Is Residential Solar Down for the Count?

Posted on July 20, 2017January 25, 2023 by Lauren Miller

Is Residential Solar Down for the Count?

2017 | 20 Jul 2017

By Lauren Miller

Reflecting on 2017 so Far

2017 has been an interesting year so far for the solar industry, but then again, when is it not? According to the latest Solar Market Insight report, residential solar build slowed ever-so-slightly in 2017 compared to Q1 2016 numbers; 2,044MW were installed in Q1 of this year, a 2 percent decline year-over-year from 2016 levels. While 2 percent is small overall for an industry that has had an average annual growth rate of 68 percent over the last 10 years (and you can’t sustain those growth numbers forever), what is notable is that the residential market fell 17 percent over Q1 2016 numbers, and 2016 was already a slower year for residential growth than 2015, growing by 19 percent compared to 2015’s records setting 66 percent.

What gives? Is the residential market down for the count? Industry press would have you thinking so, but we think it will come back around. Here’s why.

Residential Growth

The solar industry, like many other industries, goes through cycles of growth. Back in 2014, all eyes, including ours, were on the residential market.8 SolarCity’s stock was through the roof, trading above $80, and even SunEdison was interested in residential. In 2015, it tried to acquire Vivint (though that didn’t turn out so well. We even saw residential outpacing the C&I sector in 2014, when 1,231MW were installed compared to 1,036MW in the C&I space according to GTM’s Solar Market Insight report’s annual state data.

In 2015, residential experienced the largest annual growth rate yet and outpaced C&I again with 2,099MW of residential compared to non-residential’s 1,011MW. This marked the fourth consecutive year of greater than 50 percent annual growth, marking a threefold increase in the residential solar market from four years prior. Even in 2016, which saw a lull in year-over-year growth, residential outpaced non-residential with 2,583MW compared to 1,586MW. This growth is particularly remarkable considering the average size of a residential system in the U.S. is 5kW, so 200 systems need to be sold for every C&I developer’s one 1MW project.

Policy Changes Drive Uncertainty

The notion that the residential sector would maintain a greater than 50 percent annual growth rate forever is impossible, if not unsustainable. It would be foolish to think otherwise. Look at the example of the cellphone, which is the most quickly adopted consumer technology in history. From 2004 to 2013, ownership grew from 65 percent to 91 percent in the United States. Solar has a long way to go before it hits market penetration like the cell phone.

Additionally, past a growth rate like that being unsustainable, the threat of the investment tax credit (ITC) expiration at the end of 2015, caused residential companies to rush and sell systems that would qualify for the 30 percent credit. This inflated build rates. In 2016, after the ITC extension, we began to see a lull as the threat of losing out on the tax credit became less imminent.

However, it’s not only the post-ITC extension lull, that has slowed the residential market. Regulatory and policy changes in key state markets contributed by creating uncertainty. For example, California restructured its net metering under NEM 2.0, Nevada had its own highly publicized debacle, SREC prices started to fall in Maryland, and Massachusetts began transitioning away from its SREC II program to the new SMART program. These factors have driven uncertainty in key markets, and contributed to slower residential growth year over year.

Aside from policy changes, like any new technology, solar will be subject to what sociologist Everett Rogers refers to as the diffusion of innovations curve. Under Rogers’ theory, adoption is led by innovators, then followed by the early adopters, and then the early and late majorities which tend to be the drivers of massive growth followed by a leveled-off growth pattern of laggards. We have seen this pattern in California – which fell 30 percent year-over-year according to GTM. The state’s residential market has gone through these stages and has begun to start leveling off…for now.

Outlook

Nonetheless, we’re optimistic about the future of solar in emerging markets such as Illinois, which is required to install at least 338MW of residential solar (<10kW) by 2030 under the recently enacted Future Energy Jobs Act (not to mention the potential 1.08GW of utixlity-scale, 1.01GW of C&I, and 270 of discretionary and brownfield MW, totaling around 2.7GW overall that will be needed by 2030 to meet the requirements). Mature residential markets such as New Jersey have remained strong, while new state markets began to emerge in Utah, Texas, and South Carolina.

As these new markets emerge, we feel optimistic about the national outlook of the residential market despite current net metering battles in higher penetration states (and even not-so-high penetration states). In fact, even if the Suniva trade petition is taken up, residential market may be the market sector hit the least, while utility-scale, which has been the “hot” market sector fueled by post-ITC-extension project spillover, may be affected the most. Indeed, the tables may turn again.

