SREC prices even higher with the anticipation of a significant oversupply of SRECs in 2013-2014.

The policy frameworks and market opportunities in Maryland, Washington, D.C., and Virginia present an accurate analogy for state and regional markets across the U.S.: on one hand, there are states that offer strong incentives which are expected to endure for several years; on the other, there are places that offer little to no incentives for solar power and are not home to any SREC markets. An in-depth discussion on the Maryland, Virginia, and Washington DC solar markets will occur at next week’s MDV SEIA conference when the region’s largest solar players come together to discuss the specific challenges and opportunities that the region offers.

About Solar Energy Focus 2012

Sol Systems is proud to be sponsoring the Solar Energy Focus 2012 conference which will host 50+ speakers, 12 breakout sessions, 350+ business leaders, investors, legal experts, developers and policy-makers. The conference will take place on November 28, 2012 at the Marriott at Metro Center in Washington, DC.  To register for the conference, please visit www.solarenergyfocusconference.com.

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 or www.solmarket.com.

Sara Rafalson

Massachusetts Announces 10 Year Forward ACP Schedule

On December 29, the Massachusetts Department of Energy Resources (DOER) announced a rolling 10 year Alternative Compliance Payment (ACP) Rate Schedule for the RPS Solar Carve-out.  The schedule maintains the ACP Rate at its current level through Compliance Year 2013, and then reduces the Rate at 5% per year.

This change to the Solar Carve-out Program will provide much needed visibility with regards to the ACP and should encourage electric suppliers with compliance obligations to participate in long-term SREC contract talks.

The 10 Year Schedule is below. The full announcement can be found here - DOER Announces Forward ACP Schedule.

Compliance Year ACP Rate per MWh
2012 $550
2013 $550
2014 $523
2015 $496
2016 $472
2017 $448
2018 $426
2019 $404
2020 $384
2021 $365
2022 and after added no later than
January 31, 2012 (and annually
thereafter) following
stakeholder review

As the oldest and largest SREC aggregator in the country, Sol Systems currently offers three different types of agreements for Massachusetts homeowners and businesses: Sol Upfront, Sol Annuity, and Sol Brokerage. However, Sol Upfront is only available for systems installed by one of our platinum partners. Please contact your installer or e-mail our Sol team at info@solsystemscompany.com for information on specific pricing.

In order to obtain specific pricing for commercial systems, we recommend that developers load these projects on SolMarket, our new financing platform. In addition to linking solar developers with quality investors, the SolMarket portfolio team customizes SREC pricing indications for commercial projects and distributes them on a weekly basis.

When is 1 MWh of solar electricity equal to 1 SREC?

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.

SREC Prices

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.

Maryland & DC Promote Solar Thermal through SREC Markets

Solar Renewable Energy Credit (SREC) markets are comprised almost entirely of solar photovoltaic generators. However, recent legal changes offer opportunities for solar thermal developers to participate in two of the country’s most lucrative programs.

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.

Sol Systems Welcomes Andrew Gilligan To Its Team

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.

NJ Solar Driven by SRECs (Even More than Before)

New Jersey has been the leading SREC market in the U.S for some time, but the phase-out of the REIP program and the introduction of the SREC Registration Program (SRP) mean that New Jersey’s solar market is now truly driven by SRECs — and market growth appears to be quite robust.

Since the start of 2011, the New Jersey Clean Energy Program has:
• been receiving approximately 575 new applications per month
• been approving about 50 MW of SRP & REIP Applications per month
• seen an average of 16 MW of system completions per month.

The New Jersey Board of Public Utilities Board is proposing the re-adoption of some amendments to its Renewable Energy and Energy Efficiency rules at N.J.A.C. 14:8 (Chapter 8). These rules lay the groundwork for New Jersey’s SREC program.

Some of the tenants and requirements of the Chapter 8 Readoption Proposal are summarized below for the convenience of our readers.

SREC Lifespan
An SREC associated with energy generated on or after July 1, 2010 shall be used to comply with RPS requirements for any one of the following three energy years:
• The energy year in which the underlying energy was generated
• Either of the two energy years immediately following the energy year in which the underlying energy was generated

An SREC based on energy generated before July 1, 2010 shall be used only to comply with the requirements of this subchapter for the energy year during which the underlying energy was generated, and/or the subsequent
energy year.

Once an SREC has been submitted for compliance, the SREC shall be permanently retired.

SREC Generation
In order to measure SREC generation, the Board or its designee shall accept either of the following measurement methods:

• Periodic readings of a meter that records megawatt-hour production of electrical energy. The readings may be taken or submitted by any person, but shall be verified by the Board or its designee, or
• For a solar electricity system with a capacity of less than 10 kilowatts, annual engineering estimates and/or monitoring protocols

SREC Registration Process
In order to qualify to produce SRECs, systems need to go through the SREC Registration Program (SRP) and be issued a New Jersey State Certification Number.

The SRP process requires:
• The submittal of an initial registration package- generally 10 business days after execution of the contract for purchase or installation (whichever comes first) of the photovoltaic panels to be used in the solar facility.
• Construction of the solar facility to not begin until after Board staff has issued a conditional registration for the facility.
• Construction of the solar facility to be completed and local code approval granted prior to the expiration of the conditional registration.

If the applicable submittal deadline is met, SRECs shall be usable for compliance with this chapter immediately upon the issuance of a New Jersey State Certification Number for the facility. However, if the applicable deadline is not met, any SRECs based on electricity generated by the solar facility shall not be usable for compliance with this chapter until 12 months after the solar facility has received authorization to energize in accordance with the Board’s interconnection rules.

Registration of a solar electric generating facility requires completion of the following process:

1. The registrant shall submit an initial registration package to the Board.

2. If the initial registration package is incomplete or deficient, Board staff shall notify the registrant in writing of the deficiencies.

3. Once the registration package is complete, Board staff shall review the package to determine whether the solar facility meets the SREC eligibility requirements of this subchapter. If the facility does not meet these requirements, Board staff shall notify the registrant. The registrant shall revise the package and resubmit it within one year of this notice. Failure to resubmit within this time will result in cancellation of the registration process, in which case a complete new registration process shall be required for the solar facility to obtain a New Jersey State Certification Number.

4. If the solar facility as described in the initial registration package meets SREC eligibility requirements, Board staff shall issue notice to the registrant of a conditional registration for the facility. The notice of the conditional registration shall:
• State that, if the solar facility is constructed as described in the initial registration package, Board staff will issue a New Jersey State certification Number for the solar facility upon construction completion and inspection; and
• Include an expiration date 12 months after the date of the notice

5. After issuance of the notice of conditional registration, construction of the solar facility as described in the initial registration package may begin. Construction of the solar electric generating facility shall be completed prior to expiration of the conditional registration.

The registrant may request one extension prior to the expiration of the conditional registration, and shall include an updated schedule for completion. Board staff may authorize one extension for the project on a case-by-case basis, based on the likelihood of timely and successful completion of the solar facility. If the conditional registration or extension expires before construction is complete, the registrant shall begin the entire registration process again by submitting an initial registration package and the Board staff shall treat the new registration package as if it were a first-time submittal.

The application will require the following:
• Information identifying and describing the owner, host location, builder/installer and operator of the solar electric generating facility
• Basic information describing the solar facility, including its capacity, manufacturer and expected output
• A technical worksheet detailing the technical specifications of the solar facility
• A construction schedule for completing the solar facility, including significant milestones;
• A signed contract or other binding legal document between the owner and installer of the solar facility
• Basic information regarding the cost of equipment and installation
• A site map of the land upon which the generating facility will be located
• Any other data or information necessary for Board staff to determine whether the solar electric generation will meet the requirements for SRECs.

When construction of the solar electric generating facility is complete, the facility owner (or installer) shall submit a post-construction certification and request an inspection or inspection waiver from the Board staff.

A post-construction certification package would include the following:
• A copy of the conditional registration notice issued by the Board
• A final “as built” technical worksheet, detailing the technical specifications of the completed solar electric generating facility, including any changes from the technical worksheet submitted as part of the initial registration package
• Digital photographs of the site and the completed solar facility
• A shading analysis
• An estimate of the electricity production of the solar facility
• Documentation of compliance with all applicable Federal, State and local law, including eligibility for any tax incentives or other government benefits, where applicable.

The facility owner (or installer) should supply a copy of the initial application to interconnect the facility to the distribution and transmission system, as well as the EDC or PJM approval to interconnect and energize the facility; and a statement that an inspection of the solar facility, or an inspection waiver, has been requested through the Board’s NJCEP website, and the date of the request.

After receiving the inspection request and complete final documentation required, Board staff will conduct an inspection or notify the registrant that no inspection is required (waiver).

If no inspection is required, or if the inspection indicates that the solar electric generating facility has been constructed in accordance with the conditional registration, and/or any Board-authorized changes, Board staff shall assign a New Jersey State Certification Number to the solar facility for use in obtaining SRECs from PJM-EIS GATS.

If, after submittal of an initial registration package, an increase or decrease of more than 10 percent in the solar electric generating facility’s generating capacity is planned, the registrant shall notify Board staff by e-mail

Interconnection Review (for systems under 10 KW)
Once a customer-generator has met the level 1 interconnection, the EDC shall notify the customer-generator in writing that the customer-generator is authorized to energize the customer-generator facility, as follows:
• The EDC shall send the authorization to the e-mail address, and to the U.S. Postal Service mailing address that is listed on the customer generator’s submitted interconnection application form; and
• The EDC shall not condition the authorization to energize on the EDC’s replacement of the customer-generator’s meter.

An applicant shall submit an application Interconnection Application/Agreement Form for level 1 interconnection review.

If a customer-generator facility meets all of the applicable criteria above, the EDC notifies the customer-generator under that the facility will be approved, the EDC shall, within three business days after sending the notice of approval do both of the following:

• Notify the applicant by e-mail or other writing of whether an EDC inspection of the customer-generator facility for compliance with this subchapter is required prior to energizing the facility or that the EDC waives inspection; and

• Return to the applicant a level 1 interconnection agreement, unless: Part 1 of the original application, signed by the appropriate EDC representative.

The EDC does not require an interconnection agreement for customer generator facilities that qualify for level 1 interconnection review; or

The applicant has already submitted such an agreement with its application for interconnection.

An applicant that receives an interconnection agreement shall execute the agreement and return it to the EDC. If the EDC requires an inspection of the customer-generator facility, the EDC shall promptly complete the inspection and the applicant shall not begin operating the facility until completion of the inspection.

Upon receipt of the executed interconnection agreement from the customer generator and satisfactory completion of an inspection, if required, the EDC shall notify the customer-generator in writing that the interconnection is approved, conditioned on approval by the electrical code officials with jurisdiction over the interconnection.

If an EDC does not notify a level 1 applicant in writing or by e-mail whether the interconnection is approved or denied within 20 business days after the receipt of an application, the interconnection shall be deemed approved. The 20 days shall begin on the date that the EDC sends the written or e-mail notice or application receipt required.

