Will Ohio be the First State to Freeze its Renewable Portfolio Standard?
In the past two years, Ohio legislators have twice introduced legislation to repeal the state’s Renewable Portfolio Standard (RPS). After many unsuccessful attempts, the anti-renewables lobby is finally making progress with new legislation to “freeze” the state’s RPS. If successful, Senate Bill 310 (SB 310) would significantly harm Ohio’s solar industry, which has created 3,800 jobs and made Ohio #8 in the country in terms of renewable energy job creation. The legislation would also discontinue the Buckeye state’s solar renewable energy credit (SREC) market, thereby discouraging further homeowners and businesses from building and financing solar and other renewable energy projects. These alterations to the RPS would also affect solar customers in states like Indiana, Michigan, Pennsylvania, West Virginia, and Kentucky who sell their SRECs into the Ohio market.
What a Freeze to the Ohio RPS May Actually Look Like
Here is how SB310, introduced by Senator Troy Balderson, would damage the Ohio renewable energy market:
- RPS/Solar Carve-out Requirements: Instead of maintaining the current scheduled RPS requirements which gradually increase up to 12.5% renewables and 0.5% solar by 2025, the legislation would take 2014’s 2.5% renewables and 0.12% solar requirement and fix these as the effective requirements for the 2014, 2015, and 2016 compliance years. The RPS would then increase as originally expected in starting again in 2017 and thereafter. Put in simpler terms, the new RPS requirements would reduce the amount of solar required in the state, bringing down SREC prices and discouraging new solar development in the Buckeye state.
- Alternative Compliance Payment (ACP): In addition, the legislation would adjust the alternative compliance payment schedule, originally designed to start at $450/MWh in 2009 and decrease by $50 every two years, to a fixed price of $300/MWh for 2014, 2015, and 2016 decreasing by $50 every two years thereafter through 2026. In other words, the new adjustments to the ACP would lower the price “ceiling” for SRECs, thereby having a downward pressure on already low SREC prices in Ohio.
- In-State vs. Out of State: In the current RPS, 50% of the requirement must be met with in-state RECs/SRECs and the other 50% must be met with out of state RECs/SRECs. Senate Bill 310 eliminates this distinction making the SREC market completely open, meaning that the Ohio SREC market will become flooded with SRECs from other markets, thereby leading to an even larger oversupply that would further bring down Ohio SREC prices.
SB310 would decrease SREC price even lower than the already low $60/SREC spot market prices, compared to D.C., Maryland, and New Jersey. This would force an even greater slowdown of the state’s renewable and solar industries. Even before the freeze, the Ohio SREC market has seen an oversupply of nearly two times for the last few years and is expected to see a continued oversupply through 2020.
What Needs to Happen for the Ohio RPS Freeze to Pass
On May 8th, the Ohio state Senate passed SB 310 with a vote of 21-12, largely with Republican support. The bill was sent over to the House side where, on May 20th, the House Public Utilities Committee heard testimony regarding this bill. The Public Utilities Committee then scheduled a possible vote for May 21st, which was postponed by a week. On Tuesday, May 27th, the House Public Utilities Committee finally reached a vote and passed SB 310 sending it now to the full House for a final vote to decide whether or not to send SB 310 to the governor’s desk for a signature shortly thereafter.
The passage of this legislation would mark the first time any state’s RPS has been negatively impacted by a reduction, freeze, or repeal. Within the last year, both North Carolina and Kansas have faced similar RPS opposition. In Kansas, a state that in 2012 ranked third in the nation for new wind installations, two bills (Senate Bill 82 and House Bill 2241) were introduced in 2013 with the goal of weakening or repealing the RPS. If passed, the repeal of the RPS would impact a wind industry that through a mere 19 projects under construction in 2013 was expected to create nearly 12,300 jobs for Kansas citizens. In addition, in North Carolina, a state that ranks third in the nation in installed solar capacity with 335 MW built by the end of 2013, legislation to repeal the RPS successfully passed a House committee, but failed to proceed any further.
Supporters of Ohio’s RPS repeal bill have claimed, as did supporters in states like North Carolina and Kansas, that the freeze would prevent the ratepayer from incurring any alleged costs. The legislation hopes to do this by allowing utilities to bypass RPS requirements if the utility’s costs for purchasing these RECs/SRECs exceed a cap of 3% of the sales supply amount.
If passed through the House, new legislation to freeze the RPS would greatly disrupt the solar and SREC markets in Ohio – and add further complexity to the state’s RPS. This regressive legislation comes at a time when Ohio needs progressive solar legislation more than ever, as the SREC market continues to struggle. Sol Systems recommends for solar energy system owners and industry advocates to contact their state legislators to preserve the Ohio solar market.
About Sol Systems
Sol Systems is a renewable energy finance firm that provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. Founded in 2008, Sol Systems focuses on meeting the industry’s most critical solar financing needs, including tax structured investments, capital placement, debt financing, and SREC portfolio management. To date, the company has facilitated financing for thousands of distributed generation solar projects and hundreds of millions in investment on behalf of Fortune 100 corporations, utilities, banks, family offices, and individuals. For more information, please visit www.solsystemscompany.com.