Conclusion

As always, don’t believe the hype. We’ve seen a slowdown in key markets such as California, and debate over rate design does create uncertainty and affect growth, but that does not mean the sky is falling. The solar industry and the various market sectors – residential, commercial, and utility-scale - are subject to cycles of growth. However, the solar industry as a whole has continued to grow each year at an unprecedented rate, and even with this year’s slowdown, total U.S. installed PV capacity is expected to triple over the next five years. It’s also worth noting that solar ranked second in installed electric generating capacity in the U.S. during Q1 at 30 percent, behind only natural gas which at 41%. The pending trade case would certainly slow this growth, but if unsuccessful, the solar industry will continue its trajectory.

This is an excerpt from the July 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 view the full Journal, please subscribe or e-mail pr@solsystems.com.

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 more than 600MW 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.

Community Solar: Lots of Buzz, but Where’s the Action?

Posted on June 23, 2017January 25, 2023 by Lauren Miller

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Community Solar: Lots of Buzz, but Where’s the Action?

2017 | 23 Jun 2017

By Lauren Miller

What is it?

Recent years have seen an increase in community solar and shared renewable policies. So far, 14 states and the District of Columbia have enacted such policies with additional utilities pursuing them on their own. At their core, community solar programs seek to expand access to solar by allowing multiple customers to share in one plant and enjoy its financial benefits.

At its best, the model allows companies or individuals who might not otherwise have been able to access the technology either because they lack capital, do not own their property, or have an unsuitable roof to have access.

Although state legislation has begun to encourage adoption of this model over the past decade, through 2016, only around 102MW of community solar had been developed nationwide. In other words, the megawatt deployment to date has not lived up to the hype. Effective program design is key.

Looking at the Policies

When looking at community solar programs, it is key to consider who owns/operates the program, caps on project sizes, whether commercial subscribers are allowed or if residential subscribers are mandated, overarching state caps on aggregate capacity or net metering eligibility, bill crediting and unsubscribed electricity rates, and the low-income subscriber requirement. Each of these factors affects how much community solar is deployed and what the profile of the subscriber is.

To help navigate these programs, the Interstate Renewable Energy Council (IREC) issues a report card based on their shared renewables guiding principles. Let’s take a deep dive into 4 states featured in the report: Massachusetts, California, Minnesota, and Colorado.

Minnesota

Minnesota is home to one of the most successful programs in the nation with 74MW already installed under Minnesota's Community Solar Garden program and another 325MW expected by year-end. A large contributor to the program’s success has been support from the state’s largest utility, Xcel Energy.

Furthermore, much of Minnesota’s boom in construction can be traced to a “QF in disguise” fundamental. “One of the most salient features of Minnesota’s program has always been its very strong rate for uncontracted output,” notes Colin Murchie, Sol Systems’ Senior Director of Customer Energy Services. “This uniquely high ‘backup rate’ is often adequate to support project financing on its own, with or without subscription.”

Early pioneers in the Minnesota community solar market were also able to take advantage of co-location and widespread corporate participation. Now, however, projects are capped at 1MW and 5 subscribers are required. This means no subscriber may subscribe to more than 40 percent of the garden’s output, meaning an interested corporate entity could not subscribe to more than 400kW at a time. It will be interesting to see if development slows because of this change over the coming years.

IREC gave the state a “B” on its report card.

Massachusetts

Massachusetts’ 2009 virtual net metering program is one of the older community programs in the U.S. The program allows for virtual net metering; however, it is subject to the states’ overall net metering cap. This can be problematic, as the net metering cap is constantly hit, creating a disruption in the market. There are no minimum or maximum limits set on number of subscribers, which has historically allowed for larger commercial entities to maximize subscription. Massachusetts also has a separate neighborhood net metering program to cater to residential customers.

Additionally, subscribers in Massachusetts can receive the added benefit of the solar renewable energy credits associated with the production of the facility, which has helped to incentivize the program further. Overall, there are 64MW currently installed with another projected 400MW for the next two years. The new Massachusetts SMART Program – which will lead to the deployment of another 1600MW – also provides additional incentives to community solar projects.

Massachusetts also received a “B” on IREC’s most recent report card.

Colorado

Also graded a “B,” Colorado's 2011 bill, like Minnesota’s, exclusively deals with community solar and no other renewables. It boasts a higher volume of active programs, with 28, but its overall installed capacity of 16MW is much less than other stake markets. There are currently another 31MW in the queue to be built.