A customer-generator shall notify the EDC of the anticipated start date for operation of the customer-generator facility at least five days prior to starting operation, either through the submittal of the interconnection agreement or in a separate notice.

Once an applicant receives Part 1 of the application with the EDC signature, and has installed and interconnected the customer generator facility, the applicant shall obtain approval of the facility by the appropriate construction official.

The customer-generator shall submit documentation of the construction official’s approval to the EDC, along with a copy of Part 2 of the application, signed by the customer-generator.

If inspection of the customer-generator facility was waived, the EDC shall, within five business days after receiving the submittal required under above, notify the customer-generator of authorization to energize the facility. The notice to the customer-generator shall be provided in the format required.

If inspection of the customer-generator facility was not waived, the following process shall apply:

• The customer-generator shall submit the construction official’s approval and signed Part 2, and inform the EDC that the customer-generator facility is ready for EDC inspection
• Within three business days after the customer-generator notifies the EDC that the facility is ready for inspection, the EDC shall offer the customer-generator two or more available four-hour inspection appointments.
• The appointments offered shall be no later than 10 business days after the EDC offers the appointments (that is, within 13 business days after the customer-generator submittal.
• The customer-generator shall notify the EDC which of the offered inspection times the customer-generator prefers, or shall arrange another time by mutual agreement with the EDC.
• Within five business days after successful completion of the EDC inspection, the EDC shall notify the customer-generator that it is authorized to energize the facility.

The official version of the Chapter 8 rules was published in the New Jersey Register on May 2, 2011.

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 www.solsystemscompany.com.

SRECs: Key Drivers in Solar Growth

Recent reports about both the domestic and global solar market have all pointed towards another year of remarkable growth. In fact, Bloomberg Finance identified Apple’s growth following the release of the iPad last year as the best analogy for the projected growth of the solar industry. Just a few days ago, the CEO of the Solar Energy Industries Association announced that the “solar is the fastest growing industry in America”.

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.

Financing Residential Solar

Michael Leibreich, chairman of Bloomberg Finance’s Research Group on Energy Finance, recently stated that he believes the cost of developing a solar power project will be cut in half in the next decade. These cost reductions will pave the way for utility scale solar and they will also help make solar a viable option for residential solar.

Residential solar installations will remain a key part of the solar industry’s remarkable growth, and the distributed nature of these systems represents some of the most unique and most advantageous aspects of solar technology; however, reductions in technology costs are not enough to make solar affordable for everyone. Luckily, today, a homeowner has more options than ever to help finance the installation of a solar energy system.

The most basic way is to pay for the system out of pocket. This approach leads to the highest rate of return — assuming the homeowner can take full advantage of the federal investment tax credit/grant, state incentives, and the value of Solar Renewable Energy Credits or SRECs. However, solar PV systems still pose a high initial cost, and many residents do not have the ability to pay for the system completely out of pocket.

A subset of this option is taking out a loan to pay for the system. Residents can take out home equity loans from their banks or secure low-interest loans to cover the system cost from their installers. (In D.C., homeowners have received access to zero-interest loans for the first year through their solar installer.) This approach also allows the homeowner access to all the economic incentives for going solar, which along with energy savings, can be used to repay the loan in a very reasonable period of time.

Two other options that do not require the homeowner to fund the entire cost of the installation would be to (1) lease the system or (2) enter into a Power Purchase Agreement (PPA). Although these structures are now common among commercial solar installations, these financing structures are becoming more popular with homeowners in the past two years.

While the nuances of leasing structures often differ, the customer is basically leasing the solar energy system just like someone leases a car. This approach allows the customer to reduce energy bills without the high initial cost of going solar. However, in leasing a system, the homeowner would not own the system; therefore, they would not receive the federal tax incentives or state rebates – and in most cases they would not be able to take advantage of the economic incentives like selling SRECs.

Finally, a Power Purchase Agreement allows a homeowner to purchase electricity from a system located on their roof at a reduced rate. This means the homeowner will experience savings on their energy bills without large upfront costs. However, just like in leasing the system, the customer will not own the system, be able to take advantage of SRECs, or the federal and state incentives. In effect, they have not “invested” in a solar energy system, but they will still reap financial benefits because they’ve created a hedge against rising utility costs.

It can be a difficult decision for homeowners when selecting which financing option to use. A lot will depend on how the homeowner feels about the high upfront cost associated with owning a PV system. However, if the customer can afford the initial capital, then purchasing the system will provide them with a return on investment over the lifetime of the system.

By owning a solar energy system, the homeowner will be able to monetize all available incentives and also reap the value of producing clean electricity through the selling of SRECs. SRECs are valuable because several states have solar-carve outs in their Renewable Portfolio Standard (RPS) that require energy suppliers to procure a certain percentage of their electricity from solar or pay a steep Alternative Compliance Fee (ACP).

At Sol Systems, we offer 1, 3, 5, and even 10-year agreements for monetizing the SRECs of a system depending on the state. Fixed cost agreements such as Sol Annuity allow customers to confidently know their cash flow due to SRECs and subsequently calculate their payback period more accurately.

It is important for these financing options to remain economical choices as residential solar continues to grow. Furthermore, it is important homeowners take their time and fully understand the advantages and disadvantages before choosing how to finance their solar system.

President Obama on Energy Security

Last Wednesday morning, I was lucky enough to attend President Obama’s speech at Georgetown University on U.S. energy security. The President has made this issue one of the top priorities for his Administration, and Wednesday he reinforced many of his goals and beliefs, while adding two new targets meant to improve the energy security of the U.S.

The central part of the speech was an analysis of U.S. dependence on foreign oil and ways in which that can change. President Obama listed natural gas powered vehicles, biofuels, electrical vehicles, and an overall decrease in oil demand as ways to reduce the amount of oil America has to import. Towards that aim of reducing foreign oil dependence, Obama revealed two new targets. First, by 2025, Obama wants the U.S. to have cut the amount of foreign oil imported by one-third. To put this in perspective, when Obama took office, the U.S. imported 11 million barrels of oil a day. Second, by 2015, President Obama is calling for all federal vehicles (around 600,000) to run on alternative fuel. President Obama defined both these targets as ambitious but achievable goals that would significantly increase American energy security.

President Obama also addressed the role of renewable energy such as solar in America’s future. He not only cited the environmental benefits of renewable energy, but also stated, “the nation that leads in the creation of a clean-energy economy will be the nation that leads the 21st-century global economy”. In a speech given to predominately college students, Obama urged young people not only to be more environmentally aware than previous generations but also to break into the clean energy industry in terms of future careers. Within the solar industry alone, there is a projected 26% increase in jobs over the next year. President Obama made it clear that growth in clean energy industries will be one of the pillars of an overall American recovery.

For anyone working in the renewable sector, Obama’s speech was familiar rhetoric. He has demonstrated his commitment to clean energy by requesting substantial funds in each of his budget requests and making a goal in this year’s State of the Union for “80% clean energy by 2020.” Given the federal government’s deficit issues, however, the renewable sector cannot rely on heavy government support despite Obama’s views. That is why state programs, and especially ones that are budget-neutral, become so important in making sure that the U.S. remains competitive in the clean-energy economy.

Renewable Portfolio Standards (RPS) are increasing as an important state mechanism and have demonstrated the ability to increase the deployment of renewable energy without costing state or federal governments millions of dollars. An RPS mandates that energy suppliers must procure a certain percentage of their electricity from renewable sources, and many states have specific solar carve-outs, which give value to Solar Renewable Energy Credits, or SRECs. An SREC is a tradable credit that represents all the clean energy benefits associated with 1 MWh of solar-generated electricity. These credits allow solar system owners to monetize their clean energy production, thus decreasing the payback period on a system and incentivizing more homeowners and businesses to go solar.

After the speech, I was able to talk briefly with Secretary of Energy Steven Chu who is very excited about the growth prospects for clean energy but still stressed the importance of continued innovations in solar panel production. It is certainly encouraging that the current Administration is embracing clean energy as a means to protect the environment and also increase energy security. However, it is still important to utilize programs like state RPSs to ensure that the clean energy sector grows at the pace desired by the Obama Administration.

The 2 SREC Markets

When talking with potential customers at Sol Systems, it is often interesting to hear the diverging views on the benefits and drawbacks of selling Solar Renewable Energy Credits (SRECs) through spot market agreements or multi-year contracts. With spot market brokerage-type agreements, SRECs are sold every month or quarter for the highest current price. Long-term contracts (often called forward contracts) are when a solar system owner locks into a fixed price per SREC for a multi-year term.

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.

Clean Energy Trends 2011 – Clean Edge: Solar is an Economic Powerhouse

Ten years ago, Clean Edge, a research and advisory company, published their first report on the clean energy industry. Recently they released their 10th annual Clean Energy Trends report, which highlighted strong growth in several renewable energy fields such as solar, and also predicted trends for the next decade. This report represents an opportunity to reflect on the progress and future of the solar market.

Clean Edge leads off the report by highlighting that global solar and wind markets have displayed growth rates similar to other technology revolutions like computers or telephony. For example, the global solar photovoltaic (PV) market has expanded from just $2.5 billion in 2000 to $71.2 billion in 2010, which corresponds to a compound annual growth rate of 39.8 percent. Clean Edge’s projections in 2000 for the growth of the solar market turned out to be 300 percent short, underscoring the fact that this booming decade in the solar market has surpassed predictions considerably.

In 2010 alone, new solar photovoltaic installations reached more than 15.6 GW worldwide, which is more than double the amount of new installations from 2009. Looking to the future, Clean Edge projects that the global solar market will increase to $113.6 billion by 2021.

Clean Edge also selects five key trends that will shape the clean-energy markets over the next decade, two of which directly include the solar market. Clean Energy projects the increase of partnerships between natural gas and solar, such as solar-gas hybrid systems. These plants would produce the environmental benefits associated with solar but with the integration of natural gas they can also address solar intermittency issues and use already existing infrastructure. Another trend that Clean Energy predicts for the coming decade is the increase of green buildings across the world, many of which will install solar panels in an attempt to drastically reduce the amount of grid-electricity they require. These trends are part of the reason Clean Energy is predicting continued growth by the solar industry and a 63% overall increase in industry size in the next decade.

These numbers and trends are all positive for the developing solar market. However, it is important to understand why the solar market is becoming more robust. The primary reason is the continual improvement in solar PV technology. Photovoltaic prices dropped by approximately 30 percent in 2009, and an additional 10 percent in 2010. Due to increased research and development in solar technology, the average cost to install a solar PV system decreased from $9 (per peak watt) in 2000 to $4.82 (per peak watt) in 2010. Government funding and legislation aimed at strengthening the solar industry during its infancy have also been vital to the sector’s growth.

Leading countries in the solar market, such as China, Germany, and the U.S., all established programs that helped fund solar R&D and deployment or guarantee a buyer for solar electricity. In Germany, a solar feed-in-tariff allows anyone generating electricity from solar PV to receive a guaranteed payment higher than the market rate, which guarantees that solar projects will be a profitable investment. China, who is projected to surpass Germany in 2013 as the world’s solar largest market, identified the solar sector as having the most potential in the energy industry and projected 5 million kWh of solar capacity by 2015.

