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The SOL SOURCE, November 2016

The SOL SOURCE is a monthly journal that our team distributes to our network of clients and solar stakeholders. Our newsletter contains energy statistics from current real-life renewables projects, trends, and observations gained through monthly interviews with our team, and it incorporates news from a variety of industry resources.

Below, we have included excerpts from the November 2016 edition. To receive future Journals, please subscribe or email pr@solsystems.com.

PROJECT FINANCE STATISTICS

The following statistics represent some high-quality solar projects and portfolios that we are actively reviewing for investment.

Have a solar project in need of financing? Our team can provide a pricing quote for you here.

PPA RATE Nov

JoinedCharts

STATE MARKETS

Florida  Positive news on election night came from Florida, which was able to beat back Amendment 1, a “wolf in sheep’s clothing” ballot initiative that tricked many Sunshine State residents into thinking they were voting in support of solar energy growth. Proponents of the amendment spent approximately $24 million on their failed attempt to dismantle net metering in the state, which has very little rooftop penetration. Given its rooftop potential, Florida could be a top 3 solar state. Instead, only 312MW have been installed to date. This is approximately half the cumulative installed capacity of the Hawaiian Islands, putting the Sunshine State at #14 overall.

This is the second victory for solar energy advocates in the Sunshine State this year. In August, a ballot initiative paving the way for property tax abatement legislation won with overwhelming support. While the rooftop solar industry is nascent, SEIA predicts 2,315MW in capacity over the next five years.

Maryland – 2016 has been a challenging year for solar development in Maryland. Since the start of the year, solar renewable energy certificate (SREC) prices have fallen from well over $100/SREC to under $20. While residential build has sustained so far – up to 107MW over 100MW in 2015 – one-off behind the meter projects on schools, religious institutions, and commercial buildings are challenging to build unless they can be grouped together in a larger portfolio (e.g. a school district). Even large ground mount projects are challenging to pencil with such low SREC prices.  Though economics can be improved if projects are paired with a remote PPA for a corporation or other institution, only differentially advantaged systems (with unusually low land costs or interconnection) make the cut.

Looking into 2017, the industry is hopeful for an override of HB1106, a bill from the 2016 session that would have increased the RPS to 25 percent and slightly expanded the solar carve-out. Governor Larry Hogan vetoed the bill right before the Memorial Day holiday weekend. While HB1106 was by no means aggressive – and it will provide some price support to this very tight market, which is home to approximately 4,300 solar industry workers. Without the override, we can expect prices to fall even closer to Tier 1 levels, on par with Pennsylvania and Ohio. The days of $60 Maryland SRECs are gone forever unless aggressive RPS legislation can be passed.

New York – A draft implementation plan has been released for the 50 percent Clean Energy Standard (CES), which has been championed by Governor Cuomo. The CES will be key for jumpstarting development of large scale solar in the state, currently almost nonexistent (with the exception of a few projects). While solar must compete with other Tier 1 technologies such as wind, biogas, and hydroelectric power in the procurements. Bids will be evaluated on other criteria besides price, including project viability, peak coincidence, and the economic development benefits that a given project can bring to the state (i.e. short-term employment).

The REC procurements – which are to be administered by NYSERDA – could either be very, very large with – 943,000 RECs for 2017 to not so large – at 56,000. So, somewhere in that 40 to 800MW range… The industry and NYSERDA are awaiting clarity from the Department of Public Service on this matter. The first procurement is set to take place in spring 2017.

SOLAR CHATTER

  • We’re just going to leave this right here.
  • SREC prices continue to converge with Tier 1 REC pricing in the most oversupplied markets. While solar carve-outs were designed for this convergence, it was not expected to happen so quickly. Maryland, if the veto override does not proceed, will join the ranks of Ohio and Pennsylvania, where this convergence is already happening. For reference, PA SRECs are trading at $7.50/SREC. Moving forward, robust Tier 1 renewable targets will play an increasingly critical role in sustained solar growth.
  • And the backlash continues… Nevada voters approved a ballot initiative asking for the deregulation of the state’s electricity market, a path that would allow consumers to source their electricity from renewable sources. While the road to deregulation will no doubt be a long one, the backlash from the state’s earlier decisions regarding net metering and highly publicized “exit fees” imposed by the utility for those who want to pursue renewables, is very present in this state.
  • The U.S. installs trackers more than other countries, almost doubling China, number 2 on the list, in installs. (Source: GTM Research)
  • Solar’s footprint is rapidly expanding, and states with decent insolation and moderate power prices are on every developer’s target list – or will be soon. We have been seeing a trickle in of projects in non-traditional solar states, namely, the Midwest. Are the lines between “solar states” and non-solar states beginning to blur?
  • It’s that time again. As the industry rushes to meet Q4 closing deadlines, developers and financiers are also starting to line up 2017 pipeline. At Sol Systems, we are starting to vet project opportunities from developers interested in PPA financing or tax equity for large, high-quality credit commercial or distributed utility portfolios. Developers in need of financing can contact our team at finance@solsystems.com, and we will get back to you with indicative pricing.
  • As attractive markets become more crowded, and as incentive values decline in other traditional solar states, we are seeing a fair number of what used to be “good enough” ground mount solar projects that no longer pencil. In this new world, ground mounts that used to pass the test are not always cutting it. Projects must have optimal land, and interconnection and local taxation must be differentially priced to beat out other projects.
  • It’s more important than ever for the solar industry to stand up and be counted. Submit your latest employee data to the Solar Jobs Census.

ABOUT SOL SYSTEMS

Sol Systems, a national solar finance and development firm, delivers sophisticated, customized services for institutional, corporate, and municipal customers. Sol is employee-owned, and has been profitable since inception in 2008. Sol is backed by Sempra Energy, a $25+ billion energy company.

Over the last eight years, Sol Systems has delivered more than 500 MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.

Inc. 5000 recognized Sol Systems in its annual list of the nation’s fastest-growing private companies for four consecutive years. For more information, please visit www.solsystems.com.

Fueling the Tax Equity Machine

FeulingTaxEquityMachine

Despite the scarcity of tax equity, the market-leading tax equity sponsors will continue to be successful in originating new pipeline and securing available tax equity capital.

The extension of the ITC and bonus depreciation continues to drive a strong solar market; however, it also exacerbates the tax equity “bottleneck” experienced by many developers and investors. Looking ahead to 2017, tax equity scarcity will likely grow. In January, we estimated that $10 billion in solar tax equity would be needed annually, on average, over the next five to seven years. Bonus depreciation limits the tax appetite of investors active in other infrastructure asset classes, and the prospect of corporate tax reform, depending on actions taken by Congress and the Trump administration, could create further shortfalls.

In the interim, as EPC prices continue to fall, tax equity investors will be asking themselves, “Where’s the upside?” Sponsors hoping for investors to accept lower returns in 2017 than 2016 will likely be disappointed. We expect pricing to be consistent or lower than 2016. As always, sponsors should be wary of offers that are too good to be true, asking tough questions about the source of the capital, the status of the commitment, and track record on execution with the proposed partner.

Nevertheless, despite this scarcity of tax equity, the market-leading tax equity sponsors will continue to be successful in originating new pipeline and securing the limited tax equity capital that is available. The secondary constraint on growth of sponsor portfolios may actually be their ability to adequately capitalize their daily functions while having enough to spare to seed the Sponsor portion of on-balance-sheet structured assets.

Sponsors must put in a limited amount of the capital stack, perhaps five to twenty percent, with exact numbers depending on the terms they receive from debt and equity versus the cost to build the project. Capital-constrained sponsors want to leave as little cash sitting in a project as possible, as the cash returns to the sponsor are usually minimal until the tax equity investor flips out of the structure, and perhaps not even then if the project is heavily leveraged. A sponsor without access to sufficient equity capital or financing may have to start selling a larger percentage of their pipeline to generate current-year revenue and keep the machine running.

Sponsors’ investments will certainly pay off in the long-term, but the fact remains that they must balance investing in their operational portfolios while also continuing to develop new assets. We will be watching closely to see how the industry’s most mature players evolve their business models to sustain this growth, and how others in the market will follow. In the meantime, Sol Systems is actively securing partners for 2017 tax structured transactions. Developers interested should send project details to finance@solsystems.com.

This is an excerpt from the November 2016 edition of The SOL SOURCE, a monthly electronic newsletter analyzing the latest trends in renewable energy based on our unique position in the solar financing space. To view the full Journal, please subscribe or e-mail pr@solsystems.com.

ABOUT SOL SYSTEMS

Sol Systems, a national solar finance and development firm, delivers sophisticated, customized services for institutional, corporate, and municipal customers. Sol is employee-owned, and has been profitable since inception in 2008. Sol is backed by Sempra Energy, a $25+ billion energy company.

Over the last eight years, Sol Systems has delivered more than 500 MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.