Colorado’s program is more oriented toward residential subscribers rather than the large commercial offtake. A minimum requirement of 10 subscribers is needed per facility with no subscriber having more than a 40 percent share, and larger projects require even more subscribers. According to HB 15-1284, systems larger than 500kW must have at least 25 subscribers. Colorado’s program has also aimed to focus more on low-income subscribers, with an annual 4MW allocation to low-income solar. Colorado’s growth, like Minnesota’s, has been a beneficiary of program structured instituted from Xcel Energy.

For a refresher on how a tax equity investor may view the Minnesota and Colorado community solar programs, here’s a refresher from a previous issue of SOURCE.

California

Ranked number one for overall installed solar capacity nationwide, one would expect California to be leading in community solar. However, the Golden State has yet to master the community solar model. California has several community solar programs, including virtual net metering and enhanced community renewables programs aimed at low-income subscribers. Despite the variety, California fell behind the class in IREC’s most recent report card, earning a “C” and “D-“ for its virtual net metering program and enhanced community renewables program respectively. And while California has committed to 600MW of community solar in the coming years, few developers are showing up to the table.

In practice, California’s community solar program only exists from a utility perspective. Solar developers only see an RFP to the utility for bulk supply. While likely yielding ultra-low-cost energy, this mechanism will tend to limit experimentation and development in other ways – for instance, in developers’ exploring different ownership arrangements, direct customer relationships, or differentiators that might reduce the margin compression associated with typical “race to the bottom” utility RFPs. This, coupled with unstable crediting, low rates for unsubscribed generation, and residential carve-outs, has stifled reaching full potential growth.

Newer Programs on the Rise

Clearly, there are large amounts of untapped potential with community solar development, and 2016 saw the largest number to date of community solar bills passed. According to a March 2016 report by Navigant, community solar programs across the country could total 1.5GW by 2020. But, will these programs actually yield results? We sat down with Sol’s Director of Policy & New Markets Sara Rafalson to discuss.

At Sol Systems, we are most optimistic about Illinois, whose community solar program will go into effect in the summer of 2018. The program sets a 2MW cap on projects and doesn't allow for a greater than 40 percent share of the project, which, if not further carved up, could lead to corporate participation and massive megawatt deployment. If the program rules are implemented correctly, Illinois will be well on its way to procure the 400MW by 2030 as required in the Future Energy Jobs Act, which was signed by Governor Rauner in 2016.

While Illinois is poised to take off, other markets have been slower to mature. For example, given a shortage of real estate in the District and early mishaps in bill credit rates, despite its “A” grade, D.C.’s community solar program has yielded limited results. The implementation of the Maryland community solar legislation (which IREC marked with an “A-“), which is now finally open, took far longer than anticipated. However, despite widespread fragmentation by utility territory and project size, this program may yield limited results outside of the 2MW “open” category.

Passed in 2015, New York has also implemented a program for community distributed generation. However, despite a great deal of fanfare and a “B+” from IREC, there are currently only six community solar facilities in the state, as these projects have fallen victim to the same interconnection queue processing and poor incentive level calculation that have held up general development in that state.

Oregon passed community solar in 2016 and is still working through implementation. Bill credit rates, low-income requirements, and rules requiring subscribers to be located in the same utility territory of the project (which would limit participation of Portland General Electric customers) have been controversial. Projects can be up to 3MW, and program rules are required by statute to be released on July 1^st.

Virginia also passed “community solar” legislation – but not in the traditional sense. This legislation will allow solar developers to engage in PPAs or asset purchase agreements with the Dominion and Appalachian Power Company up to 2MW at a time. The utilities will handle the subscriber relationship.

Conclusion

Overall, community solar is on the rise. However, the devil is in the details, and the actuality of deployment remains limited to a handful of “classic” states to date. With adequate program design and proper implementation – as well as accounting for best practices for deployment in other states – community solar will live up to the buzz.

This is an excerpt from the June 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 view the full Journal, please subscribe or e-mail pr@solsystems.com.

ABOUT SOL SYSTEMS

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.

DE-Claring the 2017 Delaware SREC Procurement

Posted on May 26, 2017January 25, 2023 by Lauren Miller

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DE-Claring the 2017 Delaware SREC Procurement

2017 | 26 May 2017

By Lauren Miller

The Basics

In 2011, Delaware’s renewable portfolio standard (RPS) was amended to make electric distribution companies rather than state power providers responsible for purchasing solar renewable energy credits (SRECs). With this switch, Delmarva Power became the largest SREC purchaser in Delaware. This led to the creation of the Delaware Procurement Program. Under this program customers can bid into 20-year fixed price contracts with Delmarva Power rather than selling SRECs on the spot market like in other states.

