Sol Systems Logo
Menu

Posts Tagged ‘SREC’

Illinois’ Inaugural SREC Procurement: Survey Says?

This past month, Sol Systems participated in the most highly anticipated event of the summer. If you’re thinking, “Jurassic World 3-D,” then you haven’t been following recent developments out of Illinois’ SREC procurement process. The June auction marked the first of three auctions intended to jumpstart Illinois’ solar market. Sol Systems participated as an SREC aggregator, and the results are in.

In this and future rounds of procurement, the Illinois Power Agency (IPA) purchased SRECs from suppliers using the Illinois Renewable Energy Resources Fund, into which utilities pay to support the development of renewables. In order to better facilitate the growth of distributed generation, the IPA procured half of the SRECs from systems less than 25kW and half from systems between 25 and 500kW.

Capture710

With an average winning bid price of $168.58/SREC, small residential systems less than 25kW were slightly better-off than larger commercial systems. Notably, for systems smaller than 25kW, the IPA allowed “speculative” bidding, which accounts for SRECs generated by projects still in development. Although a majority of bids in the sub-25kW category were speculative, this allowed a more diverse group of developers to participate in the procurement and helped the IPA reach its goal of a 50/50 system size split.

So what’s next for the Illinois solar market?

A lot. For starters, the next two SREC procurement events will be in November 2015 and March 2016, and each will be bigger and badder than the one before it. With $10 million and $15 million at its disposal in each of the next two auctions, the IPA will be able to buy more SRECs and from larger systems (the upper limit in system size extends to 2MW for the next two events).

These procurement events likely won’t be the last, either: Illinois’ solar carve-out is currently set at 6% of its steadily increasing renewable portfolio standard for each of the next 10 years, offering promising stability for customers, installers, and financiers. As the volume requirements continue to increase, the IPA may continue using SREC procurement events to help utilities meet the benchmark.

Playing the long game

Enter the Illinois Clean Jobs Bill, which if passed this fall, would establish a long-term renewable energy procurement plan and set Illinois on a path of sustained and exciting solar growth. Its key provisions would extend the state’s renewable portfolio standard to 35% by 2030, ramp up its solar carve-out to mandate SREC purchases from new PV installations, and establish community and low-income solar programs designed to increase access to solar energy. Not only that, but the Clean Jobs Bill would position the state well to comply with the U.S. Environmental Protection Agency’s Clean Power Plan, which is expected to go final by the end of the summer.

With its successful first procurement event, at least two more on the horizon, and game-changing legislation on the docket, Illinois is emerging as a major player in the national solar market. Installers, for more information on how to get involved in the Illinois procurement, please contact Eric.stam@solsystems.com.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 262MW 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.

Approaching the Tax Credit Horizon: Where Will Commercial Solar Succeed in 2017?

Last year, solar installations in the U.S. commercial sector fell by 6 percent. The market is expected to bounce back in 2015, but there are still many challenges in financing and aggregating commercial-scale projects.

This post was co-authored by Sol Systems Portfolio Analyst Eric Scheier and originally published by Greentech Media. 

Last year, solar installations in the U.S. commercial sector fell by 6 percent. The market is expected to bounce back in 2015, but there are still many challenges in financing and aggregating commercial-scale projects.

Sol Systems has focused heavily on financing commercial-scale solar, with the same kinds of success and bruises as others. This focus mirrors a broader philosophy of ours: solving complex problems to deliver value to both investors and developers in the United States.

As such, we’re quite focused on understanding how the planned federal Investment Tax Credit (ITC) step-down from 30 percent to 10 percent will impact this market segment. It is a topic we’ve explored in the past in our two-part series “Peering Over the Horizon,” in which we discussed the continued decline in the cost of capital and the impact of the step-down in the ITC.

This article builds on that work, as well as recent reports from Morgan Stanley and a recent LCOE analysis from Lazard. We believe all of these articles are critical reading, as they provide a framework to analyze the industry. Our research reaches different conclusions because it is designed to serve our investor and developer partners, and because we disagree with previous assumptions about SREC prices, build costs and the cost of capital.

Investor returns will tighten

Not surprisingly, the reduction in the ITC means an overall smaller “economic pie” that can be split between solar developers, the EPC, the financier and the host customer. Assuming turnkey costs do not change, the ITC step-down correlates to a 3 percent to 5 percent unlevered post-tax return for the investor that is purchasing a project. This means that an investor that used to be securing a 9 percent return on their investment in a commercial project would receive a 4 percent to 6 percent IRR, if turnkey prices did not change.

Structured transactions like a flip or lease-pass-through will either scale in size (portfolio sizes will need to increase to support the same investment) or disappear. Further, structured transactions will have a reduced impact on overall implicit IRR (these structures can effectively reduce IRR by 1 to 300 basis points in certain markets currently). Given this combination, we believe that there will be more tax-advantaged capital (like utility affiliate funds) buying solar projects.