The U.S. has a Federal Tax Investment Credit or Grant program that will cover 30% of a solar system’s initial cost, and this has been an invaluable financing tool. However, without a federal Renewable Portfolio Standard (RPS), solar system owners and developers have turned to states with solar carve-outs in their RPS as an ideal location to deploy solar. These solar carve-outs mandate that energy suppliers procure a certain percentage of solar-generated electricity or pay an alternative compliance penalty (ACP), which makes Solar Renewable Energy Credits, or SRECs, valuable. An SREC is a tradable credit that represents all the clean energy benefits associated with 1 megawatt-hour of solar energy. Selling these SRECs to energy suppliers allows solar system owners to decrease the payback period. These carve-outs, many in place until 2025, will help foster the continued growth of the solar market as the price per watt continues to come down due to further R&D.

While technical improvements in PV technology have been and continue to be a primary driving force in solar growth, supportive government policies and SREC markets are essential in terms of incentivizing the industry and creating ripe conditions for solar investment. With effective government incentives, the solar industry will continue to be an economic powerhouse in the next decade.

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 www.solsystemscompany.com.

Counterintuitive Energy Subsidies

One of the most common arguments against renewable energy resources such as wind and solar is that they are not cost-competitive compared to traditional fossil fuels. Accordingly, government officials, business leaders, and taxpayers are concerned about the billions of dollars that would have to be spent in government funding and subsidies to make renewable energy more cost competitive today. However, when one examines the subsidies that fossil fuels receive annually, as well as their negative externalities, it is harder to argue that renewable energy is “too expensive”.

The majority of industries require support and legislative stability during their infancy, and this is especially true of the energy industry. It should come as no surprise that government funding and subsidies were used to help the coal and oil industries when they were first developing. However, it is unclear why fossil fuels, now a mature industry, received $72.5 billion in U.S. federal subsidies between 2002-2008. To put this in comparison, the solar industry received less than $1 billion in federal subsidies during that same time period, and all renewable energy fields together received $29 billion. If fossil fuels are so much cheaper, why should they receive more than double the amount of federal funding?

Federal subsidies include incentives, tax breaks, loan guarantees and other credits. President Barack Obama made a commitment to support clean energy, and solar subsidies have significantly increased since he took office, highlighted by a 30% Federal Tax Credit or Grant program for solar. Furthermore, Obama has proposed reducing subsidies and tax breaks for oil, natural gas and coal producers in his budget proposal each year. The G20 echoed this rhetoric, proposing in 2009 to begin phasing out fossil fuel subsidies, which was applauded by economists and environmentalists.

Yet nothing has changed. Congress successfully opposed these cuts and reductions, thanks in large part to heavy lobbying from oil, gas, and coal companies. Furthermore, none of the G20 countries have enacted a subsidy-cutting policy.

Even though 80% of Americans agree that Congress should consider reallocating federal subsidies from fossil fuels to solar, and 92% of Americans support pollution-free technology, it appears inevitable that renewable energy will lose out in subsidy fights because of the power of the entrenched fossil fuel industries. Supporters of fossil fuel subsidies point to the fact that oil prices often depend on situations in foreign countries, making the market more volatile and thus they need insulation, but this seems to be a critical disadvantage of the oil industry, not something that should be supported.

At this point, fossil fuel industries have a price advantage over alternative fuel sources because of industry maturity and federal subsidies. If a free market without subsidies existed though, fossil fuels would still be priced inaccurately due to their negative externalities.

An externality is a cost or benefit to a party that did not directly participate in the transaction. For example, fossil fuels’ most significant negative externality is pollution. Fossil fuel energy production is the primary contributor to greenhouse gas emissions that are associated with climate change. In basic economics, when a product or service has negative externalities that are not reflected in the cost, it makes sense for governments to levy a tax or charge that reflects the true cost of that action to society. However, under the status quo, levelized cost does not exist for energy sources – and the fossil fuel industry receives billions of dollars in annual subsidies to help reduce their cost.

Federal incentives for the fossil fuel industry are likely to continue, meaning renewable energies must be able to take advantage of other opportunities in order to compete. Several states have recognized a need for state-based intervention and they have helped create a better market for solar deployment through solar “carve-outs” in their Renewable Portfolio Standard (RPS). These carve-outs mandate that electricity suppliers procure a certain percentage of their electricity from solar sources. In effect, this legislation leads to a valuable market for Solar Renewable Energy Credits, or SRECS.

The ability to sell the benefits of clean solar electricity at reliable prices has prompted an increase in solar deployment in states like Pennsylvania, New Jersey, Ohio, and the District of Columbia among others, and this market-based solution does not have to rely on federal or state funding.

Looking forward, states should make good use of solar carve-outs in an attempt to level the playing field with the fossil fuel industry. State-created solar requirements and SREC values can help the solar industry get stable funding in its developing years – and eventually solar will stand on its own in the market.

What House Budget Means for Solar

Early on Saturday, February 19th, 2011, the House passed its version of this year’s budget, which was highlighted by $61 billion in cuts from federal programs. The bill will now move to the Senate where there will likely be amendments and eventual compromise before President Obama signs the bill. Nevertheless, it is an interesting time to examine what this budget and drive to reduce the federal deficit means for solar financing and the solar industry in general.

President Obama has made it clear that, although his priority is to trim the federal deficit, he is not willing to sacrifice funding for clean energy research and development. For the 2012 fiscal year, Obama unveiled a $29.5 billion budget request for the Department of Energy (DOE), which includes $3.2 billion for the DOE’s Office of Energy Efficiency and Renewable Energy (EERE)– a 44% increase over the current appropriation. This request includes an 88% increase in funding for the solar EERE program specifically.

The budget passed by the House, however, is more aggressive in its attempts to reduce the federal deficit and would cut billions of dollars from federal energy and environmental programs. In particular, the Advanced Research Projects Agency-Energy, which invests in early stage and risky projects, would be hit hard. Similarly, the EERE would lose 35% of its budget relative to last year, a stark contrast to the White House’s plans. The budget would also cut funding for several DOE loan guarantee programs.

The Solar Energy Industries Association (SEIA) has characterized these cuts as “disastrous”. Currently, solar developers use the DOE loan guarantee programs to help finance solar projects at low interest rates, and these cuts could halt solar projects around the country. However, the chances of the House budget passing into law in its current form are very slim. Senate Democrats and President Obama will likely push back against dramatic reductions in the DOE loan guarantee program.

Despite the fact that House Republicans are currently proposing cuts to clean energy funding, it is important to highlight that a GOP Congress has historically supported solar. The first tax credits for solar were passed in a 2005 Energy Bill by a Republican Congress and later extended by President George W. Bush.

Both parties see the job growth opportunities in the solar industry. Solar employers expect jobs to increase by 26 percent over the next year, and lawmakers from both parties share concerns over the current U.S. unemployment rate.

It is important to note that no matter what happens with the Federal Budget, there will be states that maintain policies promoting solar deployment and allowing for job growth in the renewable energy industry. For example, more and more states are adopting a Renewable Portfolio Standard (RPS) that contains a solar carve-out requiring utilities to procure a certain percentage of their electricity from a solar source. These solar carve-outs create markets for Solar Renewable Energy Credits, or SRECs. An SREC is a tradable credit that represents all the clean energy benefits of electricity generated from a solar electric system. SRECs are a market-based mechanism that do not rely of state or federal funding, so SRECs will help system owners finance their solar energy systems regardless of federal cuts to clean energy programs.

The House resolution on the budget, although likely not to pass in its current form, would certainly be detrimental to the health of the solar industry, particularly the reductions in the DOE loan guarantee program. We hope lawmakers will recognize the job growth and economic opportunity that the solar sector represents, instead of seeing it as a way to trim government spending.

SREC Price Determinants in 2011

What Will Drive SREC Prices in 2011?

Most market participants are familiar with the three basic drivers of solar renewable energy credit (SREC) prices – SREC supply, SREC demand, and state solar compliance penalties. Most of this information can be found on RTO and state commission websites and analyzing this data yields an adequate view of the current state of the SREC market. However, to fully understand the 2011 SREC markets, a better understanding of the drivers of supply and demand is required.

SREC Supply Forecast:

The price of panels and installation will be an important input in determining the future supply of SRECs. Panel prices and installation margins have decreased considerably over the last year, especially on the East Coast. Cheaper panels and installation margins mean more development and increased SREC supply. However, 2011 will also see the disappearance of many state solar rebate programs. States like Ohio, Pennsylvania, New Jersey, and the District of Columbia are finding their coffers running low for state money to support solar projects. This means that new projects in 2011 will have to rely more heavily on the value of SRECs, which should slow development and SREC supply considerably. We have also seen new interest from traditional banks, particularly in large scale solar projects, which should bring down the cost of financing for large scale developers. Private high yield investors have now moved into the commercial and light commercial space, which means more money for these projects but at a pricey cost. Together these market effects will work to determine SREC supply in 2011. For example, will panel prices and installation costs fall enough to compensate for the termination of many state solar rebate programs? These questions will be important to answer before estimating additional SREC supply in 2011.

SREC Demand Forecast:

SREC demand is legislated by the renewable portfolio standards in each state. Consequently, demand would appear to be easy to determine. However, an increasing number of long term SREC contracts and energy suppliers with their own projects will mean that the demand that appears to be in a market could already be “spoken for”. Furthermore, with compliance entities in some states filing for force majeure, demand that should be in the market may in fact be pardoned. Even with all of these moving parts, demand is remains far easier to predict than supply.

Comparing Supply and Demand:

The standard interstate analysis of supply and demand will become more complicated in 2011 as SREC sellers in states with crumbling SREC markets look to cross state lines to sell their SRECs into other states. Determining the pace of those cross-registrations and the flexibility of the market to move those SRECs from one state to another, keeping in mind that some portion of those SRECs are locked into long term contract, will be important to determining the supply and demand balances in each state. Brokers have also added some complication to the market, as offers and bids are multiplied across the market and often give the appearance of significance amounts of demand or supply. Neither of which is healthy for a developing market.

Legislative Changes:

Increased reliance by projects on SREC prices and increased scrutiny brought upon compliance entities to meet the RPS standards will both cause market participants to look more closely at RPS statutes to determine exactly what will and will not qualify in-state. Additionally, where SREC markets can no longer support solar development, the solar community will apply pressure to politicians to increase demand to support job growth in one of today’s few industries reporting job growth: solar.

In the end, the three primary market drivers will remain the same. But what is more important than today’s supply and demand are tomorrow’s. To get a clearer picture of those dynamics, one will have to combine a historic view of growth with the changing landscape ahead to arrive at any number of varied outcomes. After all, that is what makes a market.

