A Look at Virginia: Can Regulated Utilities Drive the Solar Industry Forward?

21 Oct 2014

Within the Commonwealth, Dominion has clearly made efforts to promote solar financing in several ways.

Within the Commonwealth, Dominion has clearly made efforts to promote solar financing in several ways.

Dominion Virginia Power recently announced the selection of Capital One’s Chester facility to host the first ground-mounted solar energy system in Central Virginia. Plans to install 2,500 solar panels will generate up to 500 kilowatts of electricity at peak production. This project, in combination with others, is contributing to Dominion’s goal to emplace up to 30MW of solar electricity by December 31st, 2015 – a significant improvement from current levels.

Is this action setting the stage for promotion of renewable energy sources in the state of Virginia? Within the Commonwealth, Dominion has clearly made efforts to promote solar financing in several ways.

About Dominion’s Solar Programs

The Solar Partnership Program is designed to increase the amount of solar energy by leasing companies’ property to construct and operate up to 30MW of electricity. In combination with the Solar Partnership Program, the Solar Purchase Program will contribute to Dominion’s incentive program in solar electricity production. The Purchase Program–initiated on June 20th, 2013–will run for five years as an initial pilot program. It is intended for use by residential homeowners and will help Virginia customers cover the cost of solar installation on their rooftops. Participants will install and own the solar generation system, however they will sell 100% of the electricity and resulting Renewable Energy Certificates (RECs) back to Dominion at 15 cents per kilowatt hour (using none against their own load). The credits sold to Dominion as a result of solar electricity production will be retired by Dominion through the Dominion Green Power Program.

Why Does Virginia Lag Behind Other States?

While this progress is commendable, Virginia still lags far behind in comparison to neighboring solar economies. In fact, surrounding states have more than 100 times as much installed solar capacity, and other utilities have had penetration rates of solar far in excess of those contemplated here for many years.

Maryland, for example, has been successful in promoting solar with solar RECs (SRECs), a Production Tax credit for commercial systems of 0.85 cents/kWh, and clean-energy grants. These promotions have driven consistent progress to the state’s goal of 1,200MW by 2020 (41MW installed in 2013—enough to power 3,200 homes.) In addition to state incentives, typical PPA rates of 7 – 11 cents/kWh with 2% escalators allow for solar energy projects to pencil. In New Jersey, similar incentives and average PPA rates of 9 – 13 cents/kWh with 2% escalators allow for projects to successfully contribute to 235.6MW installed in 2013, enough to power 33,701 homes. In this context, Virginia’s 30MW overall program starts to look modest.

As a result of the Solar Partnership Program several companies have constructed rooftop and ground-mounted solar units to contribute to Dominion’s 30MW goal; totaling 1.86MW to date. However, The 1.8MW sited here as being necessary for the exploration of the effect large amounts of solar will have on the grid, is roughly the amount of solar added across the state line in Maryland every two weeks. Commercial grid-connected systems of the sizes mentioned here have been day-to-day realities of the grid for decades, and in the absence of a serious study plan, the time for casting solar deployments of this modest size as demonstration programs is long past.

Regulated and Unregulated Utilities

Dominion’s Solar Purchase Program and Solar Partnership Program is a reflection of the overall trend for regulated utilities to expand access to solar in their own territories while remaining control. As we have previously reported, Florida Power & Light, Duke, Arizona Public Service, and others are also vying for their own piece of the distributed generation solar pie – though these programs have been met with controversy (because they are state-protected monopolies) as well as mixed results (these programs are typically more costly than private sector efforts to scale solar). In several other states around the country, more competitive models, including expanded permissions for third party providers who compete vigorously for customer business, outside the state-mandated prices of typical monopoly service. This has proved to be an effective method to accelerate production of financed solar projects – but caused serious consternation in many utility boardrooms. Third party financing is currently prohibited in Virginia.

At Sol Systems, we see more opportunity for deregulated utility subsidiaries to successfully acquire DG solar assets. Deregulated utilities are significantly more nimble, and they are not required to have a certain rate of return. By nature, they must be competitive. We are currently working with a number of utilities to help them incorporate more distributed generation solar into their portfolios.

About Sol Systems

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 165MW and over $600 million of distributed generation solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. It has over $300 million in assets under management as of September 2014. 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.solsystemscompany.com.

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Eric Lustgarten

Eric Lustgarten