This analysis can be illustrated through a “heat graph” comparing costs of capital, PPA rates and build costs. We originally provided this graph in 2014 and have updated it below. The reader can use his or her own assumptions to arrive at a conclusion. (Click to enlarge.)

cocppaTable

The industry has matured to a point where investors are bidding on commercial projects within a 150-basis-point differential, generally between 8 percent and 9.5 percent. If build costs are not reduced from an all-in price of $2.09 per watt, as SolarCity recently accounted, investors will need to be comfortable with a 5 percent to 6 percent return for many commercial projects. That will not happen in the next 18 months. Instead, our industry needs to focus its energies on increasing build and development efficiency.

Build costs will come down

Sol Systems’ research team has run what we term our “Sol Map Analysis” to look at required build costs on a state-by-state basis, and to provide a national snapshot that summarizes the planned 2017 step-down.

This analysis runs a specific project through each state model simultaneously, calculating differences in taxes, average commercial retail electricity, SREC monetization, production tax credits, etc., to determine the break-even build costs for that state. In each iteration, we assume that the PPA is 90 percent of the expected retail electricity rate, a savings of 10 percent for the customer. Our model utilizes proprietary forward SREC curves based on those we see in the market.

We contemplate a tax-efficient buyer acquiring these projects. Structured transactions are slightly more efficient, generally lowering the overall effective cost of capital 100 to 300 basis points for projects depending on state incentives and electricity prices.

We ran four different scenarios in our model, with the worst-case scenario representing an 8 percent cost of capital, and the best case 6 percent. We do not make assumptions about build costs, but instead offer a state-by-state break-even build cost based on a stated investor hurdle rate and the average commercial retail electricity rate for the state.

We use EIA retail electricity rates, which, critically, do not include a consideration of demand / energy split in any given state. We have excluded Alaska, Hawaii and the District of Columbia from these charts, but those regions are on the extremes, one would expect, in all scenarios.

Similarly, we have excluded states where power-purchase agreements (PPAs) are either illegal or unproven, according to DSIRE. Finally, we measure addressable market by load, and not by available space or other technical limitations. These market sizes are most helpful for comparison purposes.

Mapping the future: 2015 commercial market

Build costs: $2.10

Cost of capital: 8 percent

ITC: 30 percent

Approximate addressable market: 258 gigawatts

Utilizing relatively conservative cost of capital estimates of 8 percent, the United States looks like a relatively attractive place for commercial solar. Developers can build solar at a realistic price and commercial customers can save.

It is a challenging market, but one in which a properly aligned developer can succeed. We utilize best-in-class build costs of $2.10, which is aggressive but realistic for larger commercial systems. We believe that an 8 percent hurdle rate is realistic for larger systems. With these assumptions, the addressable commercial market in the United States is 258 gigawatts in our state-by-state analysis.

8_percent_cost_of_capital

2017 Aggressive scenario: 30% ITC with declining costs of capital and build costs

Build costs: $1.80

Cost of capital: 6 percent

ITC: 30 percent

Approximate addressable market: 437 gigawatts

In the best-case scenario, we assume that the commercial segment will secure acquisition capital at a 6 percent IRR for the investor, and that the 30 percent ITC will not change. We also assume that build costs are reduced dramatically in the next 18 months to $1.80, from $2.10.

This could happen as the industry expands and investors become increasingly comfortable with the asset class, but this is a full 200 basis points below where investors are buying large commercial projects today. Structured portfolios would be most likely to achieve this hurdle for investors.

If the industry can adjust this quickly, reducing both the build costs and also the cost of capital for commercial projects — and the ITC does not step down — the addressable market explodes in 2017 to 437 gigawatts, or almost a doubling of market size. Texas, Arizona and New Mexico, all relatively modest markets at the moment, become critical new commercial solar markets.

6_percent_cost_of_capital_solar

2017 positive case: 10% ITC, aggressive drop in cost of capital and declining build costs

Build Costs: $1.90

Cost of Capital: 6 percent

ITC: 10 percent

Approximate Addressable Market: 239 gigawatts

A potential (but optimistic) scenario, would include the step-down to 10 percent in the ITC, and a less aggressive reduction in cost of capital and build costs. In that scenario, we see the commercial addressable market shrink from 258 gigawatts to 239 gigawatts, a small decrease of 7 percent.

We would note that this is an aggressive drop in the cost of capital of 200 basis points, but a fairly realistic build cost as developers scale and equipment costs come down. In this scenario, markets remain fairly stable, with a reduction in penetration.

6_percent_capital_cost

2017 base case: 10% ITC, declining cost of capital and declining build costs

Build costs: $1.90

Cost of capital: 7 percent

ITC: 10 percent

Approximate addressable market: 138 gigawatts

Unless there is a policy bridge to extend the ITC, we think this is the realistic scenario for commercial solar. In this scenario, the cost of capital naturally declines as project economics become less reliant on tax benefits. There is also slight decline of capital, and together they lead to a weighted average cost of capital for these systems of 7 percent. There is also a continued drop in solar build costs based on scale and technology.

As a result, we see a decline in the addressable market from 258 gigawatts to 138 gigawatts, a 47 percent reduction in the market. The commercial segment retreats to core markets, including California, the Northeast, and the Mid-Atlantic.