FERC Rulings on Solar Feed in-Tariffs

Solar feed-in tariffs (FIT) have served as one of the primary policy tools for increasing the deployment of solar energy in several countries. Yet a recent ruling by the Federal Energy Regulatory Commission (FERC) makes the future of solar FITs in the U.S. uncertain.

A feed in tariff is basically a subscription program where the owner of a solar system can sell their electricity at a fixed rate to utilities. The utilities are required to purchase the solar electricity at this determined rate, which is higher than the normal wholesale electricity price. Feed-in tariffs, highlighted in places such as Canada and Germany, have the potential to be great for solar deployment because they guarantee a certain cash flow, thus minimizing the risk for those financing solar.

However, there also drawbacks to FITs. In the U.S., the success or failure of such a policy would depend on the ability of the state legislature to determine the correct fixed rate for solar electricity that incentivizes solar without oversubsidizing it. This fixed rate contract for purchasing electricity is more dependent on government funding and consistent political will than market forces.

Regardless of whether you agree more strongly with the advantages or the disadvantages of a solar FIT, it is important to note the FERC ruling on FITs this past year and its likely consequences. On July 15th of last year, the interstate electricity regulators at FERC affirmed the fact that they had exclusive authority over wholesale electricity sales.

The ruling was necessary because the California Legislature in 2007 established a feed-in tariff program for small combined heat and power systems in the state. Some utilities protested this program under the language of the Federal Power Act. FERC’s ruling was originally confusing, although seemed to support the belief that state legislatures are severely limited in their ability to mandate premium, fixed-price requirements.

This ruling was controversial and eventually led to a clarification by FERC in October 2010 that states do have the authority for certain feed-in tariffs when they set their rates through the Public Utilities Regulatory Act (PURPA). A spokesperson explained that since utilities may be mandated to buy power from different sources of electricity, a multi-tiered approach is admissible where states can calculate the utilities’ avoided cost for each separate electricity source.

Moving forward, it is unclear whether these FERC rulings will encourage or discourage more state FITs. Renewable policy experts have noted that the FIT structure allowed under these FERC rulings does not really resemble European FITs and has limited ability to dramatically increase renewable energy generation.

One of the options for FITs that FERC explicitly allows is for a state to establish a targeted range (for example for PV systems between 10 kW and 50 kW only), and let the market set the price. This is significant because it highlights FERC’s preference towards market solutions because they have the potential to be self-correcting and continually incentivize solar cost reductions.

A market solution for solar deployment that already exists is a solar “carve out “in a state’s RPS, which creates Solar Renewable Energy Credits or SRECs. Trading SRECs allows the market to dictate an appropriate price based on a state’s alternative compliance penalty and supply and demand factors.

Many U.S. states already have solar carve outs and healthy SREC markets. In fact, a FERC spokesperson indicated that Renewable Energy Credits (RECs) may be needed in addition a FIT to get to sufficient levels of renewable energy deployment. States previously considering FITs can look towards SRECs as a favored policy tool for enabling solar deployment and adopt legislation accordingly.

Why Installers Need to be Careful about the Future Value of SRECs

Solar Renewable Energy Credits, or SRECs, are a key part of financing solar PV systems, typically covering 20 to 40% of installation costs. Therefore, it is critical that solar installers, homeowners, and businesses be prudent when projecting future values of 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. 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.

Why Big Solar is not Better Solar

As solar energy systems become a more popular and profitable investment, many small and large scale projects are being developed. The idea of large solar projects may be attractive because of cost advantages due to scale, yet while the technology behind big and small solar projects is similar, some of the characteristics of big solar cancel out the advantages that are unique to solar energy.

Let’s define “big solar” as a photovoltaic (PV) system or a concentrated solar power (CSP) system that feeds energy into the grid as opposed to “small solar” which feeds the direct energy load of a given facility (most commercial facilities require less than 1 MW of power).

First, big solar is inefficient in terms of its land use. Instead of using the millions of acres of rooftop space and small vacant lots across the country, big solar is often built in deserts or remote areas, which could be potential agricultural or construction space, or even wildlife habitat.

Second, big solar requires significant transmission upgrades. Since large solar projects are far away from where electricity is used, long and costly transmission lines must be constructed to connect big solar projects with the grid. It costs approximately $1.5 million per mile for new transmission lines, a substantial cost that removes a lot of the economic advantages associated with large scale projects. Big solar projects will require the U.S. to engage in even more costly infrastructure upgrades over the next few decades; whereas small solar projects actually reduce the need for costly infrastructure upgrades.

Third, big solar does not alleviate grid-congestion. Even if new transmission lines can be financed, the electricity will only add to an already congested transmission and distribution system. Whereas, if small scale solar power is added near the power demand (such as the rooftop of a house or building), then it would not add at all to the congestion of the electrical system (one of the main causes of the 2003 blackout in the Northeast). Grid congestion is becoming even more important as U.S. electrical demand is increasing at a much higher rate than U.S. transmission capacity.

Fourth, big solar wastes a significant amount of energy during transmission. Transmission from a centralized power plant to a user wastes electricity: according to the EIA, line losses accounted for 6.5% of total electricity generation in 2007. Small solar, typically constructed on the roof or within a ¼ mile of the building it powers, has virtually no energy loss due to transmission.

Fifth, big solar has the same security disadvantages of large centralized power plants. In other words, large scale solar is just as susceptible as other power plants to national security threats from hackers or terrorist groups.

Now that solar technology is becoming more affordable on a residential and commercial scale, there is the potential to dramatically increase the prevalence of distributed generation power systems. Achieving this would insulate the U.S. against its current dependence on large scale power plants and an outdated electrical grid’s transmission ability. Yet, despite the relative disadvantages of large solar power plants, big solar and small solar often compete for solar incentives such as SRECs (Solar Renewable Energy Credits).

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 have value because utilities and energy suppliers can purchase them from system owners in order to meet the requirements determined in a state’s Renewable Portfolio Standard. Residential and commercial solar system owners can harness this value to offset the costs of their solar energy systems. In some states, big solar threatens to reduce the value of these incentives by flooding the SREC market and decreasing the price of SRECs.

When creating and adjusting renewable energy policies, legislators and policy makers should recognize the unique benefits of small solar and distributed generation. It is important to understand that even though “big solar” may have some cost advantages, it is not the “best solar”.

Carbon Markets: Carbon Credits, Carbon Offsets, and RECs

Due to the dramatic increase in greenhouse gas (GHG) emissions over the past several decades, there have been different policy measures and regulations initiated in an attempt to reduce the level of GHGs, especially carbon dioxide. Governments and organizations can use a variety of tools to reduce GHGs, including carbon credits, carbon offsets, and renewable energy credits, however, all these tools share the same idea of putting a price on carbon.

One of the most common tools is the creation of carbon credit markets. A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one ton of carbon or carbon dioxide equivalent. The carbon credit “cap and trade” mechanism used today is very similar to the methodology used for the U.S. Acid Rain Program, which was an emission trading program launched in 1990 aimed at reducing sulfur dioxide and nitrogen oxide levels. In essence, a regulator establishes a cap on the overall emissions of a group and then distributes emission allowances to the separate participants, up to the cap limit.

If a company’s carbon emissions fall below its assigned amount, then that company can sell their surplus of carbon credits to other organizations that may have exceeded their respective limit. Cap and trade schemes allow companies to buy and sell “credits” for many types of pollutants, such as acid rain, but the market for carbon credits is by far the biggest.

In 2007, the size of the global carbon credit market was approximately $60 billion, with over 23 million metric tons of carbon dioxide traded in the U.S. alone. Today, carbon credits are relatively cheap, but carbon markets will become even more important in coming years. Louis Redshaw, head of the environmental markets at Barclays Capital, predicts that “Carbon will be the world’s biggest commodity market, and it could become the world’s biggest market overall.”

The Intergovernmental Panel on Climate Change (IPCC) first noted that a tradable permit system is one policy instrument that has been shown environmentally effective in the industrial sector. The carbon credit mechanism was formalized in the Kyoto Protocol, an international agreement between more than 190 countries whose aim was to address the issue of climate change. Under the Kyoto Protocol, each country is issued an Assigned Amount Unit (AAU) of carbon credits, and they are entered into the country’s national registry, which is validated by the United Nations Framework Convention on Climate Change.

Countries who ratified the Kyoto Protocol set quotas for the emissions of local businesses and organizations, thus establishing a carbon market through a cap and trade scheme. The Kyoto mechanism has been used most notably in Europe, where the European Union Emission Trading Scheme (EU ETS) was established in 2005. The EU ETS is the largest emission trading scheme in the world. It employs a basic cap and trade model where the ETS imposes annual targets for carbon dioxide emissions on each EU country. The major carbon emitters in each country are then given national allowances that they can sell or purchase depending on their need.

The United States, however, did not ratify the Kyoto Protocol and there is no national cap on carbon emissions at this point in the U.S. Consequently, there is no mandatory cap and trade scheme in the U.S. for carbon credits. Nevertheless, carbon markets have still developed in the U.S. due to voluntary commitments from corporations to cap their emissions. The Chicago Climate Exchange (CCX) is a U.S. GHG-trading platform where members make a voluntary, but binding commitment to meet annual reduction targets. The members who reduce GHG emissions below their targets can profit from the surplus. In addition, several states have discussed carbon cap and trade programs, and California recently announced that they would in fact start a cap and trade program for carbon credits in 2012. More commitments like these and the possibility of a national cap in the near future will increase the robustness of the U.S. market for carbon credits.

Although cap and trade is the traditional route for reducing carbon emissions, “carbon offsets” are increasing in popularity. A carbon offset firm acts as a middleman by estimating the emission levels of a company and then providing opportunities to invest in carbon-reducing projects across the world. By investing in these carbon-reducing projects, a company can receive carbon offsets for the carbon emissions that its investments are removing from the atmosphere.

Carbon credits and carbon offsets are not the only financial mechanism for discouraging pollution; another common policy tool in the U.S. is the use of Renewable Energy Certificates (RECs). RECs are present in U.S. states that have adopted Renewable Portfolio Standards, which require local utilities to obtain a certain percentage of their electricity from renewable sources. RECs are also tradable commodities, but they represent the environmental attributes coming from the generation of one-megawatt hour of electricity by a renewable energy source. In general, RECs have much higher values than carbon credits, and solar RECs (SRECs) in particular tend to have very high values. Whereas carbon credits trade in the range of 0.30-$3.50, SRECs generally trade from 200-$650 per credit.

Today, carbon markets are still in their infancy in the U.S., but carbon credits, carbon offsets, and renewable energy credits represent great potential for reducing pollution and protecting the environment through economical, market-based approaches.

How to Navigate the Massachusetts SREC Market

This morning I was speaking with a homeowner in western Massachusetts who had recently taken the plunge and invested in solar energy. Solar Renewable Energy Credits (SRECs) were on his mind. Specifically, he wanted information that would help him come to an informed and clear valuation of the SRECs generated by his system.

Due to the complexities of SREC markets in general and the peculiarities specific to Massachusetts, this homeowner’s interest in understanding how to value his SRECs is a refrain we at Sol Systems are hearing regularly.

