In case you have been living in a cave or took a long holiday vacation off-grid (even then, wouldn’t you have heard?), the solar industry landed another three years of ITC at 30%, then 26% in 2020, 22% in 2021, and a permanent 10% for commercial and utility thereafter.
As we breathe a sigh of relief over this monumental progress at the federal level (thanks, Congress!), state policy setbacks remind us that we cannot afford to take a breather.
Regulatory uncertainty and Nevada’s subsequent decision to apply retroactive charges to all solar customers prompted a slashing of hundreds of solar jobs in the state. New Hampshire and Massachusetts have hit their respective net metering capacity limits in multiple utility territories, effectively putting almost all solar development on a prolonged hold. In Connecticut, municipal projects remain stranded after hitting the state’s virtual net metering cap. In Hawaii, HECO is closing net metering to all new applicants. The list goes on. According to the North Carolina Clean Energy Technology Center, net metering is being examined in over half of the United States.
At the utility-scale level, we see challenges to PURPA, which has been a major driver of development in non-traditional and emerging markets across parts of the Pacific Northwest, Midwest, Southeast, and Western U.S. For the most part, utilities are requesting a reduction in the length of Qualifying Facility (QF) power purchase contracts, undermining developers’ ability to secure long-term financing and potentially rendering these projects un-financeable. For example, in Idaho, regulators gave utilities the green light to reduce PURPA contracts from 20 to 2 years. Rocky Mountain Power is seeking to do the same in Utah, which currently has over 2GW of solar projects in line for PURPA approval.
As these challenges continue, solar companies will keep fighting for regulatory treatment that will allow for predictable growth and stability. However, without clear and consistent policy, the industry is increasingly left searching for ways to bypass the need for utility and PUC support altogether.
Already, solar companies are getting creative, sometimes assuming an absence of net metering from the initial sales proposal. Solar installers and developers are sizing projects closer to demand, or moving toward a model of self-consumption. In other words, developers are trying to minimize the role of the utility by avoiding the export of electrons to the grid at retail rates altogether. This is also where storage could significantly alter the landscape.
On the utility-scale side, developers who have seen growth in PURPA states may increasingly opt for bilateral wholesale power contracts instead of guaranteed utility off-take. Depending on the offtaker, credit quality may remain unchanged, and deals are already getting done with ten-year power contracts in some geographies.
While these shifts may take years to take form, the pipeline we’ve seen so far in 2015 and early 2016 is illustrative of the start of something new. Bring on the next era of solar development.
This is an excerpt from our January edition of SOURCE: the Sol Project Finance Journal, a monthly electronic newsletter analyzing the solar industry’s latest trends based on our unique position in the solar financing space. To view the full Journal or subscribe, please e-mail firstname.lastname@example.org.
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