7_percent_solar_cost_of_capital

2017 worst case: 10% ITC, no decline in cost of capital and slight build-cost drop

Build Costs: $1.90

Cost of Capital: 7.5 percent

ITC: 10 percent

Approximate Addressable Market: 138 gigawatts

Finally, the worst case scenario is a market in which the ITC steps down to 10 percent and investment hurdles do not change. In that case, the commercial segment survives in a much smaller pool of states, primarily driven by high electricity prices and SRECs.

75_cost_of_capital_solar

We should extend the 30% ITC

As we approach the expiration of the ITC, we are able to more accurately predict the impact that it will have on the solar industry, and where the industry needs to improve in order to survive. When asked, many solar executives maintain that they are not worried about the expiration of the ITC, and even go so far as to say that it would be good for the industry. We disagree.

The “good for the industry” hypothesis is premised upon the assumptions that 1) there will be more cash to lever, and 2) there will be lower transaction costs. We won’t argue either of those points.

However, a drop in the blended cost of capital for a project from 8 percent with a 30 percent ITC to even 5 percent with a 10 percent ITC does not yield a higher, or equal, takeout price for the developer, regardless of transaction costs. Nor does it produce a better structured return for a tax equity investor or sponsor. We encourage those of you who think otherwise to model an actual project with whatever aggressive debt terms you can imagine.

We point out that the original reasoning behind the 30 percent ITC also still holds true — it offers solar operators a rough approximation of the tremendous tax benefit offered to fossil operators, who simply write off their fuel as an expense.

Fewer markets, but large markets

The good news is that while only a limited number of states will be attractive for developers looking to do commercial solar, those states represent a disproportionate part of the addressable market. Based on current state electricity rates, and current estimated build costs, we estimate the current addressable U.S. market for commercial solar to be 200-300 gigawatts.

With the ITC step-down, and with decreasing build costs, that market is likely to shrink to between 150 and 250 gigawatts (which, it is worth noting, may not be a shrinkage at all). The heat chart below provides some useful parameters for that analysis.

addressableMarketPivotTable

While there may be a reduction in the current market, we estimate that reduction to be around 20 percent to 35 percent, not a wholesale destruction. We make a number of conservative assumptions about state incentives and the viability of PPAs that will probably be revised in favor of solar over time.

Additionally, as overall construction and development costs come down because of scale and technological development, and as storage technologies enable solar to viably attack demand as opposed to merely energy charges, dormant state markets will re-emerge.  Finally, the addressable market will expand even further as industry participants like ourselves become better at evaluating “off-credit” hosts.

It is clear from this analysis and others that all market participants hold the future of the industry in their hands: smart investors will become more comfortable with the asset class, sophisticated financiers will lower transaction costs, developers and EPCs will streamline their processes, and suppliers will continue to drive down input costs.

We say “will” because the commercial market has such enormous untapped potential: the industry has installed fewer than 10 gigawatts of the hundreds that the market may be able to support. We fully anticipate that the commercial market will be a large part of the solar future.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 262MW 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.

SOURCE: The Sol Project Finance Journal, June 2015

June-Cover-for-web

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 June 2015 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.

download (717x249)

*Our all-in price statistics exclude projects from Ontario, Hawaii, the U.S. Virgin Islands, and Puerto Rico where all-in prices remain over $3.50/W.

PPA-RATE-June (717x242)

 

 

 

 

 

 

 

STATE MARKETS

California: Because you know it’s all about that rate, ‘bout that rate… The gold rush is here. Already, 184MW out of the eligible 400MW have been filled for Southern California Edison’s (SCE) Option R rate. Remember, Option R allows developers to better pitch ROI to hosts by focusing on Time of Use (TOU) rate charges instead of demand charges. Get it while you can; we expect the remaining 200MW+ to fill up quickly. Meanwhile, Pacific Gas and Electric’s (PG&E) Option R became available on June 1; look for that to open the market for commercial solar projects in PG&E territory. Unlike Option R in SCE territory, PG&E’s has no cap on the number of customers or megawatts.

New Jersey:  We are consistently surprised by the lack of commercial-scale pipeline coming out of New Jersey. Perhaps many hosts are opting for cash purchases instead of third-party financed deals. Or perhaps developers look at the $225 SREC prices of today and long for the $600/mWh pricing from yesteryear. Maybe more third-party financed deals going to leases? We’re stumped; you tell us. Meanwhile, the Garden State seems particularly primed for merchant opportunities.

Rhode Island: Unfazed after falling slightly short of its goal to procure 40MW of renewable energy by 2014, the Ocean State upped the ante with an even more ambitious goal: 25MW of renewable energy for 2015, increasing to 40MW each year for 2016-2018. Applications for small-scale solar (<25kW) opened up on June 15, while applications for projects 26kW – 5MW will be accepted between August 3 and 14. Take note, highly creditworthy utility off-take and above-market rates in this state will continue to appeal to investors. We strongly suggest this market for Northeastern developers, especially as Massachusetts remains stalled, and New York has fallen short of expectations. There’s much to consider for this state that runs only 48 miles long and 37 miles wide.

