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It’s Official: D.C.’s 50% RPS Becomes Law

You may have heard talk over the past couple of months about a renewable portfolio standard (RPS) expansion happening in the District of Columbia.  Well, it’s no longer just talk. Back in July, Mayor Bowser signed the initial bill, and it then went to Congress for review. Now, effective as of October 8, B21-0650, the Renewable Portfolio Standard Expansion Amendment Act of 2016, is officially law.

What are D.C.’s New Renewable Targets?

While the SACP has increased substantially under this law, the devil is in the details.

Graph 1

Figure 1: SACP schedules under new and old legislation

Under the act, D.C. must procure 50% of its electricity from renewable energy by 2032, and the solar requirement is now 5%. At these new levels, D.C. is now on par with other state clean energy leaders like California, New York, and Oregon in regards to RPS goals. Not only does the law increase the renewable requirements, but it also extends the alternative compliance payments for utilities that don’t meet these standards; this acts as a price ceiling in the marketplace. Under Section 6(c)(3), the current $500 penalty for every megawatt hour (MWh) of solar not met is extended to 2023 (reference Figure 1), and for the proceeding 9 years, until 2032, the alternative compliance payments for utilities stay in the couples of hundreds for utilities that don’t meet their requirements.

SREC Pricing: The Devil is in the Details

With an ACP that high, one may expect SREC values to hover around $500 for the foreseeable future.  Think again; the devil is in the details. As the legislations stands, existing load contracts from five years or less before this new law will still be subject to the old solar ACP schedule (reference Figure 1), which decreases to an ACP of $350 starting next year.  What this load amount will be is still uncertain; it could be large, or it could be small. The point here is that some of the market will be under different compliance obligations than others, and a $500 SREC price is not a safe assumption for SREC pricing in the short term. It might be a future outcome, but those who expected pricing to remain at current levels may be disappointed.

Conclusion

While D.C.’s new standards may not result in continued $500 SRECs, at least right away, the new law will help grow solar and other renewables in the District through 2032 and beyond, and the clean energy job market with them. In a statement by Mayor Bowser, her office estimated that the new bill will create 100 new green jobs within just the first year, and that number will increase year over year.

On top of that, the new law will have larger societal and environmental benefits. It will help the District meet its Sustainable DC Plan which aims to reduce carbon emissions by 50%. In addition, the new law creates a “Solar for All Program,” to be run by the District Department of Energy and Environment (DOEE).  This program hopes to reduce the energy burden for 100,000 low-income households by 2032, and will bring access to renewables to communities that may not have otherwise had the opportunity.

Overall, the Renewable Portfolio Standard Expansion Amendment Act is paving D.C.’s renewable future for everyone in the district, and establishing the District as a national leader in forward-thinking energy policy.

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.

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.

Why SREC Forecasts Are Stronger Than You Think

Despite common misconceptions, SREC prices will never reach $0.

Despite common misconceptions, SREC prices will never reach $0.

The value of solar renewable energy credits (SRECs), by nature, is designed to decline over time as the cost of solar declines. SREC markets – markets generally with a solar carve-out in their renewable portfolio standard (RPS) – are governed by the laws of supply, demand, and the alternative compliance payment (ACP). While the ACP acts as a price ceiling, a lesser talked about market driver is the Tier I renewable energy credit (REC) price, which acts in some ways as a “price floor” for SREC values. Many assume that when markets become oversupplied, the value of SRECS will ultimately reach $0. Not a bad assumption, but clearly not a good one either. To understand why, a look at the broader Tier 1 market is key.

REC vs. SREC: What’s the Difference?

Unlike SRECs, RECs are not generated exclusively by solar (as you may have guessed from the name). RECs are typically produced by lower cost renewable energy sources, or those that are built at a tremendous scale (like wind). Solar gets a special carve-out with its own ACP to account for a difference in costs between solar and other technologies, and because solar can be built at smaller scale (e.g. rooftop solar and distributed generation).  In Pennsylvania, for example, wind, geothermal, biomass, and low impact hydro are a snapshot of technologies that qualify for Tier 1 RECs. Non-renewable sources such as “black liquor,” a paper industry favorite, may also count toward RPS compliance in some states.