Inc. 5000 recognized Sol Systems in its annual list of the nation’s fastest-growing private companies for four consecutive years. For more information, please visit www.solsystems.com.

New Jersey RPS “Pull Forward” Bill Pushes Forward

409px-New_Jersey_State_House_dome

Solar installations in NJ are increasing dramatically, which threatens to push supply and demand into disequilibrium once again.

On Thursday, October 6th, the New Jersey Assembly Telecommunications and Utilities Committee passed and merged bills S-2276 and A-3918 in a 5-2 vote that will “pull forward” the solar carve-out from 3.47 percent to 4.1 percent by 2021.

For several years, New Jersey was the poster child for SREC market volatility. In 2012, SRECs tanked from a high of ~$700 per SREC in 2009 to just $70 per SREC. The market finally reached stability when Governor Christie signed legislation – the S1925/A2966 bill – into law in 2012. The bill accelerated the Renewable Portfolio Standard (RPS) by four years, bringing supply and demand back into equilibrium.

Since the bill’s passage in 2012, SREC pricing has recovered to recent highs of $260. However, last year’s solar investment tax credit (ITC) extension – among other factors – are causing the rate of solar installations to increase dramatically, which threatens to push supply and demand into disequilibrium once again. The pull forward bill was designed to better align solar installation rates with the years that the solar industry has to take advantage of the ITC, and to prevent investment from going to other states as SREC prices continue to fall.

Next up, the bill will be listed for a vote in the General Assembly. Will it move forward? Stay tuned to our blog for more information.

Interested in solar in New Jersey? Contact our team at finance@solsystems.com to discuss financing, SRECs, or on-site and off-site solar energy solutions or fill out our project intake form.

ABOUT SOL SYSTEMS

Sol Systems, a national solar finance and development firm, delivers sophisticated, customized services for institutional, corporate, and municipal customers. Sol is employee-owned, and has been profitable since inception in 2008. Sol is backed by Sempra Energy, a $25+ billion energy company.

Over the last eight years, Sol Systems has delivered more than 500 MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.

Inc. 5000 recognized Sol Systems in its annual list of the nation’s fastest-growing private companies for four consecutive years. For more information, please visit www.solsystems.com.

Employee Spotlight: Senayt Rahwa

Senayt Rahwa

Associate Counsel Senayt Rahwa

The unique and dedicated team of people who work at Sol Systems have been a key part of our success over the past eight years. With a growing staff of over 60 full-time employees, in offices at Washington, D.C., Philadelphia, and San Francisco, the driven, talented group of industry professionals have created resourceful financing mechanisms for the solar industry and thousands of individual projects. Every month, we give you an inside look at some of the incredible work our team members have been doing. This time, we are featuring Associate Counsel Senayt Rahwa, to hear about her experiences and opportunities at Sol Systems.

1. Why did you choose to pursue a career centered around solar energy?

During law school I took several climate change and environmental law classes which were just more interesting to me than the other courses I was taking at the time. My particular focus was environmental law from a social justice perspective – the intersection between community development and renewables became an area I really enjoyed and I felt compelled to pursue after graduation.

2. What work were you doing before coming to Sol Systems?

After law school, I worked at a law firm here in D.C. in the tax credit finance and syndication group for several years. My practice there was really a hybrid of real estate, debt financing and tax equity work with both New Markets Tax Credit and Solar Investment Tax Credit projects. I was able to work on a variety of projects including representing institutional investors financing large commercial solar projects to construction of new charter schools in low income communities.

3. What made you want to start a career at Sol Systems?

I met Yuri and Leslie at an Energy Bar Association event and was really drawn both to the company’s mission as well as Sol Systems dynamic and unique company culture. Hearing of the history of the company and what it has grown to become was motivating and made me want to get involved with this team.

4. Since starting at Sol Systems, how have you found in-house counsel differs from your earlier work experience at a larger firm?

At a large firm, you are working with multiple clients all of whom have differing business models and objectives, so getting to know those clients really well is more challenging. Working in-house has been different because my only client is Sol Systems and I’m deeply embedded in the company’s mission, purpose, goals, and work. The nature of the work is also such that I am charged with providing legal guidance with commercial insights rather than only identifying risks and deferring to the client’s tolerance for such risks.

5. Since joining Sol Systems, what has been your favorite part about working here?

Sol Systems is very dynamic – each day here is different and poses new, interesting challenges and watching how our team comes together to face those is cool. I appreciate how decisions are made intentionally, people are very collaborative, and there are is comradery amongst the team that encourages everyone to support one another.

6. What are the key facets of renewable and solar deals are you providing legal aid and counsel for?

There are a ton of projects out there, but we help evaluate if those projects are actually financeable for the investors who are putting money into a deal. We work to bring the investor perspective to bear on the development side that is focusing on the on-the-ground realities of the project.

7. Outside of Sol Systems, what do you do with your free time?

I like hiking and kayaking – and just being outdoors in general. I love spending time with family and friends both here in the DMV and back in Colorado. And at the moment, I am enjoying getting ready for a new addition to our family due in December!

Want to be a part of the Sol Systems team too? To learn more about available solar energy careers with Sol Systems, please visit our careers page.

ABOUT SOL SYSTEMS

Sol Systems, a national solar finance and development firm, delivers sophisticated, customized services for institutional, corporate, and municipal customers. Sol is employee-owned, and has been profitable since inception in 2008. Sol is backed by Sempra Energy, a $25+ billion energy company.

Over the last eight years, Sol Systems has delivered more than 500 MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.

Inc. 5000 recognized Sol Systems in its annual list of the nation’s fastest-growing private companies for four consecutive years. For more information, please visit www.solsystems.com.

SOURCE: The Sol Project Finance Journal, August 2016

2015-04-29-Sol-Cover-Banner2

SOURCE is a monthly solar project finance journal that our team distributes to our network of clients and solar stakeholders. Our newsletter contains solar statistics from current real-life solar projects, trends, and observations gained through monthly interviews with our solar project finance team, and it incorporates news from a variety of industry resources.

Below, we have included excerpts from the August 2016 edition. To receive future Journals, please email pr@solsystems.com.

PROJECT FINANCE STATISTICS

The following statistics represent some high-quality solar projects and portfolios that we are actively reviewing for investment.

Have a solar project in need of financing? Our team can provide a pricing quote for you here.

PPA-RATE-August


AugustPFJCombocharts

STATE MARKETS

Georgia – Look out world, 1,600 additional MW of renewable energy are coming to the Peach State. At the end of July, regulators approved Georgia Power’s plan to add 1,600MW of solar, wind, and biomass by 2021. Among the 1,600MW will be approximately 1,050MW of utility-scale, under which wind will be capped at 300MW. This provides tremendous potential opportunity for solar, though this very much depends on rates which have made Georgia developers and EPCs among the most unyielding in the nation.

The plans also include 100MW of distributed generation (DG) projects up to 3MW in size, 50MW of customer-sited DG, 200MW of Georgia Power “self-build” projects, and a new 200MW Commercial and Industrial Program, details of which are still to be determined. The 1,600MW boost may increase Georgia Power’s renewable representation from 5 to 12% of the utility’s overall capacity.

Also approved in the same filing were early site studies and permitting for several hundred megawatts of new nuclear capacity (atop the troubled Vogtle 3 & 4 reactors already underway). Indeed, Georgia’s overall carbon dioxide intensity could be significantly lower in the next 4 – 10 years.

Massachusetts – Uncertainty is rampant in Massachusetts as the Commonwealth transitions away from its reigning solar incentive and net metering programs.

SREC II —> ???

The industry is at the edge of its seat awaiting an initial proposal from the Massachusetts Department of Energy Resources (DOER) on the successor program for SREC II. In the meantime, the ever-tolerant DOER has made changes to its Emergency Regulation to provide a four-month construction deadline extension to May 8, 2017 for solar projects demonstrating that 50% of construction costs have been expended by January 8, 2017. These projects will still qualify for SREC II, but receive a lower SREC factor – which creates a tricky balancing act as DOER must try to minimize moral hazard and spur urgency in development while sparing many projects the guillotine. DOER announced draft guidelines on the 15th, and is accepting comments until the 22nd.

Net Metering —> Market Net Metering

Last month, the Department of Public Utilities released its final framework for the transition to market net metering credits – approximately 60% of retail credit. Systems will qualify under the old regime with full retail credit if:

  • They submit an Application for a Cap Allocation (ACA) before the notification date of September 26 at 2pm
  • ACAs submitted before the notification date are deemed complete by the Administrator of the System of Assurance
  • Cap allocation is obtained by January 8, 2017

And of course, residential systems are untouched.

It is critical to remember that the strongly reduced credit will apply only to net export against monthly meter reads. The window may be closing on the heavy net exporting Virtual Net Metering Credit-reselling systems, but onsite systems serving their own load will be more or less unscathed.

