On May 30th, Senate Bill No. 65 (SB 65) went into law, which revised Maryland’s renewable energy portfolio standard (RPS). The bill increased the solar alternative compliance payment (SACP) which utilities must pay when they do not meet RPS requirements but decreased the percentage of energy that utilities must procure from Tier I renewable resources and from solar resources under the solar carve-out.
By increasing the SACP, the law effectively increased the “price ceiling” for solar renewable energy credits (SRECs), and therefore the likely price at which SRECs will sell. Currently, the SACP is $80 per SREC for 2021 and $60 per SREC for 2022. Before SB 65, the SACP was set to drop to $45 per SREC in 2023, then $40 in 2024 and $35 in 2025. SB 65 increased these price ceilings to $60 per SREC in 2023 and 2024, and $55 in 2025.
While the Tier I and solar carve-out requirement decreases may seem negative, the amended requirements paired with the SACP increase may positively impact Maryland SREC prices and Maryland solar build. The new requirements should help Maryland solar supply and demand move closer together. To date, Maryland’s actual solar supply has lagged behind the demand for solar. By decreasing utility demand and increasing supply incentives (SREC prices), solar project origination and generation should increase accordingly.
We are already seeing Maryland SREC pricing rise and expect solar project origination to increase as well. These developments are exciting and beneficial to homeowners, installers, and developers throughout Maryland.
To compare all the RPS and SACP changes in Maryland, please refer to the table below.
After its swift progress through the state’s legislature, Governor Carney signed Senate Bill No. 33 (“SB 33”) on February 10. The bill extends and expands Delaware’s Renewable Portfolio Standard (“RPS”) and alters the previous statute’s RPS freeze requirements, which has long caused controversy at the Public Service Commission (“PSC”). While it encourages more renewables like solar in the future, some think it’s still not enough to catch up to Delaware’s East Coast neighboring states.
The bill, sponsored by State Senator Stephanie Hansen, extends the schedule under Title 26 of the Delaware Code which mandates that an increasing percentage of electrical energy sales must come from renewable energy sources each year. Prior to this bill, this percentage increased incrementally until 2025, plateauing at a goal of 25% renewable energy. SB 33 sets a goal of 40% renewable energy by 2035, increasing both the goal and the timeline.
As passed, solar energy accounts for a quarter of the total 2035 RPS’ solar carve-out, the solar energy specific portion of the renewable energy mandate, or 10%, reinforcing the need for a solar renewable energy certificate (“SREC”) program. Under the RPS, utilities must procure SRECs, which each represent 1 MWh of renewable energy generation, to comply with the solar carve-out requirement and avoid paying an Alternative Compliance Payment (“ACP”). SRECs are generated by registered residential and commercial solar energy systems in the state.
At this point, only Delmarva Power, the only state regulated utility with compliance obligations under the RPS, is required to purchase DE SRECs. SB 33 does not alter this. Although municipal utilities and rural cooperatives are encouraged to meet the renewable energy goals, they can elect to exempt themselves from the requirements by detailing an alternative approach to achieving a level of renewable energy penetration in their service area. Instead of paying the ACP, they will either contribute to the state’s Green Energy Fund or an independent fund.
Since SB 33 did not alter Delmarva’s position as the sole complier and as such, it is unlikely that the legislation will result in alterations to their SREC procurement structure, which relies on the annual SREC Delaware competitive solicitation for SRECs.
However, this annual solicitation did not occur in 2020. This is due to conflict over the previous RPS statute’s freeze provision at the PSC, which led Delmarva to hold off on a 2020 solicitation. SB 33 fixes the freeze language. Under the new law, an RPS freeze will go into place if more than 15% of the carve-out is met by ACPs rather than through the purchase of SRECs. With this alteration, the legislature added a layer of certainty and it is our hope that the alterations reduce the likelihood of another missed year of the SREC solicitation in Delaware.
We are thankful for SB 33 and its sponsors like State Senate Environmental & Energy Committee Chair Stephanie Hansen. We look forward to Delaware’s bright renewable future.