Why isn’t solar booming in Ohio and Pennsylvania?

When an SREC market becomes oversupplied, SREC prices gravitate toward the Tier 1 price, not $0. Take Pennsylvania and Ohio, two states with extremely oversupplied SREC markets. It’s no coincidence that SREC prices have hit rock bottom in both states, and SRECs are trading for about $13-$14, which is also the Tier 1 price.

Unfortunately, the oversupply in PA and OH cannot be attributed to strong solar builds in-state. Ohio only installed 10MW last year, and PA only installed 15MW of solar; to put that in perspective, tiny Connecticut installed 91MW of solar last year, and Massachusetts installed 286. The oversupply in PA and OH is due to a number of factors, most notably, relatively modest renewable targets, as well as loose compliance rules that allow for energy from out-of-state sources to qualify for SREC. Add in recent interference by the Ohio legislature to freeze the state’s renewable targets, and prices are hitting the Tier 1 price point ahead of schedule.

Regarding the first point, under PA’s version of an RPS, an Alternative Energy Portfolio Standard (AEPS), 18 percent of the electricity supplied by Pennsylvania’s electric distribution companies (EDCs) and electric generation suppliers (EGSs) must come from alternative energy resources by 2021. Only approximately 8% of that must come from Tier 1 sources. In Ohio, only 12.5% of energy must come from renewable energy sources by 2027, though even that modest amount of renewable energy procurement is in jeopardy pending current legislation. To put these numbers in perspective, legislation in Maryland, if enacted, would put the renewables requirement at 25% by 2020, and legislation being considered in Washington, D.C. would increase the renewable portfolio standard to 50%.

On top of PA and OH’s relatively weak renewables targets compared to other states, provisions allowing for out-of-state resources to count toward compliance further dilutes the standards. These provisions also do little to stimulate investment in each state’s own borders. This provision also creates a price interdependency between the two states, which is why pricing is gravitating in both markets toward the Tier 1 price. As such, if legislation moves forward to freeze Ohio’s already meager renewable portfolio standard, the Pennsylvania solar market will also be affected.

What Projects Can Be Built with Tier 1 Pricing?

Solar carve-outs were designed with the expectation that SREC pricing would one day merge with Tier 1 pricing. That is happening now in Pennsylvania and Ohio, and could soon happen in other states if oversupply outweighs renewables targets.

Even with pricing at Tier 1 rates, residential may pencil so long as the integrity of net metering is kept in place. Although some utility-scale solar will move through, the middle portion of the market – commercial and industrial (C&I) and even small utility-scale – will see far fewer opportunity for growth. As if this middle sector of the market didn’t have enough challenges…

This is an excerpt from the May 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 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.

A Tale of Two Carolinas

trend1-tale-of-2-carolinas

North Carolina is the country’s #2 solar market, but the 35% state tax credit is no more.

It was the best of times, it was the worst of times. North Carolina is the country’s #2 solar market, but the 35% state tax credit is no more.

Without the state tax credit, the Tar Heel state starts to look a lot more like its neighbor to the South. And that’s not a bad thing. North Carolina and South Carolina are both in the same genre of solar market. Land lease and labor costs are low, and interconnection costs are low or reasonable for sites near transmission lines or substations. Both share the gift of relatively high production versus their counterparts north of Mason-Dixon line. They’re similar in terms of geography and the types of projects that can be built (ground mounts with low upfront and ongoing costs). Unlike high saturation states such as Hawaii and California, grid penetration is not an issue. The two states even share utility companies in common, and projects in the 5-10MW AC range benefit from long-term fixed contracts at similar rates. Larger projects require directly negotiated bilateral contracts for slightly lower rates, which are becoming more common in both states.

We’d also cite property taxes as a differentiator between the two. Unlike South Carolina, North Carolina benefits from an 80% property tax abatement for non-residential solar projects. This means that in South Carolina, developers must negotiate a payment in lieu of taxes (PILOT) agreement with each solar installation, or head to their local town council and explain that the solar energy system will not be attending public school or driving on the roads, and as such, should be exempt from the bulk of property taxes.

We’re mixing our Dickens here, but all we have to say about property taxes and the expense uncertainty they create, is “Bah! Humbug!”