Uncertainty Affects the Market

As SREC II and the current net metering regime come to a close, developers are racing toward these respective deadlines. As a result of this rush, there is a shortage of electricians available for AC work as demand exceeds supply. Subsequently, the price of hiring labor for electrical work has become much more expensive. Other challenges include uncertainty over SREC factors and the new solar incentive program, which makes accurate pricing of projects currently under development – or new opportunities –  nearly impossible.

Finally, be sure to pay attention to the results of the August 23 technical session on minimum monthly reliability charges (MMRCs), which may also affect project economics.

New York – On August 1, the New York State Public Service Commission approved the Clean Energy Standard (CES), which will require 50% of the Empire State’s electricity needs to come from clean energy by 2030. Under the CES, NYSERDA will incentivize Large Scale Renewables (LSR) through centralized renewable energy credit (REC) procurements, very much like they have under the current RPS. The major difference will be the size; the annual obligations for REC purchases under the CES will be approximately twice the size of the annual RPS solicitations that occurred between 2011 and 2015. In Million Metric Tons Carbon Equivalent (MMTCE) converted against the baseline generation mix in NYISO and adjusted for inflation, that’s “a lot.”

However, under the REC procurements, solar will compete with wind, biomass, fuel cells, landfill gas, and other eligible Tier 1 sources for 20-year REC contracts. For reference, 116MW were awarded at a weighted average price of $24.57/REC in the 2015 Procurement. 2017 Procurement dates will be announced on December 1.

SOLAR CHATTER

  • Net energy metering (NEM) 2.0 is upon us in California. In June, San Diego Gas & Electric became the first to hit its NEM 1.0 cap, and Pacific Gas & Electric is expected to follow as early as October. Despite the slight hit to project economics, the new regime will also increase the size of projects eligible for net metering; previously, projects were limited to 1MW.  PG&E made interconnection applications for systems greater than 1MW available earlier this week.
  • Property taxes remain a barrier to solar project development, and also create quite the headache in diligence. Each time an investor enters a new territory, new property tax rules must be understood. The remedy? Developers may show their sophistication and transactional experience by thoroughly understanding the local tax regime, knowing their local assessor, and documenting the expected expense for their partners to underwrite.
  • Know anyone in Florida? Voters will be able to cast their vote in support of Amendment 4, a measure which will encourage solar in the Sunshine State, during the August 30th primary. Take a moment and tell five friends. Then, in November, watch out for the confusing, utility-backed “solar” amendment, Amendment 1, during the general election.
  • Our utility-scale origination team is seeing more activity in southern markets such as Florida, Alabama, Mississippi, Texas, and South Carolina. Developers are looking to these states because of their above average irradiance and relatively low cost to procure land.
  • Despite the Supreme Court “stay” on the Clean Power Plan (CPP) earlier this year, California submitted a draft of its CPP compliance plan at the beginning of August. As Mary Nichols, Chair of the California Air Resources Board tweeted: “We’re down with #CPP (yeah, you know me!)”
  • 2016 is looking to be a banner year for utility-scale solar in Virginia. Dominion is making progress toward its goal to reach 400MW of solar by 2020, much of which has been comprised of large “self build” solar farms for corporate offtakers. GTM Research estimates that Virginia will reach achieve 166MW in 2016.

ABOUT SOL SYSTEMS

Sol Systems is a leading solar energy investment and development firm with an established reputation for integrity and reliability. The company has financed approximately 450MW of solar projects, and manages over $500 million in assets on behalf of insurance companies, utilities, banks, and Fortune 500 companies.

Sol Systems works with its corporate and institutional clients to develop customized energy procurement solutions, and to architect and deploy structured investments in the solar asset class with a dedicated team of investment professionals, lawyers, accountants, engineers, and project finance analysts.

Property Taxes: Still Taxing

Property taxes can make or break a solar deal.

Property taxes can make or break a solar deal.

Increases in project costs due to property taxes and/or a developer’s inability to secure a payment in lieu of taxes (PILOT) can make or break the economics of commercial and small utility-scale projects. According to a report written by Sunshot, Meister Consultants, and the North Carolina Solar Center, property taxes can add anywhere from $1/MWh to $120/MWh to PV system project costs. These added costs are especially critical in emerging or “almost there” markets, as well as more mature markets with dwindling incentive programs.

According to SEIA, 38 states offer property tax exemptions for renewable energy. Some states such as California, New York, and New Jersey outright exempt most renewable energy facilities from property taxes. Others, such as North Carolina and Maryland, offer property tax reductions.

State law exempting solar from property taxes is not always straightforward. This is because the interpretation of these laws is left to local assessors who have a vested interest in sourcing revenue, and understandably so. Property taxes are one of the most significant sources of local government revenue, sometimes amounting to 50% of local collections that fund schools, parks, and other government services.

Recognizing the importance of property taxes to solar project economics – and that solar panels will not be dialing 911, sending its children to school, or calling animal control – solar advocates are bringing property tax issues to the state house. On August 30, primary voters in Florida will vote on a ballot initiative that will authorize its legislators to vote to extend property tax exemptions to solar energy on commercial and industrial properties. If the process sounds complicated, that’s because it is complicated.

In Rhode Island, legislation signed into law by Governor Raimondo on July 7 will expand property tax exemptions for solar and require that the Office of Energy Resources and Division of Taxation work together toward “consistent and foreseeable tax treatment of renewable energy.” The new rules must be adopted by November 30.

Other states have not been so lucky. A property tax exemption bill in the Palmetto State was killed by a last-minute “poison pill” amendment after passing unanimously in the South Carolina Senate and House. The legislature will reconvene in January 2017. In the meantime, South Carolina developers must negotiate a fee in lieu of taxes (FILOT) and apply for a special source revenue credit (SSRC). Despite this discouraging news, we still see South Carolina as a top market in 2017 for large-scale projects.

Property tax issues will become less important for certain market sectors – especially utility-scale solar – as costs continue to fall. As a reminder, here are strategies that developers may employ to manage property tax uncertainty:

  1. Leverage your local relationships and knowledge of regional politics and policies to get a high degree of certainty on how property taxes will be assessed before locking in your financing. For example, in Massachusetts, some jurisdictions only approve PILOTs at biannual meetings.
  2. If you expect to get a property tax exemption, make sure it is legitimized and documented as early as possible, so that investors do not have good reason to assume the worst case scenarios.
  3. State realistic assumptions for property tax treatment(s) in your financial model.  Then, contract with the investor to receive a portion of the upside if the project receives a more favorable property tax treatment.

Developers interested in learning more about property tax treatments and valuations for a given project may contact the Sol Systems team via e-mail at finance@solsystems.com.

This is an excerpt from the July 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 pr@solsystems.com.

ABOUT SOL SYSTEMS

Sol Systems is a leading solar energy investment and development firm with an established reputation for integrity and reliability. The company has financed approximately 450MW of solar projects, and manages over $500 million in assets on behalf of insurance companies, utilities, banks, and Fortune 500 companies.

Sol Systems works with its corporate and institutional clients to develop customized energy procurement solutions, and to architect and deploy structured investments in the solar asset class with a dedicated team of investment professionals, lawyers, accountants, engineers, and project finance analysts.

Procurement DE-claration, 2016: SRECDelaware Announces 2016 Procurement Results

The Delaware solar renewable energy credit (SREC) program, SRECDelaware, recently announced the results of its 2016 Procurement. This year, procurement was marked by a higher than anticipated volume of SRECs produced by new systems between 25kW and 2MW in capacity. In response, Delaware’s state utility, Delmarva, decided to buy the resulting 2446 excess SRECs. The overall outcome of Delaware’s procurement oversubscription was a slight price drop from last year for SRECs in the oversubscribed tiers.

What is the Procurement Program?

Delaware has a unique structure of SREC procurement that allows customers to bid competitively on SREC purchase contracts with the Delmarva. These contracts were meant to address price volatility in the DE SREC market. Accordingly, solar energy systems in DE are categorized into one of five tiers based on system size and installation date. Customers in each tier bid on contracts with Delmarva to sell their SRECs at a fixed price. The customer with the lowest priced bid in each tier wins the contract. Additionally, Delmarva can buy up to 6,000 more SRECs from customers after all the tiers have been sold.

See below for a chart detailing the tiers for DE SREC Procurement:

DelawareBlogGraph1

*N-1, E-1, and E-2 compete for the same pool of 4,400 SRECs

How is this year’s procurement different from years past? At the most basic level Delmarva buys more SRECs and tier cutoffs have evolved. Delmarva can now purchase up to 6,000 additional SRECs after establishing its 20-year contracts with bid winners. In the past, Delmarva was limited to a purchase of 3,000 additional SRECs. Furthermore, the DE SREC program has changed the nameplate capacity cutoff for systems in E-1 to 25kW, rather than 30kW. Additionally, this year’s contracts last for 20 years. Customers sell their SRECs to Delmarva at the bid price for the first 10 years and then for $35 per SREC for the last 10 years of the contract.