SREC Delaware is the entity in charge of managing this procurement, and it has announced the solicitation window for this year’s procurement program. This year’s bid window opens on May 29^th at 9:00 AM and will remain open until June 9^th at 5:00 PM. Winners will be announced on June 15^th. Both new and existing solar energy systems of all sizes are eligible to bid, provided they either have a Delaware SREC certification number or submit a bid deposit. Systems that win a bid will be locked into a 20-year contract for their SRECs with Delmarva Power. This 20-year contract is divided in half. The price per SREC for the first 10 years of the contract will be at the accepted bid price, and the last 10 years will be fixed at $35 per SREC.

Similar to past procurements, this year’s procurement aims to provide SREC price stability in the state, to give Delmarva another avenue by which to meet their long-term SREC compliance requirements, and to encourage solar development in Delaware. Since the inception of the program in 2012, Delaware has seen a steady increase in solar development. Prior to 2012, there were 25MW of solar in the state. From 2012 to 2016, 71MW were installed according to GTM’s 2016 Solar Market Insight Report. SEIA now ranks Delaware 30^th in the country with 363 solar jobs.

What’s New This Year?

This year the Solicitation will consist of seven tiers, rather than 2016’s five. The additional two tiers will allow both new and existing systems above 2MW to bid into the procurement. New systems are defined as those with final interconnection approval after June 10^th, 2016, and existing systems are those interconnected before this date.

Tiers N-1, N-2, N-3, E-1, and E-2 will competitively bid for the first 10,000 SRECs. Systems over 2MW, tiers N-4 and E-3, are excluded from the first round of bidding. However, after the first 10,000 SRECs have been procured, Delmarva is then able to procure up to 10,000 additional SRECs. This is an increase from 2016’s 6,000 additional SRECs. These additional 10,000 SRECs will be procured using the least expensive available SRECs from any tier, including N-4 and E-3. Additionally, if any of the tiers in the initial round are undersubscribed, any tier can then bid to make up for those, as was seen in 2016’s procurement.

The exact breakdown of SRECs per tier is shown in Figure 1 (below).

Generating Unit Tier Designations
New Systems (interconnection after June 10th, 2016)
Tier	Nameplate Rating (DC at STC)	SRECs in Tier
N-1	Less than or equal to 25kW	4,400*
N-2	Greater than 25kW but less than or equal to 200kW	2,300
N-3	Greater than 200kW but less than or equal to 2MW	2,300
N-4	Greater than 2MW	0-10,000
Existing Systems (interconnection before June 10th, 2016)
Tier	Nameplate Rating (DC at STC)	SRECs in Tier
E-1	Less than or equal to 25kW	4,400 Pool*
E-2	Greater than 25kW but less than or equal to 2MW	4,400 Pool*
E-3	Greater than 2MW	0-10,000

*Tiers N-1, E-1 and E-2 bid for the same pool of 4,400 SRECs

What Have Winning Prices Been in the Past?

2016’s procurement saw a higher than anticipated volume of SRECs bid into the procurement, and Delmarva decided to buy the excess 2,446 SRECs. However, for the first time, some of the tiers were undersubscribed, while others were oversubscribed. Last year, tiers N-1, E-1, and E-2 were undersubscribed, and N-3 low-priced excess bids helped to fill these spots. As a result, in 2016, tiers N-1, E-1, and E-2 saw an increase in the winning bid prices for the initial tiers, while Tiers N-2 and N-3 saw a decrease in winning bid prices due to oversubscription. The results of 2016’s procurement can be seen in Figure 2 (below).

Tiers	N1/E1/E2	N2	N3	N1/E1/E2 Plus N3 To Fill	Additional SRECs	Overall Solicitation
High	$99.99	$95.48	$50.00	$99.99	$78.98	$99.99
Low	$25.00	$49.00	$29.98	$25.00	$73.80	$25.00
Weighted Average	$79.26	$77.34	$38.39	$69.34	$77.93	$66.56

For tiers N-1, E-1, and E-2, the 2016 procurement results were higher than weighted averages of prior years. Results from prior years can be seen in Figure 3 (below), which represents weighted average of the procurement program’s results back to 2013.

Advice for Bidding and if You Win

Once the bidding window opens, applications can be completed on the SREC Delaware website. Applications must include the expected number of SRECs that will be generated and the bid price per SREC for the first 10 years of the contract. To avoid the chance of ties, bids can be submitted in dollars and cents. If a tie does occur, preference is given to systems with Delaware parts and labor.