This is an excerpt from our March 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 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.

Will the Clean Energy Jobs Bill Stabilize the Maryland Solar Market?

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If market conditions stabilize in Maryland, solar employment will increase another 8.5% by the end of 2016

According to the latest Solar Jobs Census, Maryland ranks #12 in solar jobs nationally, with nearly 4,300 solar workers cross the state. 40,485 homes were powered by solar as of The Solar Foundation’s latest report.

The growth of the Maryland solar market is largely due to the state’s renewable portfolio standard (RPS), which has created a strong, stable market for solar renewable energy credits (SRECs). Unlike other SREC markets – such as Pennsylvania and New Jersey – which have been volatile, boom, and bust, Maryland has benefitted from consistent growth year-over-year and a stable market for SRECs. Moreover, high incentive levels in other “flashier” East Coast solar markets (e.g. Massachusetts, where we are offering $280/SREC for 5-year contracts in SREC I, $200 in SREC II) have historically led to relatively less representation by commercial and utility-scale solar developers in the state, again leading to a relatively stable supply-demand balance.

Maryland RPS = GOOD

The Maryland RPS has lived up to its promises. More than 1,000 solar jobs were added in Maryland last year alone. If market conditions stabilize (more on that below), solar employment will increase another 8.5% by the end of 2016, according to The Solar Foundation.

In addition to employment and solar deployment numbers that have come out of the Maryland RPS, it’s becoming increasingly easier and more affordable for utilities and energy suppliers to meet solar requirements set forth by the RPS. That’s because SREC prices, which utilities and energy suppliers must procure year-over-year to comply with the RPS, have steadily been declining.

The declining value of solar renewable energy credits makes it easier for utilities and energy suppliers to meet Maryland’s renewable energy goals.

The declining value of solar renewable energy credits makes it easier for utilities and energy suppliers to meet Maryland’s renewable energy goals.

The Maryland Solar Market is at Risk

Unfortunately, however, this stable growth is at risk. Since the start of 2016, SREC prices in Maryland have taken a nose dive from $160/SREC and are now approaching the sub-$100. Price declines will continue, as previously unattainable utility-scale projects – which had a December 31, 2016 deadline before the extension of the solar investment tax credit (ITC) – will now move forward, disrupting the SREC market’s supply and demand balance. Moreover, the cost of solar has plummeted dramatically since the original passage of the RPS in 2004, and costs have continued to decline since its subsequent amendments. In fact, since 2010, the cost of a solar electric system has gone down by 70% according to the Sunshot Initiative. As costs of solar have come down, these goals need to be reevaluated to better reflect the growing demand for solar in the state.

Introducing the Maryland Clean Energy Jobs Bill

Currently, legislative action is pending to increase the Maryland RPS. HB 1106, also known as the Maryland Clean Energy Jobs Bill, calls for a modest increase in the solar carve-out provision with the RPS, pushing it from 2% by 2020 to 2.5% by 2020, and pushing the overall renewables requirement to 25% of electricity by 2025. This will essentially require more than 500MWdc of solar. This is an attainable RPS goal that the solar industry is expected to meet with ease. This slight increase in near-term demand for solar is offset by reduced Solar Alternative Compliance Payments (SACPs), which essentially act as a price ceiling for the SREC market. Moreover, this increase is modest in comparison to other states such as Oregon and California which recently passed 50% RPS bills. Maryland’s neighbor, D.C., also proposed a 50% RPS last week.

Moreover, the Clean Energy Jobs Act of 2016 will support pre-apprenticeship, apprenticeship, and other workforce programs to establish career pathways within the renewable energy industry. (As a company that’s been hiring constantly over the last several years, we’d appreciate being able to find more local talent with ease.)

Will the Clean Energy Jobs Bill Affect SREC Prices?

While the Clean Energy Jobs bill will not have a dramatic upward push on SREC prices, the bill’s successful passage could possibly bring SREC prices back to where they were, closer to $120 for 2017, and to $85 for 2018. HB 1106 was heard in the Maryland House Economic Matters Committee on 3/3. Its corresponding bill in the Senate will be heard in committee today, Tuesday, March 8. Tell your state legislators that you want to see more solar in Maryland by doing by clicking on MDV-SEIA’s Action Alert, or by calling your state legislator.