As discussed earlier, Delmarva was allowed to purchase up to 6,000 additional SRECs after establishing contracts. However, Delmarva actually purchased nearly 2,500 SRECs more than that limit by purchasing all SRECs priced below $95 from the oversubscribed tiers of N-2 and N-3. SRECDelaware cites that the undersubscribed tiers N-1, E-1, and E-2 were filled with low-priced excess N-3 bids, since tiers N-3 and N-2 had more SRECs than Delmarva originally intended to purchase. In years past, none of the tiers have been undersubscribed.

Bid Pricing Results

SRECDelaware’s 2016 Procurement resulted in a bid price increase for tiers N-1, E-1, and E-2, but a decrease for the oversubscribed tiers, N-2 and N-3. Below are the results of this year’s procurement, as well as the changes in average bid price over time.

DelawareBlogGraph2

DelawareBlogGraph3

ABOUT SOL SYSTEMS

Sol Systems is a leading solar energy investment and development firm with an established reputation for integrity and reliability. The company has financed approximately 450MW of solar projects, and manages over $500 million in assets on behalf of insurance companies, utilities, banks, and Fortune 500 companies.

Sol Systems works with its corporate and institutional clients to develop customized energy procurement solutions, and to architect and deploy structured investments in the solar asset class with a dedicated team of investment professionals, lawyers, accountants, engineers, and project finance analysts.

New Jersey’s Energy Storage Incentive

NJ_Capitol

The Renewable Electric Storage Incentive appeared successful but because of some misunderstandings, 9 of the 13 approved projects have pulled out.

Last year, New Jersey, in an attempt to improve the resiliency of their electricity infrastructure as well as for load shifting and frequency regulation, sought to incentivize behind the meter energy storage. The initial program, The Renewable Electric Storage Incentive, was aimed primarily at solar + storage installments and allotted $3 million to 13 separate projects throughout the state.

The program appeared successful, but because of some misunderstandings with PJM about the ability to combine PJM grid incentives with the New Jersey energy storage incentive, 9 of the 13 approved projects have pulled out. The good news with this, however, is that the unused funds will be recycled back into the program for future use.

Upcoming March 1st 2016 Application Deadline

Starting on March 1st, New Jersey will offer its second machination of its energy storage incentive and begin accepting applications. Round 2 has doubled the size of the program to $6 million and will distribute the funds in two separate allocations.  The first $3 million will be offered in an open enrollment format, and the 2nd will come later in 2016 in a competitive solicitation dictated by research currently being conducted by the Rutgers Laboratory for Energy Smart Systems (LESS).

To be eligible, projects must be connected to a class 1 renewable resource and have a minimum capacity of 50kW, which can be aggregated over multiple sites. The incentive is set at $300 per kWh of energy capacity, with a per-project ceiling of $300,000 or 30% of the total project cost. A single owner or developer can qualify for multiple projects up to a per-entity incentive cap of $500,000. For full list of requirements or to apply click here.

What Does This Mean for Solar Developers?

Driven by the combination of incentives like the New Jersey rebate program and improving system economics, the distributed storage market is growing and creating real opportunities for developers.

The upcoming open enrollment for New Jersey presents a particularly attractive opportunity. Todd Olinsky-Paul of the Clean Energy group writes:

An open enrollment rebate is much more reliable, and bankable, than a competitive solicitation, which may or may not result in a grant; this also happens to be the first dedicated energy storage rebate program in the country, which means the results should be of great interest to energy agencies in other states.

To address this growing opportunity, Sol Systems is developing a solution to offer storage that can be paired with solar installations. For more information, contact Ben Margolis at ben.margolis@solsystemscompany.com.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for over 400MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. 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, project acquisition 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.solsystems.com.

Massachusetts’ SREC II Program: A New Hope?

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As of February 18th, 67MW still remains under the program cap for projects under 25kW

For anyone interested in the solar energy industry, lately Massachusetts is synonymous with hitting solar energy caps. We have discussed the Commonwealth’s net metering caps at length, and have reported as the cap for the Solar Carve-Out II Program (SREC II) has neared.  With another update from the Massachusetts Department of Energy Resources (DOER) last week, here’s the latest on the SREC II program.

Still Space for Systems under 25kW

First and foremost, some good news. According to an email update from the Massachusetts Department of Energy Resources (DOER) on Thursday, February 18th, 67MW still remains under the program cap for projects under 25kW. So, if you are planning to install a project under 25kW, there is indeed still space for your project, and DOER has posted clarification for procedures and required documentation needed for projects to obtain an Assurance of Qualification. Keep in mind, the remaining 67MW* of available capacity under the program cap may run out quickly; we recommend applying as soon as you’re able.

Remember: if you partner with Sol Systems, we will complete the SREC certification process on behalf of your customers. Contact info@solsystems.com so we can help.

What about Systems over 25kW? Hasn’t the Cap Already Been Hit?

The second part of DOER’s announcement dealt with projects over 25kW. As we have already reported, the cap was met nearly two weeks ago, but not all of the applications submitted may be real contenders. The most recent update by DOER also hints to this possibility.

As it stands, the initial review of applications larger than 25kW is still ongoing. However, an initial review of a significant number of applications has been completed. All incomplete applications have been returned with a description of what needs to be done to fix the issues discovered in the initial review. These developers have until Thursday, February 25th, to resubmit applications for their projects, and if the applications still are not complete then, they will be rejected. For anyone on the waiting list who has been nervously biting their nails and sitting on the edge of their seatwaiting to see if they will have a chance to be considered, Thursday marks the first chance for moving off or up the list. After Thursday, the DOER will review all resubmitted applications and then provide an update regarding the SREC II Program’s Cap.  Stay tuned to our blog for updates.

What Does It All Mean?

In early February, we predicted this “Churn #1” of incomplete applications that were rushed through, but would soon be eliminated. While the exact numbers of this churn will come in after this Thursday, we expect the number of rejected applications to bring the program from drastically “oversubscribed” to nearly “fully subscribed.”

After that first churn, there is potential for a second churn to come in the form of unfinished projects currently holding an Assurance of Qualification under the “pending” category. This means that although they have received an Assurance of Qualification, they may not yet be operating and generating SRECs, so they have not received a State of Qualification. These projects are under a 9-month deadline to reach mechanical completion, and there is a chance not all of them will make it.

In sum, there is still a glimmer of hope for installers and developers:

  • Sitting on the >25kW waiting list with a complete application
  • Installing solar projects under 25kW or less… What are you waiting for? There are still 67MW that are yours for the taking.

Sol Systems will continue to follow SREC II developments on our blog. Stay tuned for our next write-up, which we’ll put out shortly after DOER’s next announcement.

*Note: Since the publication of this article, 15MW remain for solar projects under 25kW

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for over 400MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. 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, project acquisition 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.solsystems.com.

Virginia’s Solar Legislation: Will It Live to See Another Day?

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Virginia ranks 32nd in the country with only 18MW of solar energy installed

For a brief period at the beginning of 2016, Virginia’s legislature looked like it might have been gearing up to strap down and improve the solar market in the state. Such legislation is necessary, as Virginia ranks 32nd in the country with only 18MW of solar energy installed according to the Solar Energy Industries Association (SEIA).

Furthermore, as we have previously discussed, Virginia came in with a “C” in the solar net metering class of 2015. Its neighbor, Maryland, on the other hand, came in with an “A” and is 12th in the nation with 321MW of solar energy, 4,300 people employed in the sector, and a 95% increase in solar investment over 2014. Virginia has less than half of the solar jobs in Maryland, coming in with under 2,000 solar workers.

It is about time that Virginia stepped up, and legislation this session offered a glint of hope that it just might. However, despite a valiant effort by MDV-SEIA, a collection of pro-solar legislation was tabled in Richmond last week after a heavy showing from opposition.

So, which bills are amongst the dearly departed? Here are a few highlights.

This Session’s Obituaries: Will They Live to See another Day?

HB 1050 and SB142 – this team of bills sought to establish a 30 percent state tax credit for solar thermal systems (though not their solar PV companion).

HB 1285 – would have authorized community energy programs, which allow multiple customers to subscribe to clean energy from an offsite location. It is an idea that is catching on across the country to provide more equitable access to clean energy, and this bill was solar advocates’ push to have community solar programs enter the Virginia market.

HB 1286 – like 1285, was a darling child of solar advocates across the state. It was an all-encompassing piece of legislation providing for the allowance of third party financing through power purchase agreements, lifting the one percent cap on net metering, and authorizing community and “agricultural” net metering programs. Over half of U.S. states and the District of Columbia allow for third party financing, but not Virginia, which has made solar’s cost prohibitive for its citizens.