Why Maine Is Positioned to Lead in the Solar Energy Space
Policy |
By Anna Noucas
Just a short jaunt across the Piscataqua River from Kittery, my passion for renewable energy and environmental protection was born. Growing up on the Piscataqua fueled my dream of making a positive impact on the world and drove me to my now alma mater, Bowdoin College. Since then, and for the majority of the last decade, I dedicated my professional career to renewable energy development while working at Sol Systems – a job that I am proud to say allows me the opportunity to work toward my goal to leave a positive on-the-ground impact right here in Maine.
The Opportunity in Maine
In 2019, Governor Janet Mills signed legislation that set Maine on a path toward becoming a clean energy leader by expanding the state Renewable Portfolio Standard (“RPS”) with a target to meet 100% renewable electricity sales by 2050. In addition, Gov. Mills established the Net Energy Billing Program that provides local businesses, municipalities, schools, and residents the opportunity to benefit from solar and other renewable energy sources in a way that will not only save money on their electricity bills, but also help protect the environment.
Under the Net Energy Billing Program, customers can use Net Energy Billing Credits (“NEBC”) to offset their electricity bills. NEBCs are generated from the output of a solar energy project installation with a total system size of up to 5MW. Under the Net Energy Billing Program, a solar energy project can be located either on property owned by the customer (a rooftop, parking lot, field, etc.) or on a separate property so long as it is in the same utility territory – a critical detail that allows a greater number of customers to benefit from the program.
For example, a business with a shaded roof, a community college with inadequate space, or a municipality with a limited land-based footprint can still partake in the economic savings and other benefits provided by solar energy. Together with those individual customer savings and benefits, tens of millions of dollars will be invested directly into community-level projects, creating thousands of new renewable industry jobs and local opportunity.
The Next Step for Maine
While we commend Gov. Mills for taking a big step forward by committing to 100% renewable electricity sales by 2050, there is a lot of work left to do to implement the new NEBC program. As a state, Maine regulators can learn from the lessons learned in surrounding states who successfully developed and implemented similar programs. It is essential that businesses looking at building a permanent footprint in the Maine renewable energy market can operate in a consistent and predictable regulatory landscape.
On the financial side, solar and other renewable energy technologies offer a unique opportunity to begin to rebuild energy sector losses suffered amid this national pandemic. The renewable energy asset class in the United States, particularly solar and wind projects, have come to be seen by the project finance community as something of a safe-harbor. These projects provide steady dollar-denominated contracted cash flows, often with investment-grade counterparties, and are non-correlated to the stock market in one of the most volatile periods of its history.
The External Factors for Maine
Importantly, the renewable energy industry is not impervious to market changes and like many other industry sectors is facing its own gauntlet of challenges at the state and federal level. At the federal level, the solar industry is working to extend critical renewable energy federal investment tax credits (“ITC’) that will help to form the foundation to bring back hundreds of thousands of energy-sector jobs and spur the reconstruction of the renewable energy infrastructure across the US.
In addition to extending the ITC, the industry is working to defend against attack at the federal energy regulatory commission (“FERC”) on state autonomy over practical and cost-effective programs to incentivize local business and economic develop and better consumer protection. These programs are critical to Maine and include the Net Energy Billing Program and other net metering programs across the nation and should be left to the discretion of state governments – as been the case historically.
The Road Ahead
I look forward to helping to build renewable energy across Maine and lending my hand to make sure all Maine residents know that renewable energy, job creation and environmental protection are just element of “the way life should be!” I am proud of my history in the state and my opportunity to leave a positive impact on the communities I hold dear to my heart.
Lauren Miller Elected to MDV-SEIA Board of Directors
Company News |
By Claire Siwulec
On June 19th, MDV-SEIA members elected Lauren Miller, Senior Associate of Policy at Sol Systems, to the organization’s board of directors. The election took place on June 8-19 with 21 applicants vying to fill 8 seats on the member board.
MDV-SEIA is the overarching organization that promotes solar energy policy and growth through legislative and regulatory affairs in Maryland, DC, Delaware, and Virginia. As a board member, Lauren will provide guidance to staff at MDV-SEIA to promote renewable energy growth in state markets, as well as assist with fundraising goals to help the association move forward with overarching goals. Lauren hopes to continue solar growth in MDV-SEIA's primary markets with legislative and regulatory wins. These policies include interconnection in the District, net metering in Maryland, and the Virginia Clean Economy Act.