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.

How Does the ITC Extension Affect SREC Pricing?

Latest Clearing Prices_web_20160203

February SREC prices

On December 18, 2015, the solar industry scored a landmark victory by winning a multi-year extension of the solar investment tax credit (ITC). The three-year 30% ITC extension – plus the subsequent 2-year ramp down – will provide the solar industry with a strong, stable investment climate for years to come. Analysts estimate that solar capacity may increase by 30-50% over the next five to seven years as a result of the ITC extension.

The strong, stable investment climate created by the ITC extension serves as a bridge to the Clean Power Plan, provides job security to the industry’s 200,000+ employees (and counting), allows for solar to prosper in new markets, and will improve the health of our planet. A sustained solar boom is a boon for our economy and our environment; but what does the expected growth in installations mean for the nation’s top solar renewable energy credit (SREC) markets?

Let’s Back up. What Creates an SREC Market?

SREC markets are driven by three factors:

  • Supply of solar, which means the amount of solar installations in a given state
  • Demand for solar, which is driven by each state’s renewable portfolio standard (RPS) and solar carve-out
  • The alternative compliance payment (ACP), or the penalty an electricity supplier must pay if they do not procure enough SRECs or build enough solar to comply with the RPS. In many ways, this acts as a price ceiling in the market.

Will Market Conditions Change in All SREC States?

The ITC extension is affecting some SREC markets more than others. With or without a 30% ITC, each market still has its own unique issues. In DC, solar will still be challenging to build given land constraints. Pennsylvania and Ohio, due to the ability to apply SRECs from adjacent states towards state compliance, have long been oversupplied. This has especially been felt in Ohio after Governor Kasich froze the RPS, triggering price declines in all bordering states, and even Virginia.

In the Northeast, analysts have long expected that Massachusetts, the nation’s #6 solar market (#3 in Q3 2015), would hit its cap for SREC II this year, with or without an ITC extension. As we reported earlier, that could happen as soon as this week. Last, New Jersey. After serving as the poster child for SREC market volatility, New Jersey has been facing its own comeback, which we suspect to sustain itself for the next several years.

But what about Maryland?

The Biggest Question Mark: Maryland

With the increase in supply made possible by the ITC extension, Maryland is the market that may experience the most downward pressure. Recently, prices have dipped from $160/SREC to $120/SREC, with further declines expected as costs continue to come down and utility-scale projects become easier to build, such as Great Bay, the 75MW project expected to hit the market in the next 12 months. On top of that, the solar requirement within the Renewable Portfolio Standard (RPS) is stagnant at 2% beginning in 2020 as the SREC market effectively begins to merge with the Tier 1 REC market. Depending on what percentage of PJM pipeline you view as likely to go online, and what the effect on residential uptake will be as REC prices decline, this combination could result in ample supply until 2020 and oversupply thereafter.

How to Mitigate SREC Risk

To protect yourself from SREC risk, Sol Systems offers long-term SREC contracts for as long as 15 years. Contact Kate Brandus at info@solsystems.com for information on pricing.

For the most updated SREC pricing in your state, see our latest clear prices for our Sol Brokerage clients.

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.

3 Immediate Effects of the ITC Extension on the U.S. Solar Landscape

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What does the ITC extension mean for the investment climate in the U.S.?

On December 18th, the U.S. House and Senate passed the Consolidated Appropriations Act of 2016, which included a multi-year extension of the solar investment tax credit (ITC). Now that we have another 5 years of ITC, here are three basics effects the extension will have on the U.S. solar landscape.

1)      More [expensive] tax equity needed

Depending on who you ask (check out forecasts from UBS, GTM, and BNEF), solar capacity may increase by 30-50% over the next five to seven years, creating a strong, stable investment climate for solar assets. The added supply of solar (as well as the reinstatement of both MACRS and wind’s production tax credit) projects will put tax equity investors in higher demand than ever, as we estimate that somewhere around $10 billion in solar tax equity will be needed annually, on average, over the next five to seven years. To put that in perspective, the solar tax equity market in 2015 was sized at approximately $6 billion. This increased demand for tax equity will have a positive effect on yields for these investors. For investors contemplating developing or expanding a tax equity platform, the time is now.