SOLAR CHATTER

  • Ready, set, go! Bids for 15-year Connecticut ZREC contracts are due on June 18th at 1pm. We expect for LREC and ZREC pricing to ultimately get closer to the price of Class I RECs.
  • Residual value is a hot topic among financiers who realize that they must take into account the value of the asset once the PPA expires in order to maintain their competitive edge over the other sources of capital flooding the space. How does Emilio Estevez feel about this?
  • This is your monthly reminder that Maryland is the best market where nobody else is doing business. Hint, hint.
  • Watch for the Illinois solar market to pop now that its first SREC procurement deadline has passed. Subsequent rounds will take place in November 2015 and March 2016. Meanwhile, pending legislation pushes for a longer term, more robust solar market in the Land of Lincoln.
  • Vermont has been gaining traction among developers for its high electricity prices, SPEED program, and Green Mountain Power’s solar adder for projects under 500kW AC. The challenge with the Green Mountain Power program, however, is that its floating rate PPA structure spells out risk to many investors. To increase the likelihood that these deals are financed, put a floor in the PPA to make the investor more comfortable with underwriting the deal.
  • The latest Solar Market Insight report showed that residential and utility-scale solar each added more capacity than the natural gas industry brought online in Q1 2015.
  • The verdict is still out on Massachusetts net metering, though many in the industry are cautiously optimistic that a solution will be put in place to keep the industry going until the end of 2016. Support is strong in the state senate, while the support from state house of representatives is questionable. In the meantime, developers should look into NSTAR territory.
  • According to the International Monetary Fund (IMF), 6.5% of 2015 global GDP – or approximately $5.3 trillion – will subsidize fossil fuel use. Hopefully that will put the solar-haters to rest.
  • Got a project in PJM territory that wouldn’t mind a little cash flow boost? Sol Systems is offering compelling SREC contract to projects in PJM territory; some North Carolina, Illinois, Indiana, and even Virginia projects are eligible. Contact srecs@solsystems.com for more information.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 200MW 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.

Announcing the 2015 Delaware SREC Procurement

Delaware's SREC Procurement Program bid is open through April 24th

Delaware’s SREC Procurement Program bid is open through April 24th

This year’s Delaware Solar Renewable Energy Credit (SREC) Procurement Program solicitation bid window opened on Monday, April 13th, 2015, and will remain open until Friday, April 24th at 5:00 pm. The Procurement Program gives new and existing Delaware-sited solar systems an opportunity to bid into a 20-year contract for their SRECs.

Winning bidders in each tier receive their competitive bid price (not a clearing price for the whole auction) for the first 10 years of the contract, and $35/SREC for the last 10 years. This 20-year fixed price contract offers an attractive alternative to selling credits on the sometimes unstable SREC market.

The goals of this year’s Procurement Program are consistent with the goals of past procurements: provide SREC price stability in the state, allow Delmarva another avenue by which to meet their long-term SREC compliance requirements, and encourage solar development in Delaware.

History of Delaware Procurement
The Delaware SREC Procurement Program first began in 2012 through a pilot meant to address the volatility of SREC markets. Systems applied in different tiers based on system size, and winning contracts were granted accordingly. Pricing was administratively set price for smaller systems, or, for larger systems, at the price they bid upon. The 2012 Pilot Program encouraged Delaware solar development by granting 10% SREC price bonus for systems that used Delaware parts or Delaware labor (or double if a system used both). Two mechanisms, tiered structuring by system size and the in-state bonus, have remained constant in all iterations of procurements. By distinguishing between different sized residential or commercial solar systems in terms of bidding tiers, this program model seeks to promote solar development regardless of market sector. The Delaware parts and labor bonus has continued to endorse solar companies working within the state (although solar modules are no longer manufactured in the state).

The 2013 Program and 2014 Program included several key distinctions from the Pilot Program. First, the tiered structuring began develop further by placing new systems and existing systems into separate bidding tiers. This change from the Pilot Program had the marked purpose of encouraging new solar systems to participate, without excluding existing systems that had not yet locked into long-term SREC contracts. Second, a competitive bidding process was implemented for all tiers. This improved upon the Pilot Program’s prior model of administratively setting prices for smaller systems because it offered ratepayers price protection without the need to change the state’s renewable portfolio standard (RPS). With a competitive bidding process, the lowest bids prices win contracts in each tier.

Administratively set pricing and/or winning bids have varied throughout the three year history of procurements. For new residential sized systems, winning bidders in the 2012 Pilot Program were rewarded with a substantial contract: $260/SREC for 10 years, and then $50/SREC after that. The competitive bidding process resulted in substantially lower weighted average prices for new residential sized systems, $46.48/SREC in 2013, and $53.44/SREC in 2014 for the first 7 years of a contract, with administratively set prices for the last 13 years. The full results of previous auctions, divided by tier, are posted on our blog.

