This is an excerpt from the October 2017 edition of The SOL SOURCE, a monthly electronic newsletter analyzing the latest trends in renewable energy based on our unique position in the solar financing space. To receive future editions of the journal, please subscribe.
In December 2016, Governor Bruce Rauner of Illinois signed the Future Energy Jobs Act (FEJA), one of the most exciting, robust pieces of renewable energy legislation that the industry has seen in the past several years. Thanks to FEJA, Illinois will soon be home to a top 10 solar market under programs such as an Adjustable Block [similar to Massachusetts SMART or New York’s Megawatt Block] for projects under 2MW, community solar, a utility-scale market for projects over 2MW, and Solar for All, a new low income solar and workforce training program.
While FEJA was signed into law in December, the effective date – or the official starting date for implementation – began on June 1. In the spring, the Illinois Power Agency (IPA) held technical sessions on key topics for implementation and issued questions for comment. Then, after careful due diligence, the IPA issued its Draft Long-Term Renewable Resources Procurement Plan at the end of September.
Overview for Today
Given that Sol Systems develops and finances distributed generation and small utility-scale projects, today we will focus on the Adjustable Block Program (ABP), which also includes community solar. For information on Solar for All, brownfield, utility-scale solar, and wind programs, please reference the 169-page document. Residential solar is included in the ABP but not discussed in this piece.
It should also be noted that the Illinois Power Agency does not have jurisdiction over the $250/kW Distributed Generation rebate and the community solar tariffs. Those proceedings are under the jurisdiction of the Illinois Commerce Commission and not included in the Plan.
Adjustable Block Program
The ABP will encompass all projects under 2MW, including community solar. Projects in the ABP will be awarded 15-year fixed price REC contracts, with 20% of the contract amount paid out at interconnection, and all subsequent REC payments paid out over a 4-year period. Claw-back provisions and collateral requirements will be put in place to ensure delivery still occurs in years 6-15 when developers are not receiving any payout.
The ABP, unlike competitively-bid procurements that IPA has typically run in the past, has a fixed price per MW block of volume. After the volume has been hit, projects will be subject to lower pricing in the subsequent block, and so on. The goal of the ABP is to procure 1,000,000 RECs by May 2021, which IPA estimates that will equate to about 666MW by the same time
Drawing on best practices from other states such as Massachusetts, the smaller utilities are designated with smaller capacity per market segment (22MW for each residential, commercial, and community solar), and ComEd, Mid-American, and the municipal utilities are designed 52MW per market segment per block.
We like that the IPA did not choose to “over-carve” each block among the different market segments. For example, instead of allocating specific MW capacity for varying project sizes within the “large” project designation of 10-200kW, they keep the MW allocation under the same bucket, instead allocating varying incentive levels to market segments 10-100kW, 100-200kW, 200-500kW, and 500kW -2MW. Simplicity here is key, especially because given the lackluster performance of projects in the sub-500kW commercial space nationwide, projects of this size would unlikely meet the demand of the program. Instead, market forces – not prescription – will guide what size projects are built in Illinois.
Based on our calculations, the pricing will need some tweaking. For example, in its modeling, the IPA assumes a much higher value of energy than in reality in its CREST model. In the CREST model, IPA is including weighted portions of $/kW charges in its “Value of Net Metering Credits” calculations. The modeling also does not seem to account for potential discounts to energy rates that customers may be getting via competitive suppliers. Still, with some minor tweaks, this program is looking strong, and we applaud the IPA for its careful diligence. The draft pricing is as follows, and is subject to change.
Room for Change
One of the strongest pieces of this plan is IPA’s clear desire to get the program rolling, see how it works, and make changes later if necessary. For example, because this draft plan covers procurements and proposals to be conducted in 2018 and 2019, and that the plan is subject to a biennial review process; the IPA will have room to make changes if pricing for a given market segment is too high, or too low, or if some other aspect of the program doesn’t seem to be working. Given the pending Suniva trade case, the federal investment tax credit stepdown, and the fact that the $250/kW DG rebate will change in value once 5% net metering penetration is hit, the IPA understands that pricing may need to be adjusted accordingly as these factors come into play. Even before the next plan is drafted, IPA will monitor program activity and could make other minor tweaks six months after launch if necessary.
Community Solar & the ABP
It should be noted that community solar projects – which may also be up to 2MW in size – will also fall under the ABP under the same REC contract structure. During the IPA workshops this spring, there was heated debate around two specific points on community solar: colocation and residential vs. commercial subscribers.
Many lessons learned were discussed from other community solar states, namely Minnesota, the closest to the Land of Lincoln. In Minnesota, colocation was prevalent at first, and most of the subscribers of the program were commercial and industrial (C&I) customers, not residential. While some may argue that this is not in the true spirit of community solar, in terms of megawatts installed, Minnesota has been very, very successful, with over 100MW to date, and over 300MW more in progress or under construction per Xcel’s website. And unfortunately, to date, programs with more onerous subscription requirements have underperformed.
Taking into account the best practices – and cautionary tales – from other states, IPA has come up with a strong compromise that will promote robust residential participation, a requirement in the law. They do this by giving a higher REC value – an adder – to projects that have residential subscribers. Like in the block pricing design, IPA tries here not to be too prescriptive and let the market decide the types of projects that will be built.
As for colocation, 2MW may be installed on a given parcel. Projects owned by a single entity on one parcel of land or contiguous parcels of land will be added in the aggregate and be treated as one system under the ABP. However, projects on contiguous parcels of land that amount to over 2MW may be allowed if they are owned by separate entities, and they must have separate interconnection points.
Schedule for Release
Comments on the Long-Term Renewable Resources Procurement Plan are due on November 13, and the Plan is expected to be approved by the Commission by early April 2018. After that, it will take a couple months more to get the program off the ground and hire a Program Administrator. As such, a summer 2018 launch is still possible.
We applaud the IPA for their diligence on best practices and lessons learned from other states, and we are oh-so-excited for this program. With some minor tweaks, the Illinois solar market will be ready for takeoff next summer. Are you ready?
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 650MW 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.