2)      “New” markets

Before the extension of the ITC, we wrote about new markets that have emerged thanks to falling costs, PPA authorization, and other factors. The extension of the ITC will make it possible for solar to flourish in these new markets, as well as markets that have made a comeback, such as Pennsylvania – assuming each works out its respective localized challenges (e.g. net metering battles, property taxes in the Southeast, and PURPA challenges across the West).

3)      SREC price decline in some markets

With the increase in supply made possible by the ITC extension, some SREC markets may experience downward pressure. Most notably, Maryland will see these effects as costs continue to come down and utility-scale projects become easier to build. On top of that, the solar requirement within the Renewable Portfolio Standard (RPS) is stagnant at 2% beginning in 2020.  The combination will result in ample supply until 2020 and oversupply thereafter.

To protect yourself from SREC risk, Sol Systems offers long-term SREC contracts for as long as 15 years. Contact Kate Brandus at info@solsystems.com for information on pricing.

Full Report Available
Are you an investor interested in a more in-depth analysis of the tax equity market under an extended ITC? Contact finance@solsystems.com to set-up a call with our team.

This is an excerpt from our January edition of SOURCE: the Sol Project Finance Journal, a monthly electronic newsletter analyzing the solar industry’s latest trends based on our unique position in the solar financing space. To view the full Journal or subscribe, please e-mail pr@solsystems.com.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 410MW 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

Round Two is No Déjà Vu. What You Need to Know About the IL Supplemental Procurement.

Looking up from the base of the Sears Tower.

After the successful June 2015 procurement , the Illinois solar industry is racing toward the second round of the three-part SREC Procurement

Now is the time to act for the second of three procurements in Illinois.

After the successful June 2015 procurement , the Illinois solar industry is racing toward the second round of the three-part SREC Procurement. Driving growth of new, distributed solar generation remains the goal, but there are several key differences from the June procurement. In short, these include:

  1. an increase in the amount of money available from $5 million to $10 million;
  2. an increase in the maximum system size to 2 MW; and
  3. no maximum bid size per bidder.

Like June, the procurement will be broken into several size categories to achieve the goal of procuring 50% of the SRECs from systems smaller than 25kW. Systems must have been energized after January 21st, 2015 and be located behind a customer’s utility meter.

SRECs continue to be a vital piece of solar financing in IL, especially as the previously available state grant shows no signs of returning in the foreseeable future.  Nearly all of the $5 million available in June was spent, and we expect the November procurement to see heavy demand as well.  This procurement and the third round scheduled for March of 2016 will be key events to watch as uncertainty around the state’s policy framework adds to precariousness around the impact of the ITC step down.

Sol Systems will participate again as an Aggregator in the November procurement. Already, we are working with individual customers, installers, and developers to place bids in all size categories.  Additionally, we are working with installers to place speculative bids in the small size category.

For this procurement, the IPA’s published schedule actually places the first major deadlines in late October. In line with that schedule Sol Systems will be accepting new customer registrations until October 20th.

Bid into the Illinois SREC Procurement

The Illinois solar renewable energy credit (SREC) market is preparing for take-off. The Illinois Power Agency (IPA) will procure $30 million in SRECs from Illinois-sited systems this June and November, and in March 2016, and Sol Systems is here to help.

In June, our team will submit bids on behalf of customers in all three categories: <25kW,  25kW up to500kW and 500kW up to 2MW . To qualify for the Procurement, systems must be energized after January 21, 2015..

Learn more below, and contact info@solsystems.com if you have any questions. Installers interested in placing Speculative Bids should contact eric.stam@solsystems.com

About the Illinois SREC Procurement

  1. What is the Illinois SREC Procurement?
  2. What kind of SREC contract can I secure?
  3. Does my solar energy project have to be a certain size to participate?
  4. How do I sign up for the Illinois SREC Procurement?
  5. What deadlines should I be aware of?