 

First Half of Contract

Second Half of Contract

2012 Pilot Program

$260/SREC* for 10 years

$50/SREC for 10 years

2013 DE Procurement

$46.48/SREC* for 7 years

$50/SREC for 13 years

2014 DE Procurement

$53.44/SREC* for 7 years

$35/SREC for 13 years

2015 DE Procurement

?/SREC for 10 years

$35/SREC for 10 years

*Weighted average winning bid

 

This Year’s Program
Each year’s procurement continues to evolve from the last, and this year is no exception. While contracts in the 2015 Procurement will continue have 20 year terms, winning bidders will now receive their bid price for the first 10 years of the contract, and $35/SREC for the remaining 10 years, rather than the 7-year/13-year split from the 2013 and 2014 procurements. The 2015 Program continues to have tiers based on existing/new systems and system size, with a set number of SRECs to win bids in each. However, this year, after 9,000 SRECs have been acquired from the five tiers, Delmarva will be able to acquire up to 3,000 additional SRECs from any tier by choosing from the least expensive bids overall. Additionally no bids over $400/SREC will be accepted, in line with the Delaware Solar Alternative Compliance Payment of $400/MWh that Delmarva must pay if it is unable to meet compliance goals.

Five Tiers in the 2015 Solicitation

 

New Systems
(systems with final interconnection approval after May 5th, 2014)
Tier Nameplate Rating - (DC at STC) SRECs in Tier
N-1 Less than or equal to 30 kW 4,400*
N-2 Greater than 30 kW but less than or equal to 200 kW 2,300
N-3 Greater than 200 kW but less than or equal to 2 MW 2,300
Existing Systems
(systems with final interconnection approval before May 5th, 2014)
Tier Nameplate Rating - (DC at STC) SRECs in Tier
E-1 Less than or equal to 30 kW 4,400 Pool*
E-2 Greater than 30 kW but less than or equal to 2 MW 4,400 Pool*

Source: http://www.srecdelaware.com/

Eligibility for this year is mostly consistent with past procurements. Any new or existing system with a Delaware certification number (or bid deposit) is eligible. Winning systems must have a revenue grade meter installed to qualify. Systems with SRECs currently under long-term contracts, including participants of the SEU SREC Upfront Purchase Program or systems that have achieved a successful bid in a previous procurement are ineligible to bid in this year’s procurement. For more information, or to apply, please visit SRECDelaware. Final Results of this year’s Program will be announced on April 29th. Sol Systems will continue to monitor developments with regard to the Delaware SREC Procurement Program and in other SREC market nationwide.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 180MW 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.

Maryland SREC Market Marches Closer to Equilibrium in 2014

As we wait for the final 2014 Solar Renewable Energy Credits (SRECs) to mint for the state of Maryland, chances are high that the market will be the closest to equilibrium that it has been in 3 years. Uncertainty around this news centers on how many SRECs the state supported Mt. St. Mary’s solar project has generated since its installation in July 2012. By standard estimates, these SRECs currently represent approximately 20% of all SRECs technically eligible for compliance in Maryland’s Renewable Portfolio Standard (RPS) for 2014.

The Maryland Energy Administration (MEA), which owns two thirds of the system’s SRECs, has stated publicly that its SRECs will be offered for sale at 90% of the Alternative Compliance Payment (ACP) as a ‘last resort’ in the case of an undersupplied market. For the 2014 compliance year this offer equates to a price of $360. The University System of Maryland has expressed publicly that it will not sell its one third portion of system production, either.

Though the market saw strong build toward the end of 2014, the oversupply has steadily declined from its peak three years ago.

Though the market saw strong build toward the end of 2014, the oversupply has steadily declined from its peak three years ago.

 

For more detail on the results presented above, please contact the SREC desk by email.

About Sol Systems

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 180MW 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.solsystemscompany.com

Illinois Solar Gets Closer to Game Time

20140823_xl_solaranlage-zw-ruedersdorf-fredersdorf8534

The Illinois Commerce Commission released a draft Proposed Order earlier this month on the Illinois Power Agency’s (IPA) Supplemental Procurement Plan, solidifying noteworthy changes for the Illinois solar market.

The Illinois solar market is marching ahead to an eventful 2015.  Recent action on the Supplemental Procurement Plan means solar energy system owners should look for the Illinois SREC market to come to fruition very soon.

Earlier this month, the Illinois Commerce Commission released a draft Proposed Order on the Illinois Power Agency’s (IPA) Supplemental Procurement Plan. In the draft Proposed Order, the Commission reviews objections and comments submitted to them regarding the IPA’s plan and makes rulings on each issue. Many of the rulings solidified changes we examined in past articles on the Illinois solar market[s1] . The following conclusions are particularly noteworthy for current or prospective solar system owners in Illinois:

Read More

Go Ahead, Wake the Sleeping Giant: Why C&I Solar is Poised for Growth

While residential solar installers battle for market share and YieldCos gobble up utility scale projects, the commercial and industrial (C&I) solar space has been relatively quiet. Broadly defined as behind-the-meter projects between 50kW and 5MW, the middle market remains untapped due to market fragmentation and complexity associated with relatively smaller deal sizes. In fact, the number of middle market solar projects interconnected in Q1, 2014 was down 12% from the same quarter in 2013, according to Greentech Media (GTM) and SEIA’s Solar Market Insight Report. Additionally, Q1, 2014 marked the first quarter that residential solar MW installed exceeded those installed in the C&I niche since 2002.

