In the excitement of the recent stakeholder meeting that the Massachusetts Department of Energy Resources (DOER) held on June 7, which focused on the emergency regulation to address the over-subscription of the 400-MW solar carve-out program and the proposed policy for the post-400 MW program, some important updates to the current 400-MW program have not received due attention. As of June 7, 2013, the proposed changes to the 225 CMR 14.00 regulation went into effect, with no changes made to the red line version that the DOER proposed to the House at the end of April. Here, we summarize some of the most pertinent changes relevant to solar developers and investors who operate in the Massachusetts market.
Adjustment to the Rules of the Solar Credit Clearinghouse Auction
The updated regulation now states that “Any entity that owns Solar Carve-Out Renewable Attributes is eligible to make deposits” of SRECs into the annual July auction run by the DOER. Previously, the DOER restricted the type of entity who could deposit SRECs to only system owners or operators; essentially, unless you were the first entity to receive the SREC into your NEPOOL account following generation, you were excluded from the auction. Now, you simply must have possession of an SREC in your NEPOOL account to participate in the auction. This change will open the auction up to a much larger number of participants, and may result in a greater number of SRECs being deposited into the auction. The 2013 auction has been closed to further deposits, and will begin with the first round on Friday, July 26th.
Prior to the revisions to the regulation, market participants generally understood that any SRECs that do not clear in the first, second, or third rounds of the auction and thus re-mint with a 3-year shelf life are not eligible to be placed into future years’ auctions. The DOER has inserted a clause into the regulation that explicitly states this rule, which was not formally included prior to the revision.
10-Year Opt-In Term for the 400 MW Program
The revised regulation removes the control mechanism previously in place for the length of the Opt-In Term. Before this change, the DOER was mandated to reduce or increase the original Opt-In Term set at 40 quarters in 2010, as follows:
- Each time the number of SRECs deposited into the annual auction reached 10 percent of the current year’s compliance obligation, the Opt-In Term assigned to projects that qualified for the 400-MW carve-out program following the annual announcement at the end of July would be reduced by four quarters
- Each time the amount of compliance obligation met with ACP payments reached 10 percent of the current year’s compliance obligation, the Opt-In Term assigned to projects that qualified for the 400-MW carve-out program following the annual announcement at the end of July would be increased by four quarters
In addition, the regulation set bands around this mechanism; the Opt-In Term could not be reduced by more than eight quarters in any given year, and for 2010-2016 there was a minimum Opt-In Term of five years.
The revised regulation fixes the Opt-In Term to 40 quarters (10 years), for all projects, regardless of whether they come online during a period of oversupply or under supply in the market. This is good news for commercial project developers and financiers, and for homeowners, as it removes the difficulty of trying to predict when a reduction in the Opt-In Term may occur, the result of which would be decreased revenue and a longer payback timeline on the system.
Increase to the SREC Demand in 2013
The DOER has increased the Total Compliance Obligation for the 2013 compliance year, from 135,495 MWh, or SRECs, to 189,297 MWh/SRECs. The increase is thanks to the removal of the component of the compliance obligation formula that subtracted the MWh volume of compliance met with ACP payments from two years prior. This adjustment exemplifies the DOER’s commitment to supporting SREC prices; however, even with this increase the market will be oversupplied in 2013 due to the substantial acceleration of solar installation in Massachusetts in 2012 and the first quarter of 2013.
Timeline and Queue for Applications to Get Into the Second Solar Carve-Out Program
The regulation has been revised to begin to handle the transition between the first and second solar carve-out programs. The DOER has created a new concept, the Assurance of Qualification, which will in a way act as a soft Statement of Qualification until the rules for applying into the second program are drafted, approved, and implemented. In other words, projects that do not qualify for the first program, assuming they meet the requirements specified in the regulation and in the Assurance of Qualification Guidelines, will be given assurance by the DOER that they will be eligible to produce SRECs in the second program.
In order to encourage complete and accurate applications, the DOER will introduce a new timeline for the expiration of a Statement of Qualification issued to a project. The details have not been finalized, but are expected to be released in the final version of the Assurance of Qualification Guidelines.
A Lot of DOER Tinkering but Progress in the MA Solar Market
Each of these changes will help to provide clarity for the market in the coming years, for both the current program and the post-400 MW program. The proposed policy for the second solar carve-out program, although not finalized, has hopefully provided comfort, if not certainty, to developers and project owners on how to apply and become qualified for the next program, so that they can continue to develop projects with confidence.
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.