Eligibility

  1. Who can participate in the Illinois SREC Procurement?
  2. I live outside of Illinois, but I have an Illinois certification number. Can I still participate?
  3. What size solar energy systems are eligible to bid into the Procurement?
  4. What kind of meter is my system required to have?
  5. Is my system required to have remote monitoring?

Bidding

  1. What is the difference between a speculative bid and an identified bid?
  2. What are some important bid rules?
  3. Will you bid my system at exactly the price I send you?
  4. How much will I be paid per SREC?
    What should I bid?
  5. What is Sol Systems fee?
  6. How do I calculate how many SRECs to bid?
  7. Do I have to post credit?
  8. Will I get my deposit back?

Next Steps after Bid Submission

  1. What happens if I have a winning bid?
  2. What important dates should I be aware of?
  3. What are the registration requirements?
  4. How will monthly meter readings be reported? Will I have to do it?
  5. When will I get paid?
  6. What happens if I bid and lose?

General

1. What is the Illinois SREC Procurement?

The Illinois Power Agency is hold a $30 million procurement for solar renewable energy credits (SRECs) from photovoltaic solar systems. The procurement will take place over 3 events starting in June 2015 ($5m spent), followed by November 2015 ($10m), and March ’16 ($15m). The focus of the procurement is on new systems and small systems with a target of 50% of procured SRECs generated by systems smaller than 25kW.

2. What kind of SREC contract can I secure?

Through the procurement, the IPA will award five year contracts with fixed payments, for up to a maximum quantity of SRECs. “Up to Maximum Quantity” means there is no penalty for under producing and no ability to sell more than the Maximum Quantity to the IPA. A customer can sell their SRECs until the maximum quantity or the five year term is reached, whichever comes first.

3. Does my solar energy project have to be a certain size to participate?

No, the small size category only specifies that systems are below 25kW in nameplate capacity (DC). There is a maximum size, 500kW for the June event and 2MW for November and March.

4. How do I sign up for the Illinois SREC Procurement?

Customers can sign up by registering through Sol Systems’ website. Once the online registration is complete, Customers will receive a contract which they can sign and retrun to Sol Systems by email, fax or mail. Addresses and our fax number are:

Sol Systems is working with many installers and developers in IL, and you may be able to sign up with Sol Systems directly through them. Please ask your installer to find out more or contact Sol Systems at info@solsystems.com

5. What deadlines should I be aware of?

Bid submissions are due to Sol Systems by October 20th by 6 pm EST.

You can find the full calendar of dates and deadlines for the procurement see the IPA’s Supplemental PV calendar here: http://ipa-energyrfp.com/calendar/

Eligibility

1. Who can participate?

Eligible solar energy systems must be new, which means they must be energized on or after January 21, 2015 to bid into the Procurement. Systems must also be distributed which means they must be located behind the customers utility meter and be smaller than 2MW. Systems must also be installed by a “qualified person,” which is defined in the law authorizing the Supplemental Procurement, the Illinois Power Agency Act Section 1-56 (20 ILCS 3855/1-56(i)), and is a slightly more stringent standard than is currently in place.

2. I live outside of Illinois, but I have an Illinois certification number. Can I still participate?

Unfortunately not. All solar energy systems must be located in Illinois and must be interconnected with an electric utility, alternative retail electric supplier, municipal utility, or a rural electric cooperative; Sol Systems will aggregate systems located in either MISO or PJM interconnection territory; roughly speaking, Ameren Illinois customers are in MISO territory and ComEd customers are in PJM territory.

3. What size solar energy systems are eligible to bid into the Procurement?

In June, solar energy systems must be in one of two size categories:

a. Smaller than 25kW (50% of SRECs procured); or

b. Between 25kW and 500kW (50% of SRECs procured)

In November, solar energy system systems will be broken into the following size categories:

  1. Smaller than 25kW (50%)
  2. Between 25kW and 500kW (15%)
  3. Between 500kW and 2MW (35%)

In March 2016, solar energy system systems will be broken into the following size categories:

a. Smaller than 25kW (50%) ; or

b. Between 25kW and 2MW (50%)

4. What kind of meter is my system required to have?

Systems must have a revenue quality meter with accuracy as defined by IPA. Click here for the IPA’s requirements for revenue quality meters. Note that there requirements do depend on system size and systems below 10kW which will be registering with the GATS registry may use inverter readings from an inverter that meets the IPA’s accuracy standards. No systems registering with the M-RETS registry may use inverter readings. 5. Is my system required to have Remote Monitoring?