Read More

Massachusetts Updates 2016 Managed Growth Allocation, Developers Still on Edge

Massachusetts solar developers breathed a sigh of relief after last week’s announcement.

Some developers of 650kW+ solar projects may get their projects built after all.

Some developers of 650kW+ solar projects may get their projects built after all.

After the initial August 26th announcement that the 2016 Managed Growth Capacity Block would be 0MW, the Massachusetts Department of Energy Resources (DOER) opened a public comment period.  As expected, solar stakeholders expressed their concern over the 2016 allocation, citing that the DOER had projected overly ambitious growth in Market Sectors A-C. In response to these comments, DOER adjusted the 2016 Managed Growth Capacity Block allocation from 0MW to 20MW .

What is Managed Growth in Massachusetts?

The Massachusetts SREC-II Program, initiated in April, creates differentiated financial incentives for each market sector (“SREC Factor”) to level the playing field. This program makes smaller solar projects more competitive compared to larger ones by ideally giving financial preference to residential and rooftop projects (a higher SREC Factor close to 1.0) and providing less support for larger projects (ground mount, landfill or brownfield projects less than 650kW.) Previously, this program allocated 26MW and 81MW for the Managed Growth sector in 2014 and 2015 respectively.  As the legislation mandates, the reconsideration and final decision of the 2016 Managed Growth Capacity Block came from the following formula:

Read More

Solar Projects Aren’t the Only Thing We Bring to the Finish Line

Despite the challenging conditions, team members took a few opportunities to discuss the Maryland SREC market with solar energy system owners they spotted along the race course.

Despite the challenging conditions, team members took a few opportunities to discuss the Maryland SREC market with solar energy system owners they spotted along the race course.

Sol Systems Tops 360 Teams to Win 200 Mile Relay Race

On September 12-13, nine members of the Sol Systems team ran a 200 mile relay race stretching from Cumberland, MD to Washington, DC. Winding through hills and valleys, day and night, the team steadily made its way to the finish line, beating over 360 teams to take the first place title. With a final time of 25 hours and 35 minutes, the Sol Systems team finished a full hour faster than the second placed finishers.

The Ragnar Relay consists of 36 individual legs (3 per runner) ranging from 2 miles to 11.1 miles in length with varying difficulties in terrain. The logistics of the race involve two vans of six runners alternating every six legs, trading off at major exchange points at which runners can relax, meet other teams, and attempt to sleep.

The race started for the Sol Systems team (named the Fighting Gibsons after the company’s Chief Technical Officer, Mike Gibson) at 12:30 pm on Friday and continued until just after 2 pm on the following day. By the end of the race, most teammates had only slept for one or two hours.

As the final runner raced down the stretch, all 12 team members came together and crossed the finish line in unison. The team drew together in the face of the relay’s challenges, ultimately coming out stronger. See you next year, Ragnar DC.

Read More

Interested in Developing a 650kW+ Solar Project in Massachusetts? Think Again (Or Be Very Patient)

The countdown is now over, and the DOER has released their initial analysis and expectation for the Managed Growth Capacity Block for 2016.

The Massachusetts DOER has released their expectation for the SREC-II program’s 2016 Managed Growth Capacity Block.

Yesterday’s announcement from the Massachusetts Department of Energy Resources (DOER) may have taken some Massachusetts solar developers by surprise.

Immediately following the announcement of the allocations for the 2014 and 2015 Managed Growth capacity, commercial and utility scale solar developers across New England began counting down the days to when the 2016 capacity amount would be revealed. Developers had long awaiting the final figures for the DOER’s 2016 allocation, hoping they could fit their 650 kW+ solar projects into the Massachusetts solar program.

The countdown is now over, and the DOER has released their initial analysis and expectation for the Managed Growth Capacity Block for 2016.  The final result is… 0 MW.

Read More

Chill from Ohio RPS Freeze Extends to Neighboring Solar Markets

The SREC markets in Pennsylvania, Virginia, and even Kentucky are feeling the effects of the Ohio RPS freeze.

The SREC markets in Pennsylvania, Virginia, and even Kentucky are feeling the effects of the Ohio RPS freeze.

On June 13, Ohio made history by becoming the first state to “freeze” its Renewable Portfolio Standard (RPS). The passage of SB310 was a major setback for the renewable industry in Ohio, but who knew what happened in the Buckeye State could affect solar in Pennsylvania, Virginia, and even Kentucky?

Ohio’s legislative change froze not only the RPS, but the solar renewable energy credit (SREC) trading markets in the surrounding states. Because bordering states such as Indiana, West Virginia, Michigan, and Pennsylvania can sell their SRECs into the Ohio solar market, spot market SREC prices in these states have drastically declined, dropping down from $70/SREC to $30/SREC in a matter of weeks.