Lauren has been a part of the Sol System’s team for 5 years, beginning her career on the REC aggregation team. Through this role, Lauren had the opportunity to engage with thousands of Sol customers, help manage REC portfolios internally, and gain insight on how RPS policies function. In her current position as a Senior Policy Associate, Lauren oversees Sol Systems’ businesses’ relationships with industry associations, state public utility commissions, and legislatures across the country.
Lauren’s nomination to MDV-SEIA's board of directors continues Sol Systems’ focus on regulatory work in active markets with the opportunity to become more healthily engaged, especially within the Mid-Atlantic region.
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 ten years, Sol Systems has delivered 800 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
The Sol SOURCE is a quarterly journal that our team distributes to our network of clients and solar stakeholders. Our newsletter contains trends and observations gained through quarterly interviews with our team, and it incorporates news from a variety of industry resources.
Below, we have included excerpts from the Q2 2020 edition. To receive future Journals, please subscribe or email SOURCE@solsystems.com.
STATE MARKETS
New Jersey - On April 30, 2020 the New Jersey Solar Renewable Energy Credit (“SREC”) program closed and the New Jersey Board of Public Utilities (“BPU”) shifted solar projects to a temporary, transition incentive program (“TREC”). In the coming months, we expect the BPU to continue taking comments from the solar industry and other interested parties to ensure a smooth transition from the legacy SREC program to the new TREC program. Solar projects that did not receive PTO by April 30, 2020 will automatically rollover into the new TREC program, and new projects will be able to enter the transition program until a successor program is finalized.
While the transition program will provide short-term stability, the solar industry is still awaiting the BPU’s proposal of a long-term successor program. Sol, along with many others in the industry, continues to engage with other industry partners and with the BPU on the implementation of the TREC program and the proposal of a long-term successor program and will provide update and clarity as possible.
Massachusetts - On April 15, 2020, in response to the results of the 400 MW Review of the Solar Massachusetts Renewable Target (”SMART”) program, the Department of Energy Resources (“DOER”) issued an order both expanding the program to 3,200 MW and altering some important program features. While the expansion of SMART is great news, certain alterations have caused concern in the industry.
One of the most concerning revisions proposed by DOER is the 250% increase of the greenfield subtractor. This proposed change has many in the solar industry questioning if this too high of an increase, one that could impact project economics. An additional source of concern is the requirement that, unless otherwise exempted, all projects over 500 kW should include a storage component.
Overall, DOER’s proposed changes will alter how solar developers approach Massachusetts. The state held a virtual hearing on the proposed changes on May 22 and particular concerns should be shared with DOER through formal comment due June 1. Sol Systems will continue to engage and provide updates as the program revisions progress.
Illinois - For those active in the Illinois market, there is much to track. On the legislative side, the industry is working on a solution that would expand and provide additional funding for the Adjustable Block Program (“ABP”). Without an extension of the APB, new in-state solar projects could come to a halt.
On the regulatory side, Ameren filed a petition with the Illinois Commerce commission asserting that distributed solar capacity has reached three percent. However, many in the solar industry argue that Ameren’s calculation is flawed and have appealed the commission.
Specifically, if Ameren indeed reached the 3% threshold, it will trigger a review of their net metering compensation rate. Once net metered volume hits 5% the compensation rate will change. Sol will continue to track the Ameren proceeding and any legislative developments.
SOLAR CHATTER
The Solar Energy Industries Association (SEIA) has been hard at work finding federal solutions to COVID-19's impact on the industry, as well as working on the state level to ensure permitting, construction, and other essential activities continue to keep solar infrastructure projects moving forward. The organization has launched a COVID-19 resources webpage for solar companies.
In spite of efforts to retain renewables jobs during the COVID-19 crisis, an estimated 106,000 U.S. clean energy employees went out of work in March, with current predictions warning that the number could rise to as high as 500,000 by the end of June. These job losses come as the entire country and much of the world adapts to the drastic changes made in society to combat this virus.
There has been a measurable drop in carbon emissions from data recorded during mass stay-at-home orders, as many cars have been kept off the roads and planes out of the sky. Scientists have predicted a 6% global drop in energy demand for 2020, the equivalent of the energy demand of India.