If your system is larger than 20kW, it must have remote monitoring.

Bidding

1. What is the difference between a speculative bid and an identified bid?

Speculative bids are only possible for systems smaller than 25kW. A speculative bid is a bid which only specifies a quantity of RECs and a price per REC. It does not identify the system from which the RECs will come.

2. What are some important bid rules?

  1. The minimum size for bid blocks is 500 RECs, which is approximately 80kW.
  2. In the small size category, all RECS in a single block must be bid at a uniform price.
  3. In the large size category, systems are bid with a specific price per system.
  4. An Identified bid is a bid which identifies the system which will generate the RECs, the quantity of RECs and the price per RECs. The system is identified with information such as physical address, interconnecting utility, planned nameplate capacity. The system does not yet have to be installed or energized to be bid as an Identified System.

3. Will you bid my system at exactly the price I send you?

If your system is above 25kW we will enter your bid with the exact bid price you have. provided to us.

If your system is below 25kW, your system will be grouped with others to reach the minimum bid size of 500 RECs (which is approximately 80kW). Groupings will be determined by the bid prices submitted as well as the overall range of bid sizes and prices. Our goal is to form the most competitive groups possible. However, we will treat the bid price you have provided to us as a minimum bid price and will not put you in a grouping with a lower price.

4. What should I bid?

You should bid the price that makes your project financially feasible. If your project is already built you should bid a price that would result in a meaningful (to you) reduction in the time required to recoup your investment.

When determining your bid price, make sure to account for Sol Systems’ fees, listed below.

5. What is Sol Systems’ fee?

For winning bids, Sol Systems will charge a fee per SREC based on the winning bid price. For Systems smaller than 25kW the fee will be 11% or $10, whichever is greater on a per SREC basis. For systems larger than 25kW the fee will be 9% or $10, whichever is greater on a per SREC basis. Customers who do not have winning bids, will not be charged an additional fee.

6. How do I calculate how many SRECs to bid?

All systems will use the same formula to calculate the quantity of RECs they bid, based on their nameplate capacity. That bid quantity will be calculated as: (Planned Installed Capacity / 1000) x .1438 (the Assumed Capacity Factor) x 8760 kilowatt hours hours x 5 years. When customers register online, this calculation will be done automatically for them.

7. Do I have to post credit?

Any Sol Systems’ customer bidding identified systems will not have to make any credit deposit to place a bid. If you have a winning bid, you will be asked to deposit $4/SREC as the required post-bid credit.

The procurement does have several credit posting requirements: $16/REC for speculative bids and $8/REC for identified bids. Half of the required credit is due at the time of bid submittal.

Installers or Developers placing Speculative bids will post credit as a part of submitting a bid to Sol Systems.

8. Will I get my deposit back?

Yes, if you have a winning bid and are required to post credit, the credit will be refunded along with your first payment for SRECs. If you’ve place a speculative bid, and your bid does not win, your credit deposit will be refunded once IPA has returned the deposit to Sol Systems.

Next Steps after Bid Submission

1. What happens if I have a winning bid?

Once your system is turned on, you will need to submit your approved interconnection agreement to Sol Systems. If your system does not have remote monitoring installed you will report meter readings once a month via your Customer Dashboard on Sol Systems’ online platform.

2. What important dates should I be aware of?

Installers and developers placing speculative bids have six months to identify the systems which will generate RECs to fulfill the speculative bid. Once identified, systems must be energized and registered with GATS/M-RETS within 12 months

Solar energy systems with winning identified bids must be energized and registered with GATS or M-RETS within 12 months of the bid date. Sol Systems will handle these registrations.

3. What are the registration requirements?

Once Sol Systems has received all the necessary information from the customer or installer, we will handle all state and regulatory registration requirements on behalf of any customers with winning bids. There is no additional fee for this process.