As Virginia solar energy system owners sell their SRECs into the Pennsylvania SREC market, the Virginia solar market has also taken a hit. This all happened just when the Pennsylvania solar market was on the rebound. Pennsylvania SREC prices were as high as $76/SREC earlier in the year, much higher than the $20/SREC we were seeing in 2012 and 2013.

Read More

3 Reasons Why a Managed SREC Solution Outperforms an Auction

Our team strongly believes that a managed SREC solution, one in which a third party such as Sol Systems executes trades in the best interest of the SREC owner, provides the customer with the highest sale price. Here’s why the managed approach works so well.

1. Aggregation

Aggregation is important because larger volume SREC transactions often result in higher prices. For example, it’s very difficult to sell 12 SRECs on any given day. However, many SREC buyers would be very interested in purchasing 1200 SRECs. The higher volume that a managed SREC solution allows improves liquidity, and results in higher pricing. Sol Systems has always passed down this higher pricing to SREC owners.

Read More

Massachusetts SREC-I Auction Throws a Curveball to the Markets: Here’s how this will impact SREC-II projects.

Massachusetts proposes new solar policy...again. The new proposal is a compromise to address net metering and the SREC market.

The Massachusetts SREC Clearinghouse did not clear. Here’s what comes next.

Round II of the Massachusetts SREC-I clearinghouse auction failed to clear yesterday, July 30. A third round will be held on Friday, August 1st, 2014. As we described earlier in an explanation of the Massachusetts SREC-I auction, This annual auction, which is based on the volume demanded, allows SREC sellers the opportunity to auction their SRECs at the end of each summer for a fixed price of $300/SREC, minus an auction fee (most customers will net $285)

Implications of the Massachusetts SREC-I Clearinghouse Round II

An Auction failing to clear Round II automatically increases the Renewable Portfolio Standard (RPS) obligation by 142,504 to 1,054,933 SRECs for compliance year (CY) 2015. An increase in demand generally pushes prices higher, which is what Sol Systems’ SREC trading team saw yesterday. Massachusetts SRECs with a 2015 vintage stamp increased $35 per SREC to $320 from $285. Since a partial clearance of the Auction is allowed in Round III, compliance entities and SREC investors are likely to bank some SRECs in expectance of this increase in CY 2015 RPS obligation. All unsold auction SRECs will be returned to the owners (with extended life of three years) in proportion to the clearance volume in Round III and will have to be sold on the spot market.

Read More

Massachusetts DOER SREC Clearinghouse Auction is Underway, Here’s What You Need to Know.

The Massachusetts solar renewable energy credit (SREC) market is undoubtedly the most complex incentive program among its peers. Among its complexities is the annual clearinghouse auction mechanism, which allows SREC sellers the opportunity to auction their SRECs at the end of each summer for a fixed price of $300/SREC, minus any auction and aggregation fees (most customers will net around $271). Sol Systems can provide you with fixed forward pricing. Having a fixed forward price eliminates the need to enter the auction and deal with reminted SRECs. Right now, our 4-year pricing for SREC-I is $270. We offer 3-year, 4-year, 5-year and 10-year pricing for SREC-I and SREC-II. Sol Systems takes care of customer accounts throughout this process, thus allowing our customers to pursue their core business. For more information, email us today at info@solsystemscompany.com.

The first round of the SREC clearinghouse auction took place today and did not clear; 141,504 SRECs were deposited. Anxious SREC sellers are hopeful all SRECs will be cleared by the end of round two, which is to be held tomorrow, 30th July, 2014. It makes sense for auctions to enter Round II as an increase in the shelf life of SRECs is beneficial for both, compliance entities and SREC owners.

MA SREC Auction Mechanism

MA SREC Auction Mechanism

Read More

2014 Delaware Procurement Program Solicitation Results in Surprisingly Higher Pricing than 2013

On May 28, 2014, the results for the 2014 SRECDelaware Procurement Program were announced. This is the second year that the newly structured program has been in place; the Delaware Public Service Commission approved the new structure of the program in 2013, which implemented a competitive bid process for all tiers for the first 7 years of the contract and a set price of $50/SREC for the remaining 13 years of the contract. However, with the 2014 program, the set price for the remaining 13 years of the contract has decreased to $35/SREC. The 2012 Pilot Program that preceded the current Procurement Program differed in structure, with administratively set prices at $260/SREC for years 1-10 and $50/SREC for years 11-20 for projects under 250 kW and a competitive bidding process for anything larger. In 2013, the competitive Procurement Program resulted in lower SREC prices for successful bidders, as compared to the administratively set Pilot Program. In 2013, SRECDelaware also held a Spot Market Auction for owners of existing SREC’s generated since July 2009, which additionally produced low SREC prices.

Read More

Ohio Becomes the First State to Freeze its Renewable Portfolio Standard

The passage of Senate Bill 310 (SB310) has frozen Ohio’s Renewable Portfolio Standard until 2017, making Ohio the first state to roll back renewable energy and efficiency measures.

The passage of Senate Bill 310 (SB310) has frozen Ohio’s Renewable Portfolio Standard until 2017, making Ohio the first state to roll back renewable energy and efficiency measures.

