New York's troubling megawatt block program leaves us less optimistic than we hoped.

New York’s troubling Megawatt Block Program leaves us less optimistic than we hoped.

A few months ago, we wrote extensively about New York State Energy Research and Development Authority’s (NYSERDA) promising solar incentive program and its excellent, lessons learned, proven design.

That was before they finalized the incentive amounts. Now we are not so optimistic.

The Tragic Downfall of New York’s Megawatt Block Happened before it Began

NYSERDA first proposed the actual incentive levels for their solar programs in November.   You should have heard the sound in the room; more than a dozen solar developers sucking air through their teeth simultaneously; one or two low groans.

The “headline” number in the NYSERDA straw man (soon to be posted here) is $.60/W in (effectively) ConEd territory – which should prove generally adequate.  Upstate, the number falls to $.36 /W; $.40 for certain upstate utilities.   However, that “headline” is misleading; only a portion of the rebate will be paid up front; the rest is paid in 3 annual installments provided system performance has met NYSERDA’s guidelines.

The truth may be slightly more complex even than this; we await an incentive calculator promised by NYSERDA within the next few weeks.

I don’t see you, I won’t call you; I don’t know enough to stall you.

Unfortunately, the economic analysis behind the incentive was deeply flawed; it poured a lot of attention and detail into hyper-accurately modeling customer rate savings, while adopting a deeply oversimplified perspective on items like income taxation and system expenses (O&M, inverter replacement, insurance, etc.)  It assumed customers would value sometimes-uncertain and highly customer dependent demand savings.

Perhaps most troubling, it ignored any financed or PPA-based solar system, and instead based all assumptions on the theory that corporate decision makers will sign off on a six – or seven – figure equipment purchase provided it returns their initial investment, plus $0.00 in net profit, within 6 years.

The takeaway? Indicatively, a system signing a PPA competitive with typical $.08/kWh commercial tariffs upstate, and having an off-taker whose credit is other than publicly-rated investment grade should anticipate needing to come in much closer to $1.75/Watt than $2.00 on an all-in basis.

You’re Not Gonna Get Me Through This Are You.

Much of the recent development upstate (including our recent 2MW project far above Cayuga’s waters,)  has relied on the opportunity to use remote net metering tariffs, which permitted a MW-class system to produce and export monetary credits on an energy only rate – then credit these against a user bill that does have such demand charges.

The effect was to make remote net metering (RNM) systems significantly more economically viable than their rooftop brethren.  The NY PSC recently determined that this represented an opportunity for significant arbitrage and effectively halted the practice, with limited grandfathering, setting off a storm of dissenting comment.

Should the ruling hold, with any reasonably foreseeable amount of grandfathering, RNM is likely to more or less come to a halt.  On the one hand, concerns of NYSERDA rebate program participants that the program would be snapped up by these significantly advantaged systems have been addressed.  On the other, the alternative program they might hope to rely on is going to be very, very tight – and maybe not even viable.

Every Dream is Shot by Daylight, and I Pray That Maybe You’re Right.

Perhaps we’re being too pessimistic.  The author, this longtime Southern Tier resident has a tendency towards a cloudy outlook.   It may well be that my fellow industrious-though-dour Upstaters can in fact deliver at these aggressive build prices.  Alternatively , NYSERDA’s “strategic locations” (presumably similar to those for PON 2956) and their associated 20% bonus offer another path to viability.

Alternatively, it may be a long wait to see significant uptake in what is the largest new incentive program in recent memory.

Nonetheless, we continue to review all New York solar projects for investment. Developers in need of financing for their New York solar projects should contact our team at 888-235-1538×2 or finance@solsystemscompany.com.

About Sol Systems

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 171MW solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems has $550 million in assets under management as of December 2014. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services range from tax structured investments and project acquisition, to debt financing and SREC portfolio management. Inc. Magazine named Sol Systems on its annual Inc. 500 list of the nation’s fastest-growing private companies for a second consecutive year, ranking it No. 6 in the nation’s top solar companies in 2014. For more information, please visit www.solsystemscompany.com.