Many homeowners are looking to understand the basic framework of the market; and in our mission to provide the resources to make solar simple for homeowners, we have prepared a summary of the major characteristics of the MA SREC market.. This summary will provide information geared specifically for residential system owners so they can make informed decisions on the monetization and valuation of their SRECs.

To begin, SRECs in Massachusetts are used by regulated energy suppliers and utilities to comply with the solar carve-out of the Massachusetts Renewable Portfolio Standard (RPS). For example, if NStar puts under contract 10 million megawatts hours of electricity in 2011 for delivery in 2011, and the solar carve-out for 2011 is set by the Massachusetts Department of Energy Resources at 0.10%, then NStar must purchase 10,000 SRECs (10 million MWH * 0.10%). In the event that NStar does not purchase sufficient SRECs to meet their compliance obligation, they are obligated to pay a penalty of $600.00 for each megawatt hour (1 SREC = 1 MWH of solar). The $600.00 penalty is defined as the Alternative Compliance Penalty (ACP), and this penalty effectively sets a cap on SREC values in Massachusetts.

Homeowners are eligible to sell their SRECs in a variety of ways. One option is to place the SRECs posted to their NEPOOL GIS account into the Clearing House Auction (NEPOOL GIS is a regulatory body that tracks each generator’s production, and mints SRECs to reflect the production). The MA Clearinghouse Auction is an online state-sponsored program that allows homeowners to deposit SRECs into an account in order to auction the SRECs at a fixed price of $300.00, minus a 5% administration fee (i.e. fixed price of $285.00). The Auction occurs once a year, no later than July 31. While the Clearinghouse attempts to create a price floor of $285 for the SRECs, there is no guarantee the SRECs will be purchased.
In the event a homeowner is interested in other options, the MA Department of Energy and Resources has compiled a webpage of market resources. The market resources lists companies, like Sol Systems that can assist homeowners in monetizing their SRECs.

Sol Systems offers customers in Massachusetts a variety of services that can meet their risk and reward profile, while also providing clarity on how to value their SRECs. For those interested in security, Sol Systems can offer a lump sum upfront payment for the sale of the rights to their SRECs. Or, for those interested in the most competitive pricing but little long-term security, Sol Systems can offer a 1-year brokerage service. Depending on the size of your system, the brokerage fee may be waived as well. Or, for those interested in a moderate valuation, Sol Systems also offers a utility-backed 3-year fixed price contract of $400.00 per SREC.

Sometimes homeowners express an interest in negotiating an SREC transaction directly with a regulated entity, and when I speak with people interested in doing this, they often recite their interest in “cutting out the middle man”. While this point of view might be valid (and possible) in some industries, it can lead to loss of value in the SREC space (in any case, most energy suppliers are not willing to negotiate with small system owners). On the other hand, established SREC aggregators (like Sol Systems) who represent thousands of customers can leverage their position with an energy supplier to secure more competitive pricing than would have otherwise been garnered through a one-off transaction between a very large entity and a homeowner with a small number of SRECs for sale.

Why Businesses are Taking Advantage of Solar Power Purchase Agreements

A Solar Power Purchase Agreement (PPA) is a legal contract where a solar project developer installs and operates a system for a business owner, homeowner, or tenant (the “host”) who in turn agrees to buy the solar generated electricity for a fixed period, usually 10 to 20 years. The host typically purchases the solar power at a fixed rate equal to or less than their normal utility rate and does not pay the upfront capital costs of the installation, making PPAs a very attractive economic option.

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 Distributed Generation Amendment Act of 2011: Critical for DC’s Solar Community

District of Columbia Council Member, Mary Cheh, recently introduced one of the more important pieces of legislation the District’s solar community has seen in some time: the Distributed Generation Amendment Act of 2011.  This bill sets a framework and goals for the District that will ensure the development of a robust solar community by creating jobs, providing a price hedge against rising energy costs, strengthening the local transmission grid, and producing significant localized environmental benefits.

The bill accomplishes these goals in two ways.

1.      It increases the solar renewable portfolio standard (RPS) requirements for the District so that these requirements look more like the policies of surrounding states: Maryland, Delaware, and New Jersey.  This sets up the long-term foundation for the solar community, and positions the District as one of the leading cities to attract and retain investment in solar.

2.      It ensures that only solar systems actually located on the District’s distribution grid qualify towards DC’s RPS, or solar energy goals. This has the added effect of stimulating local economic development while ensuring DC reaps the many benefits of distributed solar energy.

What is a Renewable Portfolio Standard (RPS)?

A renewable portfolio standard is a state-legislated policy (in this case, the District’s policy) that requires energy suppliers to provide a portion of their electricity from renewable energy in a state.  This means that for every unit of electricity provided to the district, a certain percentage must come from wind, solar, biomass, etc.

The District’s RPS has a specific requirement for solar, which means that for every unit of electricity sold, a portion (.04% in 2011) must come specifically from solar.  Energy suppliers can meet this requirement by:

(1)   Supplying solar electricity from solar systems they build, or

(2)   Paying a solar energy system owner (like a homeowner) to supply it for them.  This is accomplished by purchasing the solar renewable energy credits (SRECs), something akin to carbon credits, associated with the solar system. SRECs are key to making solar affordable and they are fundamental for making solar systems economical for homeowners and businesses.

RPS legislation like the District’s is now very common. Altogether, 36 states have a RPS or similar legislation and 16 states have a RPS with a solar carve-out similar to that in DC.

The Distributed Generation Amendment Act of 2011 makes some critical changes to the RPS that will ensure its effectiveness in the future.

Why is solar beneficial to the District of Columbia?

The District of Columbia currently imports almost 100% of all of its energy supply. Solar generation, and more specifically, distributed solar generation provides significant social, environmental, and economic benefits.  Some benefits of local solar generation include:

  • Increasing the stability and reliability of the distribution grid
  • Reducing pollutants such as NOx and SOx
  • Diversifying the District’s fuel sources
  • Decreasing the price vulnerability District rate-payers incur by relying solely upon fossil fuel sources, which have significant variable costs
  • Reducing the heat-islanding affects found in DC
  • Reducing the demand for energy during the middle of the day, and specifically during the summer.  This aligns with peak demand, and disproportionately offsets highly polluting “peaker” units
  • Creating jobs in the District of Columbia

The Distributed Generation Amendment Act of 2011 bill forges the foundation necessary for sustainable industry growth for years to come, while creating many more local green collar jobs (over 600 have been created so far) and a significant revenue stream for the city through increased tax revenues.

What are the benefits of the legislation for a homeowner?

A residential system owner can save a substantial amount of money on their utility bills by installing a solar energy system, typically between 30-50% (or $400-800 annually), depending on the size of their system. Homeowners can also sell the green attributes associated with their energy production in the form of solar renewable energy credits (SRECs). The average homeowner can earn between $900-1800 annually by selling SRECs. Energy suppliers buy these SRECs to meet their RPS goals.  This is why an effective renewable portfolio standard (RPS) is so critical for solar financing.

The Distributed Generation Act of 2011 provides homeowners and businesses with a significant economic incentive to go solar.  The legislation creates a long-term and sustainable market for solar renewable energy credits (SRECs) which solar system owners can sell to energy suppliers.  The legislation also ensures that the market for SRECs will remain stable and strong into the future, which will spur solar development and investment in the District.

For the District’s environmental community, this bill moves us towards a more sustainable future, while also creating jobs and helping local industry.  It is well crafted, with significant support from the solar industry, and it is a piece of legislation worthy of community support.

If you want to help the District lay the foundation for a sustainable solar community and spur solar development in the city, we urge you to contact your DC council member .

An Outlook On Solar in 2011

Competition is stiff in the solar manufacturing industry, with companies like Evergreen announcing their departure from the United States to China in order to reduce costs. Enormous global module supply has come online in the last two years to help fuel the rapid build-out in Europe, China and elsewhere, resulting in dramatic declines in solar module pricing. Some, like Gleacher and Company, are modeling module prices at around $1.30/watt right now. Others are actually predicting wholesale module costs at $1.10 in the next few weeks.

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.

Governor O’Malley Appoints Leading Educator, Solar Innovator to Board of Maryland Clean Energy Center

January 6, 2011 – ANNAPOLIS, MD

Gov. Martin O’Malley has appointed a prominent academic researcher and a solar industry finance expert to fill two vacancies on the Board of Directors of the Maryland Clean Energy Center.

“We are privileged to have two such high-caliber and forceful clean energy advocates join us as we move into our second year of operation”

Eric Wachsman, PhD, Director of the University of Maryland’s Energy Research Center, will serve through June 2015. George Ashton, co-Founder and Chief Financial Officer of Sol Systems, LLC, a national leader in aggregating solar renewable energy credits, is fulfilling a term that runs through September 2012.

Wachsman and Ashton join existing members of the Center’s Board of Directors who oversee its mission of helping consumers, supporting businesses and advising lawmakers in Maryland as the state scales up its clean energy industries and energy efficiency initiatives. Other Board members include Jeremy Butz, Carol Collins, Ken Connolly, Jeff Eckel – who serves as the current Board Chairman – and Malcolm Woolf, Director of the Maryland Energy Administration.

“I am so proud to announce the appointment of two very talented individuals to the Board of the Maryland Clean Energy Center,” said Governor O’Malley. “As Maryland continues to emerge as a national leader in clean energy, their leadership will help us move toward a better and more sustainable future for our children. I’d like to thank them for their willingness to step up and serve the people of our State as we work to find innovative ways to reach our clean energy goals in the toughest of times.”

“We are privileged to have two such high-caliber and forceful clean energy advocates join us as we move into our second year of operation,” said I. Katherine Magruder, Executive Director of the Maryland Clean Energy Center. “They will help facilitate the adoption and generation of clean energy along with the new jobs, consumer savings and reduction of greenhouse gas emissions that come with it.”

In addition to his leadership of UM Energy Research Center, Wachsman holds the William L. Crentz Centennial Chair in Energy Research at the University of Maryland, College Park. Previously, Wachsman was Director of the Florida Institute for Sustainable Energy and a professor of materials science and engineer at the University of Florida in Gainesville. He has authored dozens of research papers since beginning his career as an engineer for chip-maker Intel. He earned his PhD and Masters of Science from Stanford University. Wachsman is filling out the remainder of the Board term served by Dan Goodman.

Ashton has been instrumental in growing Sol Systems into one of the country’s leading aggregators of solar renewable energy credits, or SRECs. Solar system owners earn 1 SREC for every 1,000 kilowatt hours of electricity their systems generate each year. Before Sol Systems, Ashton was a Senior Account Executive at Fannie Mae, a government-sponsored enterprise chartered by Congress chartered to provide liquidity and stability to the U.S. housing and mortgage markets. Ashton earned his MBA from the Robert H. Smith School of Business at the University Maryland in College Park.

About Sol Systems:
Sol Systems is a solar energy finance firm. 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 by providing access to diverse SREC portfolios. For more information, please visit www.solsystemscompany.com.