HB 480 – sought to establish a tax credit equal to 35 percent of installed renewable energy and define the aggregate amount of credit allowed to each person for placing into service renewable energy during the taxable year.

Virginia’s neighbor to the South, North Carolina, had a 35 percent tax credit until recently, which according to data from the N.C. Department of Revenue generated the state $717 million in spending and capital investment in 2014, with only $126 million claimed. North Carolina also ranks 4th in the country for solar capacity with 6,000 solar jobs. You snooze, you lose, Virginia.

SB 761 – looked to establish a mandatory Renewable Portfolio Standard (RPS) in Virginia, which would have required 25 percent of generated power to come from renewable energy by 2025. The current RPS in Virginia is voluntary, and as such, symbolic in nature. Hence one of the many reasons for little solar growth in the state.

SB 779 – was a bill that survived past the others. It was poised to be a weaker version of HB 1286, which still would have been major progress for the state. However, this bill was also tabled…for now.

The Last Bill Standing

HB 1305- is the only solar bill still standing in Virginia’s legislature. It provides a tax exemption worth 100 percent of the solar energy systems value for projects 5MW and under, and for projects from 6MW-20MW that file for interconnection before December 31, 2018. It also drops the tax exemption to 80 percent for projects above 20MW starting January 1, 2017.

The Living Dead: Summing it Up

Clearly, some of these bills were stronger than others in regards to promoting clean energy, but all of the above were kept from moving forward in this legislative session. So, the question is

Will There be a Resurrection?

Fingers crossed, yes. As the discussions stand these bills have been “carried over,” and will be discussed again at special subcommittee this upcoming summer.

So, if you are a Virginia customer do not lose hope, but do not just sit tight. Reach out, speak out, and ask for solar because maybe the umpteenth time Virginia discusses solar energy might just be the charm! As for the solar industry, with such a large laundry list of requests, it is time to rally around the priority bill that has the biggest likelihood of passing and allowing the local renewable energy economy to flourish.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for over 400MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. 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, project acquisition 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.solsystems.com.

Does Bonus Depreciation Matter? Yes and No.

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How much does bonus depreciation really impact an individual solar deal?

The December 2015 omnibus bill extended 50% bonus depreciation through 2017, declining to 40% in 2018, and then 30% in 2019. As a result, some developers are expecting better pricing for their solar deals. But how much does bonus depreciation really impact an individual solar deal? Unfortunately for developers, the answer may be less than you think – or not at all.

Investors must elect whether or not to factor bonus depreciation into their investments. For a pure play tax equity investor, that’s a toss-up depending on their investment criteria. Taking early losses matters less when the investment tenor is 5-6 years, and the investor’s ability to absorb losses and depreciation may be limited regardless by the structure of the fund.

The answer could be different for other tax efficient sources of capital, such as an unregulated arm of a utility that purchases a solar asset and holds it for 20-30 years. At this time, investors are still debating whether or not to elect bonus depreciation for their solar assets at all. For those that do elect to take it, this will also reduce their tax appetite, thus putting a smaller limit on the number of projects that they can own before they need to bring in third party tax equity.

Why the debate over whether to elect bonus depreciation? While bonus depreciation boosts project returns by a handful of basis points, it greatly reduces an investor’s short-term tax appetite. Solar investments are tax driven, and investors typically make decisions about tax planning well in advance. Some institutional investors in solar assets are prioritizing stability and deciding not to elect bonus depreciation to avoid spikes in short-term losses followed by taxable income in years with fewer or no losses. Reduced short-term tax appetite due to bonus depreciation can also limit investors’ flexibility to act on future opportunities.

Let’s also not forget that bonus depreciation does not solely apply to solar or renewable energy assets. Non-renewable investments can be included as well, such as infrastructure investments (e.g. electric transmission, pipelines, etc.). If an investor will be making investments in another qualified “property,” that could mean less tax appetite to go around for solar. This is concerning for an industry where tax equity is already a limiting nutrient, especially after the extension of the solar investment tax credit (ITC).

The takeaway? If some solar investors do ultimately decide to elect bonus depreciation, developers could receive a small boost to project economics. However, that could be cancelled out by a higher cost of capital given a shortage of tax equity in the market.

This is an excerpt from our February 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 pr@solsystems.com

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for over 400MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services include tax structured investments, project acquisition, and SREC portfolio management. Inc. Magazine named Sol Systems on its annual Inc. 5000 list of the nation’s fastest-growing private companies for a third consecutive year. For more information, please visit www.solsystems.com.

How Real is the MA SREC II Crunch?

You’ve all heard about the rush for allocations in the Massachusetts SREC-II market.  The outstanding question is just how real the project queue is. We feel there are two categories of projects likely to churn out of the program, creating an initial source of massive churn in the next few weeks and an ongoing source of more limited churn for what could be as much as a year.  Projects that are, in fact, holding on to a quality interconnection agreement and ready for near-term construction start have more than a glimmer of hope for successful SREC-II qualification.

Churn #1 – The Unbaked

As we discussed in our previous blog entry on this subject, there’s been a massive rush of applications over the last 4 weeks:

1.    On Tuesday, January 5th, the Massachusetts Department of Energy Resources (DOER) announced that 120MW would be set aside in the SREC-II program for projects under 25kW. This left a little over 250MW for those greater than 25kW.

2.    On Monday, January 25th, that 250 became 100.

3.    On Monday, February 1st, that 100 became 22.

4.    On Monday, February 8th, that 22 will become 0. And so begins the wait list.

So: about 450MW of applications in a month. These all could be legitimate and headed for ultimate approval! But that would be unusual.

Take a look at this graph below. On the far left, applications “under review”, with no qualification date. Next to them, “pending” applications of greater and greater age. (Unlike the slug of January applications currently piled up at DOER, pending applications have passed at least initial review, have an interconnection agreement, and have received an Assurance of Qualification. They haven’t, however, gone online. You can see the approved portion of the rush of applications here in the 0 – 30 and 30 – 60 bins.)

GraphFinal1

The graph is sorted by 30 day bins of age.

Now, let’s look how quickly real, complete, projects go online in a typical Massachusetts month – backwards looking, over the last year, for systems bigger than 25kW. It looks like a typical month of C&I buildout in Massachusetts is in the neighborhood of 15 – 20MW.

GraphFinal2

Short version, in the most recent 60 days? Almost 450MW of applications hit the program when you’d expect to see about 40MW of ones that turn into real projects.

It seems unlikely that the number of fully-baked, ready-to-roll, shovel-ready, choose-your-metaphor-indicating-completeness projects has increased by a factor of 10 in the past few weeks.

You should probably assume a significant proportion of the unapproved applications are eliminated in just the next few weeks – a conservative guess would amount to wiping out today’s “negative” cap, but not taking many new applications off of the waiting list. For applicants as of perhaps right now, this “Churn #1” likely takes the program from “oversubscribed” to “fully subscribed.”

Churn #2 – The Unfinished.

Now, keep in mind that there are two ends of the approval process where a project can fail. Projects that do have a compliant and complete application are in the light blue bins above, aging away. Qualification starts a 9 month clock to completion, and we all know that not every solar project makes it. Though DOER has historically proven reasonable in offering extensions to projects that are very close to completion, you should anticipate that as projects march down this “conveyor belt” to the right, some will fall off for not being even close. Currently there’s 340MW on this part of the conveyor, and of them, 40MW are more than 270 days beyond their SQA date. We don’t know how many are subject to some modest extension, but not all of them will get these extensions, and this bin grows all the time as projects “move to the right” without “disappearing” due to completion.

In fact, you have to wonder how many projects in the 200MW that jammed in the SREC door in the last 60 days were hoping to not obtain their SQAs until later in the development process. These projects could have other critical pieces missing or delayed (e.g. PILOTs, permits, financing, or just as critical and limited net metering approvals), and had been hoping not to start that 9 month clock until their hand was forced. They’re probably more risky than the typical applicant.

All we can say is the 0 – 30 and 30 – 60 bins are each 100MW when again a typical number would be 20. That’s another 180MW of projects above the average we’d expect. Of course there will be some “pull through” that increases throughput above the average, and  no matter what we’ll only get to see these “freed up” as many as nine months from now.

The Takeaway

GraphFinal3

Massachusetts just saw a giant surge of SREC applications  - enough to cap out the program and start a 10 month waiting list beyond that .  However, interconnection agreement execution and other bottlenecks mean we don’t think that this correlates well to a giant surge of projects – and while applications take up room for a while, only real projects ultimately cap out the program.

Over the next 2 to 6 weeks, historical numbers would suggest that the industrious dairymaids at DOER churn the program down from the 190MW+ backlog to zero, and in fact better than zero – up to perhaps a few months of typical headroom (Up to 6 months if they’re all utterly noncompliant, but we have concerns that some may be “Hail Mary” applications with interconnection and key permits but not much else going for them). I’ve marked this as “Churn 1″.  Anticipate it to cut down in a big way – and soon – but not cashing in all the “excess” projects.