4. How will monthly meter readings be reported? Will I have to do it?

Sol Systems will handle submission of meter readings to PJM-GATS or M-RETS on a monthly basis. Meter readings are the way by which SRECs will be measured so that IPA knows how any SRECs you should be awarded and paid for.

Depending on the requirements of the tracking registry and whether your systems has remote monitoring installed, winners may be required to report information to Sol Systems on a monthly basis via Sol Systems’ online Customer Dashboard.

5. When will I get paid?

Payments will be issued on a quarterly basis. Sol Systems processes payments at the end of each month in February, May, August, and November. Payments are also received from the IPA on a quarterly schedule, and Sol Systems will pay customers in the payment month immediately after it has received payment from the IPA. For example, if IPA issues payment to Sol Systems in December, the customer will receive payment in the February cycle.

6. What happens if I bid and lose?

If you first bid does not win in June, Sol Systems will bid your SRECs again in the November event. Before we place another bid for you, you will have the opportunity to confirm or change your bid price.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 333MW 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: A Solar Champion

The Massachusetts Clearinghouse Auction has helped propel the Commonwealth to one of the top nation's solar markets in the nation.

The Massachusetts Clearinghouse Auction has helped propel the Commonwealth to one of the nation’s top solar markets

Lately, Massachusetts has gotten used to winning, and the Massachusetts solar market is no exception. With over 300 MW of installed solar capacity and nearly 10,000 solar jobs, Massachusetts comes in at the 4th strongest solar market in the country. And thanks to last year’s unveiling of the state’s SREC-II program, growth has continued.

The Commonwealth’s Solar Carve-Out was initially intended to support the development of 400MW of solar, but in an effort to incentivize further growth, the Carve-Out has since been expanded (with goal of 1600MW in mind). Over the past several years, the Massachusetts Department of Energy Resources’ (DOER) Solar Renewable Energy Credit Clearinghouse Auction has played an essential role in stabilizing the Massachusetts SREC market. This summer’s iteration was, for the most part, no exception. At the end of July, DOER held the third Clearinghouse Auction for its SREC-I program since the state established its Solar Carve-Out in 2010. Sol Systems sold SRECs in the auction on behalf of customers, and it was also one of 55 bidders to participate.

Here’s how it went down:

The SREC-I auction proved to be successful, proportionally distributing SRECs to bidders at the fixed price of $300/MWh ($300 minus fees are distributed to customers). But unlike last year’s auction, the Clearinghouse was heavily over-subscribed from the start, causing it to clear easily in the first round. In fact, buyers placed nearly 10 times as many bids for SRECs as there were SRECs available for purchase (124,831). This was in large part due to a projected market shortage that has sent 2016 SREC prices soaring to $450/MWh. Because Massachusetts allows buyers to bank SRECs purchased in the auction for later use, many entities with future compliance obligations have rushed to take advantage of the SRECs’ extended life (an additional two years upon entering the auction). Anticipating this spike in demand and to ensure that utilities are able to meet their compliance obligations, DOER earmarked half of the available SRECs for purchase exclusively by utility companies.

DOER did not hold an auction for the newly created SREC-II market this year since all qualifying systems were able to sell their SRECs on the open market.

The Massachusetts Solar Magnet

High SREC prices are a major driver of the Massachusetts gold rush, causing developers from across the country to flock to the Commonwealth in search of opportunity. By offering a fixed Clearinghouse Auction price of $300/MWh and maintaining some of the highest Alternative Compliance Payments in the country, the state sends utilities a clear signal that they must continue to invest heavily in solar development. In fact, just last winter, customers in Massachusetts experienced a significant rate increase, one that solidified the state’s position as one of the most expensive electricity markets in the country.

The Massachusetts solar magnet has caused many areas in the Commonwealth to hit their net metering caps, providing cause for concern over the future stability of the commercial market (the cap doesn’t apply to residential systems).The good news? Solar development continues to be a priority in Massachusetts, and Sol Systems is committed to continuing to drive down project transaction costs to ensure that more deals are financed in the Commonwealth. For more information on Sol Systems’ SREC services for installers in Massachusetts and around the country – or general financing for commercial solar projects in the Commonwealth – please contact finance@solsystems.com.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 333MW 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.

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

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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:

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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.

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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:

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