Why are spot market and long-term SRECs priced differently?

Many prospective solar energy owners are quick to notice that spot market rates for Solar Renewable Energy Credits (Solar RECs or “SRECs”) are typically higher than long-term SREC rates on the contract start date. For example, a person that owns a solar energy system in Delaware could sell a single SREC on the spot market for approximately $275 in December 2010, but if that same person wanted to lock-in at a 5 year SREC rate, she would only be able to get approximately $250 for each SREC produced between today and 2015.

This price difference sometimes leads solar owners to sell their SRECs on the spot market, particularly if they expect SREC prices to go up over time.

So, why would a solar owner choose to enter a long term SREC agreement?

The main reason a system owner would choose a long term contract is because they realize that spot market rates may not always stay high. These owners prefer to guarantee their SREC returns by locking into a fixed rate multi-year contract, which will give them long term security and a predictable source of income. If these system owners are correct, they will end up getting more income over time than they would have by selling their SRECs on the spot market.

But why are long term rates lower than current spot market prices?

There are a few reasons why multi-year contract rates are initially lower than spot market rates, and they relate to SREC buyers appetite to buy SRECs. Let’s start by considering the profile of an SREC buyer.

The ultimate SREC buyer is an energy supplier or utility that is subject to a state Renewable Portfolio Standard with a solar carve-out. These energy suppliers and utilities have the choice of:
(1) Building solar power plants and generating solar energy themselves
(2) Buying the environmental attributes of solar (SRECs) from independent solar energy system owners, or
(3) Paying an Alternative Compliance Payment (ACP) or a penalty fee for not meeting their legislative mandates

If these energy suppliers and utilities do not own operational solar power plants, they typically prefer to buy SRECs. If they want to buy SRECs they can do so by buying them on the spot market or they can enter multi-year agreements at a pre-determined price.

Most energy suppliers will hedge their bets by buying some SRECs on the spot market and some SRECs through multi-year agreements. However, in virtually all cases, these energy suppliers will contract for lower prices per SREC for multi-year agreements than they will pay on today’s spot market. There are a few reasons for this:
(1) They expect that they will not need to buy SRECs in the future. Why? They plan to build solar power plants and generate their own solar energy, so they won’t have to buy them from independent system owners.
(2) They expect that they can buy SRECs at lower costs in the future. Why? They anticipate that there will be more solar projects and that the increased SREC supply (http://www.solsystemscompany.com/faqs-recs-and-srecs) will lead to lower SREC prices.
(3) They want to wait and see what happens to requirements and prices in future years. Why? They expect that legislative changes may reduce or eliminate the requirement for them to buy SRECs.

In other words, energy suppliers themselves believe SREC prices will go down. Because of these expectations, energy suppliers are usually only willing to engage in multi-year agreements at reduced SREC prices. And these uncertainties are the very same risk factors that create SREC spot market volatility.

In summary, when choosing between the SREC spot market and a long term contract, a solar energy system owner should examine their appetite for risk and reward.
System owners who choose to sell their SRECs on the spot market get the reward of higher spot market prices today, but they are likely to face reduced or eliminated SREC values in future years. System owners who choose to sell their SRECs through long term contracts typically receive lower SREC rates today, but they get more certainty on their solar investment returns.

About Sol Systems:
As the largest and oldest SREC aggregator in the U.S., Sol Systems aggregates SRECs from independent solar energy system owners and sells them directly to energy suppliers and utilities through spot-market arrangements and multi-year contracts. Sol Systems operates in 13 states. For more information, please visit www.solsystemscompany.com.

What will SRECs be worth in 3, 5, and 10 years?

When potential customers ask me about their options for selling SRECs, I explain that they have different options depending on their appetite for risk and their investment time horizon. Some of these potential customers then ask me “what will SRECs be worth in 3, 5, and 10 years?”

This is a very important question in determining the return on a solar investment, so I am always very careful to point out that there are many factors that determine the value of an SREC and these factors change over time, therefore the future value of SRECs is uncertain.

When I note the uncertainty about the future value of SRECs, many customers remark that they believe that the SREC values will go up. As a solar industry advocate, I certainly hope they are right, but I feel that it is my duty to explain the risk factors that affect SREC values.

I usually start by discussing Renewable Portfolio Standards (RPS), and I mention that SREC demand will go up in line with yearly RPS increases, but not necessarily the value of the SRECs.

Sometimes these customers, particularly those bullish on SREC futures, express interest in entering into a shorter-term SREC agreement, such as Sol Brokerage or our 3-year Sol Annuity contract because they fear that they will lose if SREC prices go up in the future. At this point in the conversation, I usually mention that SREC values will not rise (or remain stable) in perpetuity; instead prices will likely decline.

For example, in Pennsylvania and DC, we have witnessed a decline in SREC values on the spot market by 15% and 23%, respectively, over the last three months. In these cases, system owners that decided to “gamble” by selling their SRECs on the spot market (versus entering into a long-term agreement) have lost value in their SREC transactions – and have no guarantees on the future value of SRECs.

However, in explaining that SREC values can fall, I have noticed that some potential customers suspect we are misleading them, attempting to create doubt about SREC values in order to capitalize on our position in the market.

I now realize this is likely the first time they have heard the idea that SREC values will decrease. After all, many installers claim that SREC demand is going to rise exponentially (or stay constant) over time, and SREC values will be strong for 10, even 20 years (long after the system has been paid for) – which is a line of reasoning that helps installers close more sales.

In an attempt to be objective, I often provide details on particular provisions within a state’s Renewable Portfolio Standard (RPS). For Ohio, I may cite that the Alternative Compliance Penalty (ACP) is set to decline by $50 per SREC in 2012, and will decline another $50 bi-annually thereafter. Similarly, Maryland, DC, and New Jersey all have declining ACP schedules.

Sometimes this information strikes a chord with a customer, but in more cases, it becomes clear that the customer favors a short-term contract, such as our Sol Brokerage service. This is perfectly fine so long as they understand the risk factors, but I cannot help but conclude that it is easier to sell somebody what they want to believe, instead of trying to educate them on the inherent uncertainty of complex SREC markets.

Sol Systems Unveils Utility-Backed Solar SREC Financing Option in MA

Sol Systems, the nation’s largest solar renewable energy credit (SREC) aggregator, today announced a new three year fixed-rate SREC financing option that will help make solar a more attractive investment for Massachusetts residents and businesses.

“We are very optimistic about the solar market in Massachusetts and we are proud that we can offer solar supporters an affordable, secure way to invest in solar,” said Sol Systems CEO, Yuri Horwitz. “Our three year utility-backed SREC contract will help give prospective solar owners the financial security they need to go solar.”

Massachusetts’ solar REC (SREC) market is relatively new, but several states along the East Coast have established solar credit markets which provide cash flow that make solar energy an affordable option for homeowners and businesses. Sol Systems has been a key player in these markets. In Massachusetts, system owners can cover approximately 25% of system costs through an SREC agreement with Sol Systems.

Sol Systems gives homeowners and businesses a variety of ways to harness the value of SRECs. In Massachusetts, the company offers spot market brokerage services (Sol Brokerage) and multi-year guaranteed rate SREC contracts (Sol Annuity). The Sol Annuity product is available for three and five year contract terms.

Sol Systems also operates in 12 other states where it offers brokerage services and multi-year contracts, in addition to “Sol Upfront”, a pre-paid lump sum for the future value of solar credits.

While multi-year contracts are sometimes available through independent SREC brokers, to its knowledge, Sol Systems is the only company that is providing a 3 year offer that is backed by a contract with an energy supplier. Unlike speculators who bet on SREC futures, Sol Systems’ model provides additional security to homeowners and businesses that are concerned about the volatility of the SREC commodities market.

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 1,300 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. For more information, please visit www.solsystemscompany.com.

Sol Systems Partners with Standard Solar

Standard Solar, Inc., a leader in the full-service development, installation and financing of solar electric systems for commercial, government and residential customers, today announced a partnership with Sol Systems, the nation’s largest solar renewable energy credit (SREC) aggregator. The partnership will help make alternative energy solutions more affordable for Standard Solar customers.

“This partnership will go a long way for our current and future customers,” said Standard Solar President Scott Wiater. “Not only will it help businesses and homeowners significantly cut costs of their solar energy systems, but it will help those considering solar energy to realize that alternative energy is an affordable solution.”

Solar renewable energy credits are a critical component to making solar energy an affordable option for homeowners and businesses, and can compose up to 30 percent of a solar energy system’s payback. Through Standard Solar’s partnership with Sol Systems, customers will have access to competitive SREC pricing and the resources to secure the maximum benefit from their SRECs.

Through one SREC program, Sol Upfront, customers can receive immediate financing for their systems. Sol Systems will purchase all estimated SREC production for a 10-year period, providing customers with a one-time, lump-sum payment that can be used to pay off installation costs. The Sol Annuity SREC option allows customers to lock in the current SREC rate and receive payments for each full SREC produced. This gives customers reliable, quarterly payments as solar energy is generated.

“We are excited to work with Standard Solar, an installer with one of the best reputations in the Mid-Atlantic region,” said Sol Systems CEO Yuri Horwitz. “The partnership will extend our solar financing services to hundreds of homeowners and businesses and give them easy, economical ways to invest in solar.”

Standard Solar is also participating in Sol Lease, which allows Washington DC homeowners, schools, churches, businesses and non-profits to secure solar energy with no up-front costs. By paying a fixed, monthly payment, these groups can enjoy the savings and benefits of solar energy produced from a solar energy system for a 10-year contract term.

About Standard Solar

Standard Solar, Inc. is a leader in the full-service development, construction, integration, financing and installation of solar electric systems. Dedicated to making solar solutions more accessible to consumers, businesses, institutions and governments, the company is leading the way to energy independence. Committed to offering responsible and energy cost-saving solar solutions that conform to the highest standards, Standard Solar is one of the most trusted and respected solar companies. Since 2004, Standard Solar has been the partner of choice to make solar energy financially accessible, helping customers through financing options, including Power Purchase Agreements (PPAs) and navigating expanded federal and state and local tax credits. The company’s Standard Energy Solutions (SES) division provides energy auditing and retrofitting services for energy improvement projects. Ranked the 73rd Fastest Growing Private Company in America in 2010 by Inc. magazine, and the highest-ranking renewable energy company on the list, Standard Solar is headquartered in Rockville, MD. For more information, please visit www.standardsolar.com.

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 1,300 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. For more information, please visit www.solsystemscompany.com.

Which is more efficient – RPS or Feed-in-Tariffs?

Two of the most popular policy models administered to stimulate the deployment of solar energy are Renewable Portfolio Standards (RPS) and Feed-in-Tariffs (FITs).

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.

Sol Systems is Hiring: Solar Analyst

Sol Systems is hiring (2) part-time Solar Analysts / Interns.