As that is being put to use, another few weeks of typical installation should be expected to free up in the next month or so as a subset of the oldest unbuilt approvals lose their status. Here, I’ve marked these “Churn 2”, with a total reprieve now expected through perhaps June.

Unfortunately, another ~6 months of program room will be occupied by the “Churn 3” projects, which will continue to take up room whether they are likely or not until perhaps October – and their owners will have little incentive to give up their spots.  Further, some “Churn 1” projects won’t be immediately released, but will stall here, again until the summer.

The real question will be how this intersects with Massachusetts’ legislative timeframes for a more permanent fix.  It could also be too optimistic if there’s major “pull-forward” and the state’s typically 15 – 20MW monthly C&I market surges forward.

*Note: This blog was initially published February 5 at 3pm. It was updated after a late Friday afternoon announcement from the Massachusetts DOER.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for over 400MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services include tax structured investments, project acquisition, and SREC portfolio management. Inc. Magazine named Sol Systems on its annual Inc. 5000 list of the nation’s fastest-growing private companies for a third consecutive year. For more information, please visit www.solsystems.com.

Massachusetts SREC Program is Hitting its Cap…Again

Mad Rush

Bring on the mad rush to qualify for SREC II. Hurry up before it’s too late!

In case you haven’t heard, the Massachusetts SREC-II program is a mere 22MW away from reaching its cap.

You may be asking yourselves what happened. So were we… until we did some digging. Here’s how it happened:

  1. On Tuesday, January 5th, the Massachusetts Department of Energy Resources (DOER) announced that 120MW would be set aside in the SREC-II program for projects under 25kW. This left a little over 250MW for all other projects over 25kW before reaching former Governor Patrick’s goal (and the overall SREC program’s cap) of 1,600MW.
  2. On Monday, January 25th, the DOER released an updated Solar Carve-Out II Qualified Units list. Only a little over 100MW were left of the 250MW from two weeks earlier.
  3. On Monday, February 1st, the DOER again released its weekly Solar Carve-Out II Qualified list, sharing that only 22MW were left for projects over 25kW. Only slightly over 94MW of the 120MW remains for projects under 25kW in the small solar set aside.

Wow. That’s some drastic growth. The caps are filling up quickly, but how do we separate the “real” from the “aspirational” projects?

Qualifying Units List: Explained

In the DOER’s qualified units list, systems are separated out into three categories:

1)    Solar energy systems with a MA RPS ID# currently generating SRECs;

2)    Systems with a pending application status, meaning they have been awarded an Assurance of Qualification (AOQ) but have not received a State of Qualification (SOQ) because they are not yet operating and generating SRECs;

3)    Systems with an application under review, meaning an application has been submitted but the DOER has not completed its review.

Systems that are under review are waiting to be notified by the DOER of the application’s completeness. This generally happens within a few weeks of the application being submitted. If an application is incomplete, then the entity who filed the application will have two weeks to cure any deficiencies. If a deficiency is not cured within that period, then the application will be rejected. Keep in mind a complete application includes an executed interconnection agreement!

Any systems in the pending stage most likely have been granted a nine (9) month window to reach commercial operation (COD). If these projects are unable to be completed in that time, they may apply for an extension.

Will All Qualifying Units Make the Cut?

On the DOER’s most recent list from February 1st, 140MW of system applications were Under Review (63MW of which are in National Grid) and another 340MW of systems (of which 195MW are in National Grid) are categorized as having a Pending status.

In other words, not all of the projects currently in the Qualified Units list are necessarily qualified for the Massachusetts SREC II program.  Instead, developers operating in Massachusetts – a top 3 solar state in Q3 2015 and #6 in the country overall – noticed the limited capacity left in the SREC-II program and acted accordingly. They shuffled through their own “active projects” lists and submitted applications for any projects with a recently executed interconnection agreement  – or any projects with the hope of having an executed interconnection agreement within the next few weeks. A mad rush appears to be underway, similar to what the state saw as the SREC-I program – and net metering allocations – quickly reached their respective caps.

A small glimmer of hope may still exist for projects without SREC allocations. Given this information, we could see systems fall out of the list due to incomplete applications or due to their inability to reach their COD deadlines in time (think National Grid projects that have not secured a NEM cap allocation and are less likely to get an SREC allocation extension).

Still Reading? Stop Now, and Submit Your Application!

The magnitude of such circumstances is unclear, but what is obvious is the value in submitting an application now for any mature projects with the hopes that these projects will eventually move forward from the wait list that is expected to show up on future DOER weekly Solar Carve-Out II Qualified lists.

If you have a project that has received an AOQ or a project under review and don’t have financing, please reach out to our Project Finance team at finance@solsystems.com.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for over 400MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services include tax structured investments, project acquisition, and SREC portfolio management. Inc. Magazine named Sol Systems on its annual Inc. 5000 list of the nation’s fastest-growing private companies for a third consecutive year. For more information, please visit www.solsystems.com.

SOURCE: The Sol Project Finance Journal, January 2016

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SOURCE is a monthly solar project finance journal that our team distributes to our network of clients and solar stakeholders. Our newsletter contains solar statistics from current real-life solar projects, trends, and observations gained through monthly interviews with our solar project finance team, and it incorporates news from a variety of industry resources.

Below, we have included excerpts from the January 2016 edition.  To receive future Journals, please email pr@solsystems.com.

PROJECT FINANCE STATISTICS

The following statistics represent some high-quality solar projects and portfolios that we are actively reviewing for investment.

Joined


PPA-RATE-Jan

STATE MARKETS

California – Prior to the holiday break, the California Public Utilities Commission issued the proposed decision to net energy metering (NEM) 2.0. The solar industry celebrated; with ITC extension, the Paris climate agreement, and full retail credit in California, how many times did you hear your industry colleagues say “Christmas came early?”

But, hold on. Non-bypassable charges (NBCs) technically mean solar consumers will not receive full retail credit. NBCs would be imposed on solar consumers to cover a utility’s costs of programs; they are not charged to solar consumers under NEM 1.0. Since NBCs would be charged to solar customers on every kWh drawn from the grid, effectively, an additional ~2-5 cents/kWh will be discounted from solar exported to the grid.

With this change, look for the market to move more toward smaller systems and self-consumption. This will also encourage the growth of storage, especially with the lucrative Self-Generation Incentive Program (SGIP) rebate. The final decision is scheduled for January 28, though a surprise public meeting last week has advocates thinking that the path to approval will not be so simple.

In related news, follow CALSEIA for the discussion over Time of Use (TOU) rates, which will have a major impact on project development in 2018 and beyond.

Florida – PPA authorization in the Sunshine State hit a snag after Floridians for Solar Choice, a solar advocate-backed organization, failed to gather enough votes to qualify for a November ballot initiative. Instead, Consumers for Smart Solar (CSS), a utility-funded political action committee, may have their own constitutional amendment make the ballot – pending Supreme Court review. The existence of the conflicting organizations – and their similar-sounding names – has been confusing for consumers. Alas, hope is not lost. Vote Solar, SEIA, and partners are working on another campaign to finally bring more solar to the Sunshine State. Companies interested in getting involved should contact scott@votesolar.org.

Massachusetts – The Massachusetts Department of Energy Resources (DOER) sent notification that 567.7MW of solar energy systems have been qualified or accepted into the SREC II program, or about 60% of the program capacity cap. DOER will set aside about 120MW for smaller scale projects under 25kW. That leaves about 250MW for SREC II, whose cap may be hit as soon as Q3 of this year. Meanwhile, all eyes are still on the Commonwealth’s net metering standstill. Most project development we’re seeing is in NSTAR and WMECO territory – or with municipalities. We are seeing little development within National Grid – even for behind the meter projects. At press time, 85.2MW remain on National Grid’s net metering allocation waiting list.

SOLAR CHATTER

  • The December 18 omnibus bill reinstated bonus depreciation, providing for 50% bonus depreciation through 2017, declining to 40% in 2018 and 30% thereafter. While this is positive news – remember that bonus depreciation is, as the name suggests, only a bonus. Adding bonus depreciation back into the mix will not significantly alter pricing for a given deal, and some investors do not even value it at all.
  • Pricing for the latest Connecticut small ZREC solicitation (<100kW) came in around ~$80/ZREC. If the schedule for medium and large solicitations is to follow years past, bids for medium and large ZRECs will be due in June and announced in July. Meanwhile, several projects that won ZREC projects last summer remain stranded until the state’s municipal virtual net metering cap is lifted.
  • At the end of last year, developers were rushing to lock in equipment orders to avoid 2017 shortages. Will the ITC extension trigger a 2016 oversupply? No way, say analysts.
  • Vermont could become a hot utility-scale market for solar. A new transmission line from Canada – slated to be complete in 2019 – may also mean that the Green Mountain State will get more of its electricity from hydro and wind.
  • Move over, California. Oregon may be the next state to incorporate a 50% renewable portfolio standard. If passed, legislation would also create a community solar program

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for over 400MW of  solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. 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.solsystems.com.