Additionally, for systems over 2MW, it is worth noting that if the bid price for the initial 10 years is under $35, then the 20-year contract will be at that price for its entire term. It will not increase to $35 after the first 10 years. This could be put in place to discourage bids of “zero,” which could be a winning strategy, but skew market pricing.

For systems with winning bids, the contract with Delmarva will start with SRECs produced from June of 2017 onwards. For each system, Delmarva will purchase all of the SRECs included in the initial bid amount annually plus excess SRECs of up to 10 percent. For systems larger than 500kW, there is a production requirement. Systems that produce at 80 percent or less will be asked to pay damages equivalent to five percent of the annual price for the first 10 years and 10 percent of the annual price for the last ten.

Conclusion

If you’re a new or existing system in Delaware, it’s time to start thinking about whether you’d like to bid into the program, and if so, what your bid price will be. The Delaware, SREC spot market has been on a steady decline, trading around $7 upon writing of this blog, and winning a spot in the procurement program offers a long-term, known SREC income for your system.

We are happy to help answer questions on applications and can help represent your system if you successfully win a bid.

ABOUT SOL SYSTEMS

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.

Kind of a Big Deal: Land Use and Ground Mount Solar

Posted on May 18, 2017January 25, 2023 by Lauren Miller

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Kind of a Big Deal: Land Use and Ground Mount Solar

2017 | 18 May 2017

By Lauren Miller

Utility-scale solar has been steadily growing over the last couple of years, with 10.4 GW installed in 2016 alone, more than twice 2015’s 4.3 GW. 2016 was also the first time solar accounted for the highest percentage of new energy capacity build in the United States at 39%. Utility-scale solar development is no longer a phenomenon only suitable for the Southwest desert; it’s starting to happen in closer proximity to densely populated areas or rural communities on the East Coast, too.

As solar deployment continues, several states and counties have decided to revisit their previous zoning laws to accommodate this new growth. In some cases, local communities want to pause development while they sort out antiquated zoning practices that did not account for solar deployment, or devise ways in which the local community can have more say in the permitting process. In other cases, these conversations are the result of plain ol’ NIMBYism, or the misconception that solar on agricultural land will lead to “too much electricity and not enough food.”

As a result, we have seen several legislative attempts geared at ground mount solar development. Here are a few examples.

Maryland

Maryland’s utility-scale (>2MW) solar build has stayed relatively steady year-over-year with 16MW installed last year, as compared to 168MW residential and 64MW commercial. After a highly publicized debate on the Eastern Shore, which has seen most of the state’s utility-scale solar growth, went sour, counties began to request more say in the permitting of local solar projects, which is handled at the state level through the Certificate of Public Convenience & Necessity (CPCN) process. The result was a pair of bills at the state legislature. Though one failed, another, HB 1350 requires the Maryland Public Service Commission to share CPCN application materials with the local jurisdiction, and to consider the jurisdiction's comprehensive plan and zoning. This legislation was not specifically targeted at solar – all generating stations are included.

While the legislative session made progress on this issue, a handful of counties have issued – or contemplated – a moratorium on ground mount solar projects. While some county-level legislation has been withdrawn, state legislators are attempting to provide local jurisdictions with more authority over the state-wide permitting process. For example, in January of 2016, Frederick County imposed a 6-month ban on solar facility applications, which was extended to December 2016. Uncertainty has persisted as the County Council worked through legislation, putting in jeopardy the good faith investments already made by solar developers prior to the ban. Caroline County implemented a similar 6-month moratorium.

Connecticut

In Connecticut’s current legislation session, which runs until June 7^th, there are two bills on the table that center on limiting solar development on agricultural land. SB412 would restrict the use of incentives for large-scale solar arrays looking to locate on agricultural land. HB5344 seeks to allow local communities more of a role in the project development process.

Vermont

Despite its reputation for the love of all things green – and its 75% RPS – Vermont has some of the toughest renewable energy permitting laws in the country which have hindered solar deployment. S260 – the Energy Development Improvement Act - took effect in July of 2016. S260, adds to the existing siting processes an analysis of energy sectors including conservation, energy efficiency, development, and siting of renewable energy. There can be no building of renewable energy on sensitive areas, including agricultural soils.

New York

Nearly 90 town and village governments in New York enacted moratoriums on large commercial solar farm development in 2016. Many of these moratoriums center around a town’s desire to have a period to reconfigure zoning/land use, standards, taxes, etc. for these systems.

