2013 Solar Industry Trends, Part 2: A Look at Geographical Markets

30 Apr 2013

Dan Yonkin and Yuri Horwitz had the second part of their article “2013 Solar Industry Trends” published in the April issue of the Novogradac Journal of Tax Credits


2013 Solar Industry Trends, Part 2: A Look at Geographical Markets  

Trends in the geography of solar development are determined by three primary drivers: solar insolation (the quantity of sunlight during the year), local electricity rates (the higher the rate the better) and local regulatory and incentive programs. Good projects are found where bountiful solar resources, costly electricity rates, and generous incentive programs overlap. Nevertheless, even if the first two factors are lacking, strong state and local incentive programs and regulations can singlehandedly determine favorable solar markets for financeable projects. In 2013, a number of new state and local programs, including programs in New York, Indiana, Georgia, Connecticut and Washington D.C., in combination with established markets, like California and Massachusetts, will drive solar development trends nationwide.


Indianapolis provides a great example of how local incentive and regulatory programs can create significant solar development and investment opportunity. The Indiana Utility Regulatory Commission is set to approve the development of more than 65MW of solar projects thanks to a compelling local feed-in tariff (FIT) program, with an estimated value of between $180 million and $200 million in capital expenditures….

A power purchase agreement (PPA) between solar project and the local utility, Indianapolis Power and Light (IPL) will incentivize these projects. IPL’s PPAs are issued under the utility’s FIT program, an effort by IPL to meet its compliance goals under the state’s clean energy portfolio standard.

A PPA provides a solar project with a predetermined price, with or without an escalator, for the electricity the facility produces over a fixed period. This equates to long-term electricity cash flows for the project and long-term financeable agreements to project developers. IPL, in this case, is a BBB- rated entity and the provisions of the PPA, with a purchase price of $0.20 per kilowatt-hour and a term of 15 years, are very attractive.

Sol Systems is working with a number of solar developers in this program, and the project economics are such that they can support attractive returns for both the sponsor and the tax credit investor. We think this market will peak in the second and third quarters of 2013, and wind down quickly by the end of the year.

New York

New York is a good market for the development of solar projects because the New York State Energy and Research Development Authority (NYSERDA) recently expanded a production-based rebate program that provides solar projects with incentive payments for four years. The result is a compelling and fast-moving investment opportunity. The NYSERDA program has been allocated more than $100 million in funding for rebates designed to spur the development of commercial solar projects in 2013. This should result in a total investment of more than $300 million in solar project development. NYSERDA will issue the rebates on a competitive basis in three rounds. The first of the three rounds of solicitation periods closed in December, and Sol Systems is working with a number of commercial projects (500KW to 2MW) looking to raise tax equity.

For these NYSERDA projects, the rebate accounts for 30 to 40 percent of project costs, and when combined with the federal investment tax credit (ITC), the projects provide compelling returns. An important note for tax credit investors is that NYSERDA pays the rebate during the first three years. After that, projects rely on what can be relatively thin PPA revenue. Finally, the projects must be built within eight months of receipt of the awards letter to qualify for the NYSERDA rebate. We anticipate this time crunch will give the investor community advantage, which should be a benefit.


While not a traditionally robust solar market, many in the solar industry are tracking Georgia in 2013 and beyond. The local utility giant, Georgia Power, is finalizing its Advanced Solar Initiative (GPASI) to provide PPAs to solar project developers in the state. We anticipate Georgia Power to issue PPAs under the program in the first and second quarter of 2013.

The GPASI calls for more than 200MW of solar projects, amounting to an estimated $600 million in total solar project capital expenditures. Until recently, the state’s restrictive limitations on independent power producers, which effectively prohibited a third-party ownership model from flourishing, have impaired the solar industry. Despite the politics, these recent developments are an example of how the industry continues to push fundamental shifts in our country’s electricity production and consumption, and speaks to the technology’s ability to integrate with big utility companies.


In 2012, Connecticut initiated a zero or low emission REC (ZREC) program. The ZREC program requires Connecticut’s two regulated utility programs, Connecticut Light and Power (CL&P) and United Illuminating Company (UI), to administer a solar electricity procurement program. The program provides solar developers the opportunity to submit a request to the utility for a 15-year contract to sell the environmental attributes of the solar electricity for a premium. For contracts awarded in 2012, Sol Systems has reviewed awards in excess of $0.10 per kilowatt-hour. The credit quality of the utility companies, the premium paid for the electricity, and the length of the contract provide financeable cash flows for projects in Connecticut. The program will be in effect until 2022, and will ramp up over 2013 and the coming years.

Washington, D.C.

Washington, D.C. has one of the strongest solar incentive programs in the country. In August 2011, the DC Council amended the city’s renewable portfolio standard to strengthen the solar renewable energy credit market. Prior to the council’s action, the area’s solar market was on the verge of collapse. Today, the city provides economic support for solar projects that make it one of the most lucrative market’s in the country. The limiting nutrient to success in the area, however, is the lack of space to build large projects. Sol Systems has collaborated with a number of local solar developers – like Skyline Innovations – that are employing innovative technological solutions to maximize roof space. In sum, Washington, D.C. is a competitive market for developers working to put a project together, but a very financeable market for long-term owners.

Conventional Markets, Anew

In addition to these relatively new markets, established markets will continue to see growth in 2013. In Massachusetts, for example, the solar market will continue to expand at a record clip. The industry awaits a pending announcement from the Department of Energy and Resources (DOER) to stabilize and strengthen the state’s solar renewable energy credit (SREC) program. Massachusetts will also gain attention when it holds its SREC Clearinghouse Auction in July; the auction will test the state’s proposed “soft floor” for the SREC market.

On the other side of the country, California will continue to lead in solar development as utilities begin releasing PPAs under their micro FIT programs, which support the development of small utility-scale solar projects (instead of more traditional multi-megawatt projects) throughout the state.


The landscape of the solar industry will continue to evolve in 2013. New markets like Georgia are coming online, providing robust opportunities for tax driven investors. Historical markets like California will also provide financeable projects for the investor that knows where to find them. Based on the strength of these and other markets, initial estimates indicate that development in the first quarter of this year will provide record-setting growth for the solar industry and many strong investment opportunities for the well-informed financier.


About Sol Systems

Sol Systems is a boutique financial services firm that offers investor clients direct access to the renewable energy asset class and provides developers with sophisticated project financing solutions. Founded in 2008, Sol Systems focuses on meeting the most critical needs of the industry, including SREC monetization, capital placement, tax equity, and New Market Tax Credits. To date, the company has arranged financing for thousands of projects and facilitated hundreds of millions in investment on behalf of Fortune 100 companies, private equity, family offices and individuals.

For more information, please visit www.solsystemscompany.com.

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Dan Yonkin

Dan Yonkin