Who Will Weather the Solar Finance Storm?

As YieldCos and solar stocks crumble, who will weather the storm?

Semper Paratus ad Expensis

It has been a stormy few weeks in the solar industry; stock market volatility has not been kind to some of the major sources of project finance. The beginnings of some uncertainty started at the end of October, and right now, we are hearing from individual developers that some of their once seemingly-certain sources of finance are becoming more equivocal or going silent or nearly so. As the waves mount up, we hear that some developers are having trouble raising their contacts on the radio.

Stability in the Storm

We’re pleased to report that Sol Systems’ primary sources of commercial and small utility-scale project financing have not been much in the news lately. We carry out the vast majority of our distributed generation financing with a small number of large, stable, publicly held companies who have weathered the last few weeks without a perceptible change in project pricing. We are ready and able to assist any projects who need a safe harbor, quickly.

Have a Plan and Stick to It

We suggest that you hold your financiers to specific timelines, and we would ask you to do the same to us. It is reasonable and necessary for a financier to require exclusivity over a given deal if they are to complete a transaction. It is similarly reasonable for such periods to be extended if additional specific work is required or obstacles are encountered.

However, it is critical that a developer keep an eye on the progress of the transaction within that period, and carefully consider whether they believe a timely close is likely.

If not, it may be best to explicitly wrap up exclusivity, bring the project back out to the market, and carefully consider execution risk just as you would pricing or any other aspect of the transaction. From our end, we find that responsiveness and specificity of communication is the best single indicator of a deal’s chances of success, and a project’s initial source is unlikely to prove its best intermediary.

Call for Help Early

Mariners in distress commonly use a “pan-pan” call to indicate when they have a serious problem with the functioning of their vessel but are not yet in the life-threatening distress that a “mayday” would indicate. It can be a very useful means of obtaining valuable advice or alerting necessary resources. Even if you are only beginning to lose confidence in your finance, and if you are free to speak to other finance, please do send us a note – finance@solsystemscompany.com – we’re always ready.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for over 375MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. 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.solsystems.com.

Module Shortage Rumors Fly…Again

MODULE SHORTAGE

This panel shortage is similar to the same “shortage” we have seen the second half of every year

Last month, Intersolar North America was buzzing with word that tier 1 module suppliers were completely booked through the end of the year for 300 Watt plus modules. Is there any truth to this?

There could be. Big solar deals abroad are eating panel supplies of tier 1 suppliers. Domestically, U.S. solar developers are rushing to complete deals by the end of 2016. But more likely, this panel shortage is similar to the same “shortage” we have seen – and written about – the second half of every year. The cyclical nature of solar financing (many investors are not aware of their yearly tax appetite until Q2) makes solar development, and thus equipment procurement, cyclical as well.  As developers execute EPC agreements and rush to complete projects by investors’ end-of-year deadlines, this domino effect puts module manufacturers in the driver’s seat each calendar year.

That doesn’t make the shortage any less real for those who have yet to purchase modules, or for EPCs without a master supplier contract or close-knit manufacturer relationships. If panels become unavailable, swapping one tier 1 for another tier 1 is common. We have seen this happen with a couple deals so far this summer, and investors accept this swap without issue.

Still, deciding to make a switch should be done early, after consultation with the project’s investor. Purchase orders should be locked in as soon as possible to ensure you stick to your construction schedule and avoid damages. EPCs up against a quick timeline should assess the risk and purchase early, assuming their balance sheet can handle the purchase before milestone payments.

While exaggerated panic surrounds a module shortage each year, perhaps more pressing is a possible shortage of other electrical equipment. Medium voltage equipment or specialized interconnection facilities are crafted by a more meticulous process than modules which have a standardized manufacturing process that can be easily ramped up.

Solar development rewards those who are proactive rather than reactive. Plan ahead, and avoid any possible equipment shortages or future price gauges.

This is an excerpt from our August 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 pr@solsystems.com.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 262MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. 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.solsystems.com.

Investors: Mitigate EPC Risk to Grow Your Commercial Portfolio

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Owners typically rely on a select list of preferred EPC partners to deliver the project to their standards.

When investing in solar assets, utilities and infrastructure owners typically rely on a select list of preferred Engineering, Procurement, and Construction (EPC) partners to deliver the project to their standards and avoid major issues. We understand why. Working with only a select few preferred EPC providers minimizes exposure, and reduces time spent reviewing and approving new providers. Plus, it provides a greater degree of comfort knowing the job will be done well when partners have an established working relationship and track record together.

Yet, in the fragmented commercial and small utility-scale market, many of the entities originating project opportunities often intend to serve as EPC provider to capture more value and margin in their solar projects. Enter the conundrum for solar investors: how can an investor expand their commercial solar portfolio if they’ll only work with a select number of EPC providers?

Of course, opportunities still remain for investors to purchase a project for a development fee and work with their EPC partner of choice. However, EPC monogamy can be limiting. As such, solar investors seeking to break into the commercial market and scale their portfolios would be well-advised to establish a structure and process that allows for new EPC providers to be considered. Getting this structure and process correct is key to minimizing exposure to critical risk factors during construction, and to achieving consistent quality assurance across projects.

With Sol Systems, investors can have their cake and eat it too. We can act as an EPC wrap for investors, meaning that we serve as the primary counterparty for our investor and take on the EPC provider’s obligations. Through this added layer of protection and standardization, Sol Systems is responsible for diligence on the contractor and relevant site or project information. It is also in our best interests to deliver the project to the contracted scope within budget by the target completion date. This wrap allows an investor to mitigate the risk of working with multiple partners by relying on one single partner they can trust, allowing them to scale within the commercial market.

This is an excerpt from our August 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 pr@solsystems.com.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 262MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. 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.solsystems.com.

Massachusetts: To Tip Your Cap or Remove it Altogether?

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It’s time to remove our (net metering) caps and get back to work.

Etiquette dictates that a man tips his cap by raising it slightly above his head to signify recognition, greetings or a simple salutation. However, once a man enters a building to settle down for work, he removes his cap. The greetings and formalities in the solar industry are finished, and it’s time to remove our caps and get back to work.

In the solar industry, net metering caps are limits placed on how much solar capacity is eligible for Net Energy Metering, or the ability to sell excess generation back to the grid. Caps are usually set per utility service area and are a percentage of that area’s peak historical maximum load. Unfortunately, once these caps are filled, solar facilities may not be able to sell excess generation at a fair rate. After hitting its net metering cap earlier this year and putting much of its solar development on hold as a result, Massachusetts is considering options to raise its caps and allow its solar market to flourish once again.

In July, the Massachusetts State Senator Downing introduced legislation to lift the state’s net metering caps. In response to the Senate bill, Governor Baker has introduced his own legislation. While the Senate bill changes the cap from a percentage of demand to a capacity cap of 1600MW, which is the state’s goal for solar,  Baker’s version sticks with a demand percentage, only expanding the current caps by only 2%, or about 445MW. Under both versions, Class I systems, or systems under 10kW on a single-phase circuit and 25kW on a three-phase circuit, are exempt from the net metering caps.

On the one hand, it is promising that Governor Baker is showing support for at least a version of raising the caps, because he had previously opposed an increase in the caps – and a general opposition to solar “subsidies.” Unfortunately for the solar industry, however, the bill hopes to replace net metering with an avoided cost rate after the 1600MW goal is met; this could be a potential game changer for the Commonwealth’s solar industry, and not in a good way. A comparison of Governor Baker’s bill and the original legislation from State Senator Downing can be found below.

Baker’s Bill

  • Net metering caps are raised 2% for private and public utilities.
  • When 1600MW DC state-wide goal is met, net metering is replaced by avoided cost (ISO rate).
  • Projects approved before 1600MW goal will be given 20 years of net-metering credit.
  • MA DOER is tasked with establishing new incentive program after 1600MW goal. This may be different from the current SREC program, but will be defined by the DOER.

Downing’s Bill

  • Eliminates net metering caps except for cap of 10MW for municipal or government entities.
  • Net Metering credit would be the full credit for excess kWh, not just ISO rate.
  • Also calls for DOER to create a new incentive program after reaching 1600MW to accommodate the changing solar market.

The differences between Downing and Bakers’ bills reflect the mixed opinions presented by the Massachusetts Net Metering and Solar Task Force, which was released a report in April. National Grid opposed Baker’s small increase to the caps, claiming that it would still cost non-participating ratepayers significantly. Mary-Leah Assad, a National Grid spokeswoman also added that a 2% raise would likely by filled by October. Thus, if Baker’s version of the bill passes, the solar industry may race ahead to yet another abrupt standstill. Without a long-term solution in place, the future of the country’s number #4 solar market remains uncertain.