This limit on ground mount development is happening despite little utility-scale development in the state. While New York ranks 10^th amongst top solar states, only a fraction has been utility scale until recently. As of January 2017, only around 85MW of utility scale solar have been constructed in New York and the market really only started in 2011 according to GTM. This is compared to 533MW of residential and 309MW in the commercial sector.

In fact, 2016 was the first time that a solar project was awarded a bid for a 20-year REC contract under New York’s Large Scale Renewables Procurement, which will now be under the Clean Energy Standard. These procurements are technology neutral, and utility-scale solar had previously not won bids against other technologies such as wind, hydroelectric, and fuel cell until this year.

Like Maryland, the actual megawatts installed of utility-scale solar in New York is overstated.

North Carolina

Further south down the East Coast in North Carolina, the 2^nd ranked solar state, with 3,016MW installed, there has also been land use discussions. At the state level, there have been bills aimed at creating more restrictive permitting rules. While these have not seen success, similarly to previously mentioned scenarios, local level opposition has seen more success through moratoriums, with the most recent being in Currituck County.

Despite this pushback, analysis by the North Carolina Sustainable Energy Association showed that solar was not eating up available farmland in the state. Rather, the projects that did exist were extremely visible near the highways, creating this misperception. They found that the amount of land actually used for solar was relatively small, and solar actually took up only 0.2% of previously used cropland, while producing enough electricity to supply 6.2% of North Carolina’s households and supplying over 7,100 jobs in the state.

Solar and Local Communities: Let’s Work Together

Overall, the solar industry has experienced some growing pains related to land use, and not just on the East Coast (we were recently at the Oregon SEIA conference, where the solar and land use debate is also lively).

As our electricity sector transforms, the solar industry will be most successful when we help local communities become more comfortable with our technology, dispel myths, and foster relationships to seek mutual understanding.

Furthermore, we need to promote the positives. Solar development increases local property tax revenues. Rather than negotiating for no local taxes, we recommend developers ensure more limited tax revenue to help build out key stakeholder support. On a dollar-per-acre basis, utility-scale solar generates more tax revenue than if that land were used for agriculture. Additionally, solar is less intrusive than other possible generating units. It is quieter, uses less water, puts off almost no pollutants, and once a facility is decommissioned, the land can go back to its previous use.

Landowners interested in leasing their land for solar development can check out the Solar Energy Industries Association (SEIA) guide to land leases. The guide’s purpose is to help land owners understand the opportunities and implications of leasing their property for a solar installation. More at http://www.seia.org/research-resources/seia-guide-land-leases-solar.

This is an excerpt from the May 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 view the full Journal, please subscribe or e-mail pr@solsystems.com.

ABOUT SOL SYSTEMS

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.

Should the Solar Industry Be Worried about Tax Reform?

Posted on April 19, 2017January 25, 2023 by Lauren Miller

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Should the Solar Industry Be Worried about Tax Reform?

2017 | 19 Apr 2017

By Lauren Miller

With the election of President Trump at the end of 2016 came concern regarding tax reform and its potential impact on the solar industry. A massive overhaul of the tax code could mean doing away with the solar Investment Tax Credit (ITC), which was recently extended at the end of 2015 – though many consider this fate unlikely. However, even a modest decrease in the corporate tax rate will affect current deal economics and mean less tax equity available in the market. In case you missed it, Sol Systems’ CEO Yuri Horwitz discussed this in January’s edition of SOURCE. Put simply, if the tax rate for investors such as banks, insurance companies, and Fortune 100 corporates that utilize their tax liability to invest in solar assets shrinks, there could be less capital available to invest in solar, and the value of depreciation benefits of those investments will shrink as well.

Since the expiration of the 1603 cash grant, the availability of tax equity has consistently been a limiting factor in solar deployment. In January of 2016, after the ITC extension, we estimated about $10 billion in tax equity would be needed to fuel solar growth over the next five to seven years. However, the potential for tax cuts under the new administration has begun to raise questions about how much tax appetite potential investors will have. The corporate tax rate is currently set at 35%, but discussed tax cuts could lower it to 20% under this administration. If this were to occur, the tax appetite for the proverbial tax equity pie could be greatly reduced.

Another issue embedded in the tax reform discussion is the controversial Border Adjustment Tax (BAT). This tax would give tax breaks for exports and remove existing tax breaks for imports. Though the BAT could be a long shot, if enacted, it could raise prices of solar equipment from rest-of-world manufacturers.

As the Trump administration hits its 100-day mark in the next two weeks, how real are these fears? Since we last wrote about tax reform, Congress and the administration failed to pass the healthcare bill. Here are some thoughts on the likelihood of tax reform and the timing of tax reform.