The ideal candidate will be a current student or a recent graduate that is: resourceful, detail oriented, and passionate about the development of renewable energy. A successful Solar Analyst will possess the following skills and attributes:
1. Intermediate to advanced understanding of Microsoft Excel
2. Excellent research and persuasive writing skills
3. The ability to understand a complex and evolving market
4. A demonstrable interest in: energy, renewable energy, energy finance, project finance, entrepreneurship, and/or renewable energy legislation and regulations
5. Enthusiasm and a great attitude

The Solar Analyst will be critical to the success of a dynamic company in a nascent industry. The Solar Analyst will assist with registration processes, administrative duties, and discrete research projects. The Analyst will be expected to respond to customer queries, research industry news, write timely blogs, and provide clearly defined deliverables. The position will require attention to detail, excellent record keeping, and efficient allocation of time and resources.

Through this position, the Solar Analyst will gain familiarity with solar renewable energy credit (SREC) legislation, solar finance mechanisms, solar industry news, solar 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.

Commitment & Compensation: The internship will last for a term of at least 3 months (with the understanding that students will take time off for the holidays). Applicants will be expected to work 10 or more hours each week. Solar Analysts will be paid a stipend of $2,000, or an amount commensurate with the length of the commitment and prior 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 intern@solsystemscompany.com. Qualified candidates will be subsequently asked for a writing sample and three professional or academic references.

Applications for this position will be accepted immediately and reviewed on a rolling basis. Preference will be given to applicants that can work out of our downtown DC office two days a week.

About the 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. The company is based in downtown Washington DC.

Sol Systems Supports the Rebuild Sudan Foundation

Sol Systems sponsored a fundraiser in Washington DC this evening for the Rebuild Sudan Foundation, a small non-profit dedicated to developing and constructing schools for children in southern Sudan as well as other critical infrastructure. Rebuild‘s founder, Michael Kuany spoke to a group of young professional’s about his vision for the future of Sudan, and the journey that has helped shape and drive his passion.

As Michael noted this evening, “Education is family for so many. With education people do not need to fight wars.”

Rebuild Sudan is currently working on a multipurpose school in Jalle Payam. Construction is slated to begin in November 2010. “We had many motivations and principles in mind during the development of this project. First and foremost was to build a safe place for the children of Jalle, especially girls and orphans, to receive a primary education,” said Michael. The school will include a public library, a computer center and meeting/performance space and the building is designed to be environmentally friendly, with walls constructed of stabilized earthen plaster using soil excavated for the latrines.

Michael Kuany is one of the Lost Boys of Sudan, more than 27,000 boys of the Dinka ethnic group who were displaced and/or orphaned during the Second Sudanese Civil War (1983-2005). Approximately 2 million people were killed during this war; 4 million people lost their homes and became refugees. Most of the boys were orphaned or separated from their families when government troops from the north systematically attacked villages in southern Sudan, killing many of the inhabitants, most of whom were civilians.

“Michael has walked a long path and his journey has not been easy. It is clear that his life is guided by his principals and his passion to bring good back to his country and build a future for children through education. This is exactly the type of organization that Sol Systems is proud to sponsor,” noted Yuri Horwitz, CEO and President of Sol Systems.

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 1,100 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.

SREC Monitoring, Reporting, and Verification, Explained

When speaking with homeowners who have recently invested in solar energy, and who are considering how to manage the sale of their Solar Renewable Energy Credits (SRECs), a common question is, “how will my solar electricity be monitored and how do I earn SRECs?”

This simple question cuts right to some of the most complex and nuanced underpinnings of how SREC markets work and begs answers to questions like:

• How is solar electricity production monitored?
• How is this production reported to a solar Attributes Tracking Program?
• How is the reported generation verified as accurate?

These questions illustrate the complexity of SREC markets — particularly because the answers to these questions vary by state. It’s understandable that homeowners can be intimidated by the solar industry and SREC markets; however, navigating these complexities is possible.

Each state determines its own regulations for monitoring solar electricity generation for SREC production. These regulations may require an inverter, a solar meter, or a remote monitoring system. Depending on the system state, and the size of the system, vastly different reporting technologies are required.

Reporting provisions refer to how the solar monitoring data is transmitted to an Attributes Tracking System (such as PJM’s Generation Attributes Tracking System “GATS”) for verification and ultimately SREC production. Solar reporting provisions are also determined on a state by state basis. For example, in Massachusetts all monitoring data must be reported to the Massachusetts Production Tracking Systems (administered by the MA Clean Energy Center). For systems above 10 KW , the monitoring data must also be reported electronically though a remote monitoring system, such as Locus Energy. However, each state differs on these provisions as well.

Verification of reported monitoring data is the final step of the compliance cycle for SREC production, and is conducted by the Attributes Tracking System. The only exception to this rule is Massachusetts, in which the Production Tracking System verifies the reporting data and then transmits it to NEPOOL GIS on the system owner’s behalf. For all solar energy systems registered with PJM GATS, GATS verifies reporting data by comparing the data with its own internal models. If and when GATS determines the reported generation falls within boundaries of the projected modeled generation, GATS then awards the system owner’s account SREC value. In the event that the reported data is not within the bounds of the projected modeled generation, GATS follows up to verify the accuracy of the reported data. In the future, some states will be implementing independent verification steps to ensure that the reported data is accurate, and markets are operating efficiently.

Certainly, it can be challenging to understand and abide by the requirements of SREC monitoring, reporting, and verification; however, the benefit of working with an aggregator like Sol Systems is that we navigate these complexities on behalf of our customers. We understand these provisions, abide by them, and work with regulators on a daily basis. This means our customers can rest assured that they receive all the credit, and solar credits, for their solar electricity production.

Alternative Compliance Penalties and SREC Markets in MD, OH, and PA

The future value of Solar Renewable Energy Credits (SRECs) in any one state can be a contentious issue. People have different points of view regarding what the future holds in terms of (1) regulatory frameworks, (2) state and federal subsidies, and (3) the costs of solar energy technologies. Therefore, there can be very different conclusions on the value of SREC markets in the out-years. However, people interested in the future values of SRECs, like homeowners who are considering whether to invest in solar, should put these variables aside (as they are speculative in nature), and first analyze the Solar Alternative Compliance Penalty (SACP) schedules in their respective state.

The current and future value of Solar Renewable Energy Credits (SRECs), and SREC markets, is largely determined by a state’s Solar Alternative Compliance Penalty (SACP). Although the SACP schedule is not harmonized amongst states with SREC compliance markets, a common theme between many markets is a declining SACP that will likely lead to lower SREC values.

The Solar Alternative Compliance Penalty (SACP) is the fee a regulated entity must surrender in the event they do not procure a sufficient amount of solar electricity to meet their compliance obligation for their state’s Renewable Portfolio Standard (RPS) . An easy way to think of an SACP is as a price cap. If the SREC market functions properly, an SREC will not be traded at a price above the SACP, but can be traded at a price below the SACP. The SACP is defined on a state-by-state basis within the state’s RPS (or Alternative Energy Portfolio Standard for states like Pennsylvania and Ohio).

An SACP schedule is a schedule that defines the price penalties that a regulated energy supplier must pay if they do not generate or purchase enough SRECs to meet their compliance obligation. For example, in Ohio, the SACP schedule is as follows: the penalty per SREC in 2011 is $400.00, in 2013 the SACP is $350.00, in 2015 the SACP is $300.00, and by 2020 the SACP per SREC is $150.00. As indicated in this SACP schedule, the Ohio SACP declines quite precipitously over time.

The two main policy reasons for a declining SACP schedule are:

(1) To incentivize solar installers and developers to lower their installation costs. A decreasing SACP means solar developers must develop and install projects at lower costs to ensure profitability.
(2) To limit ratepayers’ exposure to electricity rate increases as RPS requirements escalate. The costs of meeting the Renewable Portfolio Standard can result in slightly higher electricity prices, which are sometimes passed onto ratepayers through rate increases. The declining SACP schedule ensures that rate increases are contained.

Although SACP schedules are not harmonized between states, pretty much all states with compliance markets have declining SACP schedules. For example: Ohio’s SACP declines by $50.00 biannually, starting in 2015, Maryland’s ACP declines by $50.00 biannually, and even New Jersey’s ACP is expected to decline by $35.00 between 2010 and 2012 and an additional $64.00 between 2012 and 2016. The one state without a declining SACP schedule, Pennsylvania, is now considering legislation in the state Senate that would dramatically reduce the state’s SACP beginning in 2011.

Although SACP schedules alone do not determine current and future SREC values, it is very clear that declining SACP schedules lead to declining SREC prices . As this occurs, long-term fixed priced SREC contracts , competitive with current spot market prices, become increasingly more valuable to the homeowner interested in investing in solar.

The Difference Between SREC and Carbon Markets

People outside the solar energy industry often refer to Renewable Energy Credit compliance markets as “carbon markets”, and solar renewable energy credits (SRECs) as “carbon credits”. This is a common misconception, so we wanted to flesh out the underlying similarities between SREC and carbon markets and then clarify the differences.

Carbon markets and SREC markets both utilize tradable permits, and market incentives, to achieve policy objectives. However, whereas carbon markets are established to reduce a pollutant and correct a market failure, SREC markets are established to incentivize the production of solar energy and create value for individuals investing in solar.

The underlying similarity between SREC and carbon markets is that both markets are based on the use of tradable permits. In markets with tradable permits, a new commodity is created through the passage of a law. The law requires regulated entities to obtain compliance permits, and in so doing creates a price signal which affects behavior and markets. In the case of mandatory carbon markets, like the Regional Greenhouse Gas Initiative in the Northeastern US, a regulating agency is given the authority by a law to regulate emissions of greenhouse gasses.

Hypothetically, the regulating agency tells a utility it can only emit 10 tons of pollution in 2011, and then gives the utility 10 carbon credits (each credit equal to 1 ton). The utility can either (1) emit 10 tons of pollution and surrender back the 10 credits to the regulatory agency, (2) emit less than 10 tons pollution and sell the excess credits to another utility or market actor, or (3) emit more than 10 tons of pollution and purchase credits from another utility or market actor. The decision the hypothetical utility ultimately takes is based on its own marginal costs of abatement (i.e. the cost of not emitting greenhouse gas) versus the market value of the carbon credit.

SREC markets share this market structure with carbon markets, and this is why I think people new to the SREC market often inadvertently confuse SREC markets with carbon markets.

However, SREC markets are entirely different than carbon markets in both intention and function. Whereas carbon markets utilize market forces to identify the most economical manner to reduce greenhouse gas emissions, SREC markets incentivize the creation of a new market and a new source of renewable energy. SRECs can be created by individual homeowners that have invested in solar energy, and these SRECs (paired with tax credits, rebates, and energy savings) can make the solar energy system affordable. Companies like Sol Systems can work with solar energy system owners to monetize the SRECs, and achieve the best value for the sale of their SRECs through long-term contracts. By aggregating customer’s SRECs into a large portfolio, Sol Systems can sell SRECs directly to energy suppliers and utilities through long-term agreements that bring security and value to both the utility, and the customer that has invested in solar.