As scientists have warned for years, the measures taken to combat climate change may need to be equally drastic in scope to those taken for COVID-19, and if the crisis has proven anything, it’s that the world is willing to make changes when convinced of a distinct and present danger. As we think ahead of what a post-COVID world may look like, the potential to institute massive change to turn the tides on climate change could emerge, if the climate change movement strikes while the iron is hot.
Although solar construction has been deemed essential in states like Illinois, much of the work needed to make progress on projects is halted by the absence of roles that have not been deemed essential, such as land surveyors. Our team has dug deep into the issue in a recent blog post.
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 ten years, Sol Systems has delivered 800 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
Why (and How) the Solar Finance Market Is Changing in This Crisis
Investment |
By Yuri Horwitz
This is an excerpt from the Q2 2020 edition of The SOL SOURCE, a quarterly electronic newsletter analyzing the latest trends in renewable energy development and investment based on our unique position in the solar industry. To receive future editions of the journal, please subscribe.The article was originally written for and published by Greentech Media.
The renewable energy asset class in the U.S., particularly solar and wind projects, is something of a safe haven for investors looking for non-correlated, stable, dollar-denominated long-term cash flows. But the solar market, like every sector of our economy, is changing amid the COVID-19 pandemic.
It is tempting to collapse these changes into a simple takeaway, like “tax equity is fine” or “rates haven’t changed." But the $20+ billion financial market supporting the solar industry is anything but simple, and COVID-19 will have different impacts on different segments of the industry and different players within those segments.
The investment community generally works like a waterfall where institutional investors drive investment into companies, assets or funds, which in turn often invest themselves.
Institutional investors are generally defined as pension funds, insurance companies, sovereign wealth funds, mutual funds, commercial banks and endowments investing on behalf of themselves or their members. These investors rank investment opportunities based on the underlying stability of returns, historic volatility, counterparty risk, liquidity and other factors. The different asset classes are characterized along a spectrum, running from "core" to "opportunistic."
A core investment in solar energy might be a fund or portfolio strategy focused on purchasing debt instruments on a 20-year contracted asset with an investment-grade counterparty. An example is the $2 billion in green bonds that Bank of America offered in 2019. An opportunistic investment might be a private equity firm investing in a portfolio of development assets in PJM expected to yield double-digit-percentage returns.
Both types of investments are impacted by COVID-19 — but not equally.
During times of crisis, institutional investors narrow their investment aperture, and there is a reallocation of investment from the higher-risk/higher-yield investments in opportunistic funds to lower-risk core funds. These investors immediately slow down the origination and underwriting machine until they have a better understanding of what is going on. In the last three months, a sizable number of opportunistic investments have become impaired amid the downturn. They might also set cash aside to support the investment or try to sell their interests if there is a liquid market.
Finally, the commercial paper market (debt backing corporations) is over $1 trillion in value, and this market has a massive impact on almost all institutional balance sheets because these investors hold so much of these investments. In one example, while Disney+ may be doing well, Disney itself was recently downgraded due to COVID-19’s impacts on its theme parks. Once a corporate credit rating is downgraded, an institutional investor that owns commercial paper must set aside additional capital to support the investment. This reduces liquidity.
Institutions can also sell the security, but when multiple corporates are downgraded, everyone begins to sell at the same time, and pricing declines precipitously. This is one of the most important credit markets for the economy, which is why the Federal Reserve of New York recently launched the Commercial Paper Funding Facility to support this market.
This broad reallocation of risk and investment impacts the entire solar industry, but it especially impacts those funds that support the more entrepreneurial efforts that have historically helped expand the market.
Impact on sponsor and development funds in solar
Funds that are backed by institutional capital and are structured to buy and hold assets over the long term generally target more conservative returns with long-term contracted cash flows. Assuming these funds have committed capital, they will weather the current storm. Similar funds that have not been closed and committed may take longer to close given restrictions on travel: Try closing a $500 million fund over Zoom. But this asset class was compelling prior to COVID-19, and it will continue to be in the future.
Investments in private equity funds that are seeking higher returns in exchange for risk may struggle in the current environment. Those funds that have committed capital will likely be more cautious in deploying it, and riskier assets may receive less attention. Those without committed capital are going to struggle to raise it in this environment.