Time Is on Our Side

Tax reform is an extensive undertaking for the federal government, even when one party controls the White House and Congress. The last time taxes were fully reformed and corporate tax rates cut was in 1986 under the Reagan administration, and it took years to negotiate. According to a CNBC interview with Secretary Mnuchin, he and President Trump are aiming to have a comprehensive tax reform bill in front of Congress before August recess at the earliest, meaning negotiations won’t start in earnest until Q3.

However, the healthcare bill setback earlier this year may push back that timeline even further. President Trump has said he would like to champion through health reform prior to tax reform, and the death of the healthcare bill showed that with the internal dynamics of the GOP, sweeping change could be complicated. Thus, there may not be the momentum to push through such sweeping reform this year.

The Give and Take of Politics

Even with control of both houses in Congress and the White House, the healthcare debacle showed that President Trump and the Republican party cannot pass sweeping changes on their own. And, these efforts will take time. There are internal factions within the Republican Party – like the Freedom Caucus – who will need to get on board. If the Freedom Caucus defects, further compromise – and some bipartisan support – will be necessary to get any corporate tax cuts through. Given the political climate, it is worth asking how much appetite Democrats currently have to compromise with a Trump White House and hand the administration a political win.

Healthcare’s failure has no doubt slowed tax reform’s momentum, as the savings from the healthcare bill were crucial to offsetting the budget impact of lower tax revenue. Without these savings, tax reform could cause a deficit and will face even more opposition in Congress.

The Border Adjustment Tax

The BAT is one way Congress is currently looking to fill the potential revenue void. If implemented, it could add $100 billion a year in tax revenue. However, while it would help make up for the lost tax revenue, it could add costs for most all multinational corporations, and understandably, is very controversial. Opposition groups such as the Americans for Affordable Products, formed by American retailers, is rallying against it. These internal and external pressures could hinder the BAT from getting passed at current levels or at all. Without the BAT, the proposed tax reform is not revenue neutral, again creating more opposition within Congress.

With these thoughts in mind, if tax reform is going to occur under this administration, it is going to require compromise, and it won’t occur quickly. Whatever does not happen in 2017 could be tried in 2018, an election year, in which inter-party dynamics become more challenging and the potential for compromise is lower.

The ITC has Support

Our belief at Sol Systems is that the solar Investment Tax Credit – which is already set to step down starting after 2019 to 26% in 2020, 22% in 2021, and plateaus at 10% after 2023– is safe. Solar has bi-partisan support, and is good for jobs. The extension of the ITC at the end of 2015 was a bi-partisan effort. We increasingly see red states and their leadership embrace solar. For example, of the top ten solar states from 2016, five are red states, including Texas and Utah, states with representatives on the House Ways and Means Committee and Senate Finance Committee rank among. Additionally, Representatives Tom Reed (R-NY) and Mike Thompson (D-CA) on the House Ways & Means Committee, and Senators Dean Heller (R-NV) and Michael Bennett (D-CO), have all been strong champions of economic development through solar, and recognized for their support.

One of the main reasons states are supporting solar is jobs. In 2016, the number of solar jobs increased by over 51,000 workers, a 25% increase from 2015, and a 2% percent share of all new jobs in 2016. As Sol Systems CEO Yuri Horwitz stated earlier this year “Our view is that an administration focused on creating jobs and growing the economy will not take an axe to the ITC at such a critical stage in the industry’s development given the industry’s more than 200,000 jobs.” Today, the solar industry employs 260,000 Americans across the country.

Conclusion

Considering the failure of the healthcare bill, we do not expect speedy action on tax reform or potentially success in this area at all. Strong investment opportunities continue to be available in the solar industry, and tax appetite exists to meet them. Some potential investors may perceive uncertainty regarding solar’s future due to pending tax reform, which has caused some perception problems, but the actual threat is relatively benign. For the investors already at the table, the increased demand for tax equity will have a positive effect on yields.

This is an excerpt from the April 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 view the full Journal, please subscribe or e-mail pr@solsystems.com.

ABOUT SOL SYSTEMS

Over the last eight years, Sol Systems has delivered more than 595MW 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.

Is Maryland the Next Frontier for Energy Storage?

Posted on March 16, 2017January 25, 2023 by Lauren Miller

Blog

Is Maryland the Next Frontier for Energy Storage?