With the signing of Senate Bill 310 (SB 310), Ohio has become the first state to “freeze” its Renewable Portfolio Standard (RPS). Ohio Governor John Kasich signed the bill into law on June 13th, effectively halting the state’s mandates for efficiency and renewables until 2017. Come 2017, these mandates will pick up where they left off when the freeze occurred, as opposed to the annual increases in renewable energy and efficiency measures that would have occurred with the RPS.

SB310 will significantly harm Ohio’s solar industry by driving SREC prices down in both the Buckeye state as well as the surrounding states such as Kentucky, Pennsylvania, West Virginia, Indiana, and Michigan that sell their SRECs into Ohio. The bill faced tremendous opposition from health and environmental coalitions, as well as a group of 70 businesses and organizations, including Honda and Whirlpool, who urged Governor Kasich not to sign the bill.

Read More

Sol Systems Completes the Massachusetts Solar Market’s First SREC II Transaction

Sol Systems is the first to close a prepaid SREC contract in Massachusetts' nascent SREC II market.

Sol Systems is the first to close a prepaid SREC contract in Massachusetts’ nascent SREC II market.

Sol Systems is pleased to be the first to close a transaction in solar renewable energy credit (SREC) II, the newest iteration of the Massachusetts solar market. Under this agreement, Sol Systems will provide solar project financing via a prepaid SREC contract to EthoSolar, an Ontario-based solar power provider with over 600 systems installed in North America, for a 150 kilowatt (kW) solar energy project.

This landmark deal is the first prepaid SREC contract in the nascent Massachusetts SREC-II market, which will be promulgated on April 25. Sol Systems provided a Sol Upfront contract, issuing pre-payment to EthoSolar’s client for generation of SRECs in 2014 and 2015; this capital was key in pushing the project over the finish line in light of a tight deadline.

“Combining an upfront sale of a percentage of SRECS with other traditional and nontraditional solutions allowed us to negotiate an attractive financing solution from a local bank that has our client in the black from day one on this project. Sol Systems brought creativity and value that was outside the box,” said Ethan DeSota of EthoSolar.

Read More

Webinar Invitation – Everything You Need to Know about the Massachusetts SREC II Program

The Massachusetts solar renewable energy credit (SREC) program has been critical for driving the massive solar growth in the state. However, regulatory uncertainty has loomed since the Massachusetts Department of Energy Resources (DOER) announced last spring that the first iteration of the solar carve-out, now known as SREC I, had reached its cap. Since then, the industry has had their eyes on the development of SREC II, the Bay State’s next solar carve-out program. As SREC II nears promulgation, join Sol Systems, SEIA, and the Massachusetts DOER as we discuss:

  • SREC II’s regulatory framework and how it differs from SREC I, particularly in regards to the new SREC factor and Clearinghouse auction
  • The fate of Massachusetts SREC I subscribers, including those who have not yet been accepted into the program
  • Supply and demand dynamics in the MA SREC I & SREC II programs
  • Spot market prices and the availability of fixed price contracts, including advisable SREC strategies for both residential and commercial systems
  • How to finance commercial projects in Massachusetts, including advisable PPA rates and the availability of SREC strips

    Sol Systems will host a webinar on SREC II with the Massachusetts DOER and SEIA

    Join Sol Systems, Massachusetts DOER and SEIA for information on SREC II structure, pricing and market dynamics

Speakers include:
  • George Ashton, Vice President & CFO, Sol Systems LLC
  • Jason Cimpl, Renewables Trader, Sol Systems LLC
  • Michael Judge, Associate RPS Program Manager, Massachusetts Department of Energy Resources
  • Carrie Hitt, Senior Vice President of State Affairs, SEIA

The event will be taking place on April 23rd, 2014. Register today.

About Sol Systems
Sol Systems is a renewable energy finance firm that provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. Founded in 2008, Sol Systems focuses on meeting the industry’s most critical solar financing needs, including tax structured investments, capital placement, debt financing, and SREC portfolio management. To date, the company has facilitated financing for thousands of distributed generation solar projects and hundreds of millions in investment on behalf of Fortune 100 corporations, utilities, banks, family offices, and individuals. For more information, please visit

New Jersey’s PSE&G’s Second Solar Loan III Solicitation is Coming. Here’s What You Need to Know.

The Public Service Electric and Gas Company of New Jersey (PSE&G) will begin accepting applications in less than a month, on February 25, for its Solar Loan program. While no major changes have occurred since the first solicitation late last year, data is now available on pricing from the first round of applications and awards.

The first solicitation of New Jersey’s PSE&G Solar Loan III program began last year and closed the period on November 12th, 2013.  The program provides loans that make up significant portions of project construction costs (see an example here). The loans can be repaid through SRECs, with payment plans set at the closing of the loan. Cash can also be used to pay in case of low production. Once the loan has been paid in full, any SRECs produced thereafter belong to the owner of the system. The following capacities are available per each program segment:

Screen Shot 2014-01-27 at 4.58.39 PM

Read More