Still need help navigating the Commonwealth’s complicated regulatory landscape? Call our finance line (888) 235-1538 x2 or drop us a note at finance@solsystems.com. We look forward to hearing from you.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 262MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. 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.solsystems.com.

“Commence Construction” Conjecture for the Solar Investment Tax Credit

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The “commence construction” concept in solar dates back to the 1603 Treasury Grant program

No one can predict the future of the solar industry after 2016 – but don’t let that stop you from trying. If a full extension or gradual step-down of the thirty percent investment tax credit (ITC) is out of reach, the next best compromise may be an extension for those projects that are under construction when the 2016 step-down to a ten percent ITC occurs. At the Novogradac Financing Renewable Energy Conference in Las Vegas this past April, Keith Martin of Chadbourne & Parke predicted a “better than 50/50” chance that a form of “commence construction” language is passed, while Michael Novogradac went on record as being “cautiously optimistic” that we will see commence construction language as part of an extensions package. Why the optimism, and how might this work for the solar industry?

The “commence construction” concept in solar dates back to the 1603 Treasury Grant program, which allowed investors to take the thirty percent ITC as an upfront cash grant instead of applying it towards their tax bill (particularly convenient in a recession). Created in 2009 as part of the American Recovery and Reinvestment Act (ARRA), the 1603 Treasury Grant program expired on December 31, 2011, but with one key exception – projects that started construction before the end of the program could qualify for the cash grant until the expiration of the thirty percent ITC in 2016.

Commence construction language for 1603 grants sounds simple – and for projects that were unequivocally under construction, it was. But for projects in development rushing to qualify for the extension, the guidelines became quite technical. If a similar provision is passed for the thirty percent ITC, we should expect an equally meticulous process determining which projects do – and don’t – qualify before ‘the cliff’.

What can we expect if commence construction language is applied to the thirty percent ITC? With the 1603 program, we saw specific guidance surrounding 1) how a project qualifies as under construction, 2) the sale of “safe-harbored” projects, and 3) the final deadline for interconnection.

      1. How can a project qualify as “under construction”? Under the 1603 program, a project could use one of two methods. The owner could either incur five percent of construction costs before the end-of-year deadline, or begin “physical work of a significant nature” on site – with no interruptions of work between beginning and completing construction. The first method proved most popular, since it did not require the permits or approvals otherwise necessary for commencing construction on a site, and did not bring up potentially vague questions of “significance”. (“Physical work of a significant nature” is generally interpreted as pouring concrete pads for inverters or beginning installation of racking; site clearing, grading, and geotechnical work do not qualify; anyone who’s seen a site undergoing site clearing as opposed to the infrastructure for a pad pour might disagree, but the line has to be drawn somewhere.)Incurring five percent of costs, by comparison, is a relatively easy matter. Land acquisition costs and legal fees do not qualify, but most system equipment does. If equipment is ordered, it must be delivered within three and a half months of payment, providing that the accounting method of the solar company incurring the cost books the expenditure upon payment and not delivery. Just one more wrinkle: the five percent cost calculation must be on the final, eligible cost of the system used as basis for the tax credit – not the cost as estimated when the equipment is purchased. In other words, if cost overruns are likely, a company would be wise to overestimate their five percent safe harbor by a comfortable margin.
      2. Can projects be sold once they have commenced construction? In short, yes – though a tax attorney specializing in solar tax credits should sign off on any transfer of the project assets to avoid losing the safeharbor qualification.  Sales to a related entity (with greater than twenty percent common ownership) are easier than sales to unrelated parties. Similarly, sales of project companies are easier than assignment of individual assets (like the PPA and the safe harbored equipment) so long as the project company is a “real” project company, and not a shell LLC company created specifically for warehousing safe harbored equipment without any additional project assets (like a PPA, permitting, or an interconnection agreement). But be wary – with the 1603 program, the longer the wait between the expiration of the credit and the placed in service date of the project, the greater the likelihood that the full expected value of the credit is jeopardized due to haircuts applied by the IRS.
      3. How long of a runway will projects have before they are required to be placed in service? The 1603 program allowed safe harbored projects until the end of 2016 to reach completion, in line with the thirty percent ITC step-down. A five-year term is more than sufficient to benefit fully from commence construction language. Of course, an extension term for safe harbored thirty percent ITC projects is very much up in the air, since the impending step-down is a permanent change – with no additional milestone or change on the books that might serve as a de facto final deadline.

If we do see commence construction language similar to the 1603 program, we can expect to see equipment orders from project owners seeking to safeharbor their deals flood an already tight supply situation. Considering the veritable juggernaut of projects rushing for completion by 2016, delivery schedules will likely feel the crunch. One question everyone should be asking is – it’s June of 2015, do you know where your equipment supplier relationships are?

The primary benefit of the commence construction language would be to reduce the frightening risk that a project misses a December 31, 2016 deadline and loses the key to its value proposition. The importance to investors of this safety net cannot be overstated. However, it would also introduce a layer of complexity to deals that would increase transaction costs and risk for projects hoping to qualify for the thirty percent ITC well after 2016. Our takeaway if a commence construction clause is passed? Build in a little something extra for legal fees – our blog won’t serve as a definitive authority if you get audited.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for over 200MW of distributed generation solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. 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. For more information, please visit www.solsystems.com.

Is DC’s Sustainable Energy Utility Sustainable?

Groups such as GRID Alternatives have been critical to pushing forward low-income solar in the District.

Groups such as GRID Alternatives have been critical to pushing forward low-income solar in the District.

The District of Columbia City Council is a tried and true champion of renewable energy development. Over the past decade, it has extended and expanded the District’s Renewable Portfolio Standard and solar carve-out, cultivating the strongest SREC market in the country. In 2008, the Council created the DC Sustainable Energy Utility (DCSEU) and the Sustainable Energy Trust Fund (SETF). The Council charges the DCSEU with increasing the District’s renewable energy generating capacity, especially among low-income households. But the DCSEU may face an uncertain future, due in large part to actions that may strip the utility of its main source of reliable funding.

Through the end of 2014, the DCSEU had installed 28 percent of the District’s renewable energy generation capacity. To accomplish this, it installed solar arrays on 105 low-income homes at no cost to the homeowner, relying heavily on the funding it received from the Sustainable Energy Trust Fund. But in passing the “Fiscal Year 2016 Budget Support Act of 2015” on for Mayoral approval last month, funds will be diverted from the SETF to the DC General Fund for the fifth time in seven years. The result will be the removal of over $5 million of ratepayer fees from solar development, potentially stifling local installers and costing low-income residents valuable income.

Where does the DCSEU get its funding?

Natural gas and electric utilities provide most of the SETF’s funding, but the law implies that utilities should recoup their contributions by imposing a small surcharge on ratepayers’ utility bills. That has been working since the law’s passage in 2008. But if this revenue is shifted from the SETF and instead to the District’s General Fund, ratepayers effectively pay extra taxes on their electricity and gas – taxes that are unlikely to be put toward renewable energy development.

What’s the good news?

DC’s Fiscal Year 2015 Budget re-upped the newer Renewable Energy Development Fund (REDF), which enables the DCSEU to continue pursuing its solar development goals in the District. The law mandates that Alternative Compliance Payments, a fee levied against utility companies that fail to meet the District’s renewable portfolio standard, provide the capital for the REDF.

Making solar affordable for everybody

Low-income households often spend a higher proportion of their income on electricity, making access to cost-saving solar photovoltaics especially important for low-income families. One product of the Renewable Energy Development Fund is the Solar Advantage Plus program. Here’s how it works: the DCSEU contracts six developers to install solar energy systems on low-income households, offering energy savings for customers and expanded opportunities for installers. Then, to help provide additional funding for the installations, the contractors can sell the Solar Renewable Energy Certificates (SRECs) that the system generates. Solar Advantage Plus and other programs like it will also help to expand the geographic diversity of residential solar installations, an outcome worth pursuing given the high concentration of solar installations in the District’s wealthier Northwestern quadrant.

Looking to the future

The siphoning of utility-imposed surcharges warrants concern from ratepayers and utilities alike. Under the current funding structure, both contribute more than their fair share to the District’s solar energy development efforts. By continuing to supply the DC General Fund with diverted SETF funds while also requiring Alternative Compliance Payments be sent to the REDF, the DC Council double-charges its utilities for investments that are not earmarked for renewable energy development. For now, the Council has at least secured short-term alternative funding for solar energy installations. However, with Alternative Compliance Payments and SREC prices set to decline in 2017, the future of low income solar in the District remains to be seen.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for over 200MW of distributed generation solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. 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. For more information, please visit www.solsystems.com.