This risk-off cycle will hit investments in merchant assets, development assets, aggregation facilities, non-investment-grade strategies, high-yield portfolios and developers seeking development capital. These entrepreneurial efforts are critical and sow the seeds for the industry’s future. Inevitably, these constraints will favor companies with access to larger balance sheets, and it will accelerate the developer consolidation already underway in the solar industry.
COVID-19's impact on tax equity and debt
Banks are the primary participants in both the tax equity and debt markets for solar. Bank exposure to the recent economic downturn has been driven primarily by loans, and in some cases, loans made to extractive industries and to retailers who have been hit hard by this crisis. The themes here are similar.
Debt
On the lending side, even as interest rates have fallen, the spread (generally a premium over LIBOR) has increased from 1.25 to 1.75 or 2.00, and in some cases even higher. The scale of the opportunity and the commercial weight of the lender matter. Lending fees have increased proportionately as well. Bank spreads and fees increase to compensate them for lower all-in returns on capital that results from lower interest rates. It will be interesting to see how this market changes in the next few months as the country attempts to return to normal.
Compounding this is an overarching concern around liquidity. As concerns grow around the integrity of outstanding loans, banks suffer the same capital constraints as institutional investors and funds. Further, because this is an industrywide issue, banks are struggling to syndicate loans out to other bank partners. As larger banks struggle to make money on syndicating loans, they must underwrite the entire loan to a long-term hold, all driving up the cost of capital.
Lending has always been a relationship business. It certainly is now. In the current market environment, if a developer or independent power producer doesn’t have scale or historic relationships, it can be challenging to secure loans. The stronger the relationship and the larger the opportunity, the better the terms.
Tax equity
Tax equity provides anywhere from 30 to 40 percent of the capital stack for solar. A functioning tax equity market is critical to a healthy solar industry.
From the outside, the solar tax equity market often looks monolithic, with half a dozen primary participants. The reality is that there are dozens of participants behind these entities investing in funds or through syndication structures. Some of the largest solar tax equity investors are syndicating 50 percent of their volume. This has pros and cons for the industry.
A broader population of tax equity investors means that markets are more resilient than most people assume. A significant number of investors are grocery chains and tech companies that are weathering the crisis. Syndication also means that the solar industry is incentivized to find new tax equity. That’s mission-critical for everyone.
The drawback is that syndicators don’t control or always know the profitability or commitments of their clients. This is why many of the large tax equity investors are honoring the term sheets in front of them but are slowing down new origination. Many smaller syndicators representing corporate customers are putting deals on hold. And of course, the banks themselves have their own challenges right now, and some of the largest banks have stepped out of the market as their exposure to industries like natural gas hammers their portfolios.
This is our single largest concern for the industry, which is why we're working closely with the Solar Energy Industries Association to explore whether there may be tools at the federal level (like refundability of the Investment Tax Credit) that can help address these issues.
The path forward
Anyone who has helped build a company in this industry knows the relentless struggle. The most we can do for one another is to share our experiences and perspectives. Here are a few suggestions.
First, if you’re a developer, avoid transitioning into owning assets if you don’t already. This is not the time to be initiating a new phase in your development business, and it may be a good time to consider simplifying it.
Second, if you are going to work with banks to secure long-term debt or construction debt for your projects, find a good partner and invest in that partnership. Ask about their approach and ensure you trust them. The same goes for tax equity. We’ve seen both sides, having both deployed tax equity and worked with our partners to secure it. Relationships matter.
Third, if you’re developing early-stage assets or semi-merchant assets, ensure you’re focused on quality and tenor. Also ensure that you’re capitalized to carry your assets a bit further into the development cycle than you may have planned. If you are not, prune your portfolio.
Sol Systems is a leading national solar energy firm with an established reputation for integrity and reliability across its development, infrastructure and environmental commodity businesses.To date, Sol has developed and/or financed over 850 MW of solar projects valued at more than $1 billion for Fortune 100 companies, municipalities, counties, utilities, universities and schools. The company also actively shapes and trades in environmental commodity and electricity markets throughout the United States. The company was founded in 2008, is based in Washington D.C, and is led by its founder. Sol Systems works with its team, partners, and clients to create a more sustainable future we can all believe in. For more information: www.solsystems.com