2017 | 16 Mar 2017

By Lauren Miller

Keeping the Legislative Momentum

Earlier this year we saw Maryland’s legislature stand for solar and other renewables with the override of Governor Hogan’s veto of the Clean Energy Jobs bill. This allowed for an increase in the state’s renewable portfolio standard to 25%.

Maryland has long been a national leader in renewable energy, but could the state become the next frontier in energy storage? In the current legislation session, Maryland’s House and Senate are now looking to encourage the adoption of energy storage technologies, which will be key to the future growth of renewable resources. There are three promising bills under consideration which seek to better understand and grow the market for this emerging technology.

The Bills

Of the three bills currently on the table, two of the bills seek to incentivize storage while the third hopes to better understand the technologies implementation and the best way to facilitate its growth.

1. HB1395 – Solar Energy Grant Program

HB1395 seeks to incentivize residential owners to purchase storage technology by allowing the Solar Energy Grant Program to award grants to certain energy storage equipment, effective as of October 1, 2017. The bill does the following:

Defines storage technologies to include electrochemical forms of storage alongside compressed air, pumped hydropower, hydrogen storage, thermal energy storage, flywheel, a super conducting magnet, capacitor, or superconducting magnet.
Sets a capacity standard for eligible technologies at a minimum of 5 kWh, with an applicable solar photovoltaic property defined at a capacity of 20kW or less.
Establishes that the grant amount eligible to energy storage equipment will be the lesser of $3,000 or 30% of the total installed cost of the energy storage equipment.

2. HB0490/SB0758 - Income Tax Credit - Energy Storage Systems

Joint House and Senate bills HB0490 and SB0758, if approved, would allow for a credit against the State income tax for certain costs of energy storage systems on both residential and commercial properties; commercial properties is not defined. The credit would apply to systems installed between January 1, 2017 and December 31, 2021, coinciding with the ramp down of the federal Solar investment tax credit. The credits, as proposed, are as follows:

For commercial properties, the credit would be the lesser of $150,000 or 30% of the installed system cost for commercial properties.
For residential properties, the credit would be the lesser of $5,000 or 30% of the total installed cost of the energy storage system for residential systems.

3. HB0773/SB0715 – Clean Energy – Energy Storage Technology Study

Unlike the previously mentioned bills, which will jumpstart the market with incentives, joint bills HB0773 and SB0715 will require the Maryland Clean Energy Center to conduct a study on energy storage. The purpose of the study would be to understand what would be the most effective regulatory reforms and market incentives to increase the use of energy storage devices in Maryland in a way that is fair to all stakeholders, including the State government, electric companies, environmental organizations, providers of energy storage devices, developers, and other interested parties. The final findings of this report would be due on December 1, 2018 with an interim report due on December 1, 2017. Some of the key components of the study include:

How storage technologies can be integrated with other programs in the state - like demand-side management - and help to achieve the “Ten-Year Plan of Maryland Electric Utilities”
Other states’ policies, ownership models, procurement targets, market incentives and cost recovery mechanisms (i.e. rate recovery)
If the policies are technologically viable and cost-efficient
How storage technologies could reduce the need for fossil-fuel powered peaking facilities and other ancillary services currently provided by fossil fuels by allowing intermittent renewable sources to operate near or at full capacity
Necessary steps for electric companies to support storage being connected to the transmission and distribution grid

What’s the Status?

Of the joint income tax credit bills HB0490/SB0758, SB0758 passed its third reading in the Senate 46-0 on March 10^th and is now being read by the House Ways and Means committee. The energy storage study bills (HB0773 and SB0715) have each had their first hearings but have yet to progress further. HB1395, the Solar Energy Grant Program bill, had its first hearing on March 9^th. The legislative session ends on April 10^th.

Conclusion

Passage of any of these bills would allow Maryland to follow in the footsteps of other early adopters of energy storage. California, for example, has a 1.3 GW storage procurement mandate, New Mexico has a storage energy investment tax credit, and New Jersey offers a $300 per kWh incentive of up to 30% or $300,000 for energy storage projects (though the NJ program has experienced a few hiccups). Massachusetts is also beginning to lead the way with storage legislation with emerging storage capacity targets above 1000MW for electric companies alongside potential new funding sources under the SMART program when it’s rolled out. As we have touched on before, the mass adoption of solar + storage may still be a year or more a way in most markets, with the exception of California, and is thus largely still incentive driven.

Who knows? Depending on how the remaining month shakes out in Annapolis, Maryland could become the next hottest market for energy storage.

ABOUT SOL SYSTEMS

Over the last eight years, Sol Systems has delivered more than 500MW 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.

Author: Lauren Miller