Pennsylvania Solar REC Market May Be Tight in 2011

If commercial-sized solar projects that have been announced in Pennsylvania are built within the next 12 months, Pennsylvania could experience a significant oversupply of solar renewable energy credits in 2011. In other words, there may be more than enough solar renewable energy credits (SRECs) available for Pennsylvania energy suppliers to meet their solar energy mandates as dictated by the Alternative Energy Portfolio Standard (AEPS).

By June of 2011, Pennsylvania energy suppliers are supposed to generate or purchase an estimated 33,000 SRECs pursuant to the requirements of the AEPS. This is equal to 33,000 megawatt hours of solar-generated electricity, and equates to around 27.5 MW of nameplate installed capacity.

What may be surprising is that there is already enough solar capacity registered in Pennsylvania to produce approximately 46,440 SRECs.

In addition, there have been project announcements for more than 60 MW of new commercial-scale solar projects for corporations like GlaxoSmithKline, Nestle Waters, and Air Products & Chemicals as well as systems for government organizations such as Bethlehem Area School Districts, Colonial Elementary School, and the Tioga Marine Terminal.

These large projects alone could add 72,000 SRECs to the Pennsylvania market, but SRECs from new smaller residential projects will grow as well.

What’s difficult to predict, however, is the number of large scale solar projects that will actually be built. Many states see an attrition rate of 50% or more within their grant programs. It’s likely that the termination of the Treasury ITC grant program will push construction forward in the short term, creating a bump of SREC supply in the early part of 2011, but that may undermine solar development through the rest of the year.

If both residential and projects expand to their full potential, Pennsylvania could see an oversupply of more than 100,000 SRECs in 2011-12.

What does this mean for SREC prices in Pennsylvania?
Basic economics tell us that a rise in supply with no change in demand puts downward pressure on prices. However, it’s hard to say with certainty what will happen to SREC prices because Pennsylvania’s unique legislation dictates that the Alternative Compliance Payment (ACP) for energy suppliers who do not meet the AEPS must pay a penalty equal to 200% of the prior year SREC prices. Because the ACP is not fixed at a certain rate (like New Jersey), SREC prices in Pennsylvania have more variability.

Actual SREC prices depend on when energy suppliers contract for SRECs and what prices they negotiate with solar energy system owners. Energy suppliers and solar owners can mitigate the risks of volatile SREC prices by locking into fixed rate SREC contracts such as the ones offered by Sol Systems. Or, they can gamble on SREC prices by using the spot market. In either case, it’s important for SREC buyers and sellers to understand their options and market dynamics before they make a decision.

Maryland Clean Energy Summit 2010

Maryland’s Clean Energy Summit – October 4th, 2010 – Hilton Inner Harbor

George Ashton, Vice President and CFO of Sol Systems, the largest SREC aggregator and a leader in solar finance, will be speaking at this year’s Clean Energy Summit in Baltimore, MD. The summit will bring federal and state policy leaders together in a public forum to discuss the future of renewable energy in Maryland and the effects local policies will have on the proliferation of residential and commercial renewable energy systems.

Mr. Ashton will speak as a member of a panel discussing the future of renewable generation. One of the most critical components to solar energy projects are the monetization and sale of solar renewable energy credits (SRECs). In fact, the income secured by solar system owners from the sale of SRECs is usually greater than the actual electricity savings. Mr. Ashton will discuss the future of regional SREC markets and their ability to support growth within the state of Maryland and in the region as a whole.

Other panels include: “Discovery Drives Change”, “Forecasting the Climate for Finance”, “Transportation”, “Renewable Generation”, “Alternative Fuels & Biomass”, and “Energy Management & Built Environment”.

Invited Guests include: Congressmen John Sarbanes, Governor Martin O’Malley, and Cathy Zoi, US Department of Energy Asst. Secretary for Energy Efficiency & Renewable Energy

For more information on the conference, please go to: http://www.mdcleanenergysummit.org/

The NJ SREC Bubble & Importance of Long Term Contracts

by Natacha Kiler

What do the dot-com bust, the home mortgage crisis, and the NJ solar market have in common?

Lots of people started believing that their investment was certain to make them rich. Perhaps we should learn from history: when the masses start believing they are certain to get rich easily, they are likely to be wrong.

While it is true that New Jersey solar renewable energy credits (SRECs) are fetching high prices on the spot market today, they will not always get such high prices. Let’s recall the major goal of solar legislation and performance-based solar renewable energy credit (SREC) markets is to help the nascent solar industry grow and reach economies of scale in both manufacturing and installation so that solar energy becomes cost competitive with polluting fossil fuels. Legislation can do this by:

1) Making solar an attractive investment to early-adopters
2) Creating a financial penalty for energy suppliers and utilities who do not employ clean technologies

Inherent in this logic is that one day the solar industry won’t need legislation-based financial incentives to succeed.

California provides a great example of how a production based incentive is supposed to increase solar capacity while driving solar incentive costs down. The program was set up in steps so that every time a certain capacity of solar applications were queued, the incentive would drop to the next level. The idea is that the solar incentive would drive scale and help cause the costs of panels to drop, while installers learn to be more efficient at installations and drive their costs down. The starting production based incentive for Step 1 for residential systems was $390/MWh; today two of the three investor-owned utility programs have incentive levels at Step 7 ($90/MWh). As of September 1, 2010, there are 690 MWs of installed solar capacity in California, and the state is perceived to have the most successful solar market in the country.

Certainly, the legislation and market dynamics that support the New Jersey market are different than those of California, but the intent of the legislation and the driving forces will ultimately lead to the same results: more solar capacity and a decrease in the level of solar incentives.

So why do so many people in New Jersey believe that solar is a surefire investment?

There are two main reasons.

REASON 1: The Alternative Compliance Payment (ACP) for not creating or purchasing SRECs is high (currently $675/SREC with scheduled decreases annually) and the current supply of solar capacity does not generate enough SRECs to meet the legislation-driven demand.

REASON 2: Installers who want to sell more solar have an inherent incentive to lead prospective solar energy system owners to believe that SREC values will remain high because it shows a higher ROI.

Buyer beware.

The first half of reason 1 is true today, but solar capacity will not always be undersupplied. Each and every energy supplier who is subject to the ACP is trying to figure out how to avoid paying the expensive penalties. Energy suppliers can avoid these fees by developing their own solar plants or purchasing solar-generated energy from large solar farms through Power Purchase Agreements (PPAs).

The development of small and large solar plants will continue as long as the investment returns are good, but the more solar plants there are, the lower the returns will be. Ultimately, solar will succeed, energy suppliers won’t have to pay alternative compliance penalties and the value of SRECs will diminish.

There is no question of whether this will happen, the only question is when this will happen.

What about the installers that lead their customers to believe that SREC prices will be high? Unfortunately, we expect that some customers will get burned when they expect their surefire investment to perform and they’re left with minimal SREC payments.

Luckily, some citizens of New Jersey are starting to talk about the risks of assuming spot market rates will stay high. We expect that, over time, more and more people will recognize the importance of long term SREC contracts. There are also forthright installers who educate their customers about the risks of the spot market and offer them the option to lock their rates with long-term contracts that ensure the SREC value over time.

Long-term SREC Contracts to Secure Financing for Solar Power Projects

An article recently posted in the Novogradac and Company Journal of Tax Credits discusses the implications of securing financing for solar energy developments utilizing long-term SREC contracts (as opposed to state rebate and grant money). We recommend reading the full article, but we wanted to provide a quick analysis of its central points, and follow up on the central strength of long-term SREC financing that this article misses.

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 Announces a 3 Year, Fixed-Price SREC Offer for Ohio and Pennsylvania Customers

Sol Systems, the largest solar renewable energy credit (SREC) aggregator in the nation, is pleased to announce Sol SREC 3, a new product for Ohio and Pennsylvania solar photovoltaic (PV) system owners. The Sol SREC 3 offer provides a price of $303 per SREC guaranteed for 3 years for any PV system located in either state. “Sol Systems is continuously identifying new ways we can help residential and commercial customers recoup the costs of their solar PV projects,” said Yuri Horwitz, Sol Systems’ CEO. “We are excited about this new product which offers a guaranteed SREC price that is as high, and in some cases higher, than current SREC spot market prices. Customers that lock in our Sol SREC 3 offer will not have to worry about fluctuating or volatile SREC spot market prices.”

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

SRECs and Sustainability

Schools and universities across the U.S. are taking sustainability very seriously. A number of schools have established policies so that all new construction buildings are designed to have a reduced impact on the environment by meeting LEED certification standards. Many universities have also set targeted goals. Almost 700 universities have signed on to the President’s Climate Commitment thus far, voluntarily pledging to go carbon neutral. One way to go green is to install a solar photovoltaic (PV) system. Solar PV systems offer a host of benefits including electricity for the life of the system (typically 40+ years), a hedge against rising electricity prices, reduced grid dependence, and a transition to a cleaner, more sustainable economy. However, because the solar renewable energy credits (SRECs) generated from the project represent the environmental attributes of the generated solar electricity, many schools and universities are reluctant to sell them as doing so may be seen as contradictory to meeting their environmental goals. Many entities have contacted Sol Systems on whether there is a way to reconcile this. And the answer is yes. SRECs can be a powerful tool to not only help finance the cost of a solar PV system, but to also help achieve a smaller environmental footprint. Here’s how:

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.

FERC Ruling Complicates States Ability to implement Feed in Tariffs

A Feed in Tariff or FiT, is a policy mechanism requiring utilities to purchase electricity generated from a certain source at a fixed rate (which is typically higher than average market electricity rates). FiTs are implemented as a means to encourage the development of renewable energy by balancing the cost between electricity generated from renewable and traditional energy sources. Although FiTs have been implemented in countries such as Germany and Spain around the world, the United States federal government has not enacted FiT legislation. Thus far, each state has taken different approaches to encourage the development of solar. Many U.S. states have opted for Renewable Energy Credit (REC) trading schemes while other states, such as Vermont and California have implemented FiTs. However, a recent ruling by the Federal Energy Regulatory Commission (FERC), threatens the future potential for states to implement FITs.

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.

DC Area School Uses Creative Financing Tool to Go Solar

Located in Bethesda, MD, the country’s first LEED certified school is continuing its commitment to energy efficiency and environmental education through the installation of a renewable energy system. The Sidwell Friends Lower School plans to install a 27.6 kW photovoltaic system in time for the start of the 2010 fall semester.

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 End of Renewables As a Political Issue

The International Energy Agency (IEA) recently noted that solar electricity could represent up to 20% to 25% of total global electricity production by 2050 based on their Solar Photovoltaic (PV) Roadmap and Concentrating Solar Power (CSP) Roadmap, which are meant to assist governments, industry and financial partners accelerate energy technology development and uptake. The report concluded that PV technology will become competitive globally by 2030 on the utility-scale in some of the areas with the best insolation given the right climatic factors. Further, the report indicates that PV has the potential to provide more than eleven percent of all electricity worldwide.

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.