Fleeting Solar Incentives and Regional Markets

The government has determined that solar, wind and geothermal sources of renewable energy are to be encouraged. Tax incentives, cash incentives and rebates targeted at end users were created to encourage the adoption of renewable energy projects including solar panels. These incentives change from location to location and from year to year making the decision to invest in solar photovoltaic system very complex and potentially risky. The renewable energy credit that I obtained in Virgina to help offset the cost of my solar photovoltaic installation has been exhausted and there are no current expectations to continue to fund the program in Virginia. However, I have discovered as I look at programs in other locations that the state rebate in Virginia at $2,000 per kilowatt PTC was quite generous.

Over the past few months I have watched the price for SRECs (solar renewable energy credits) fall each month in Pennsylvania where I have been selling my SREC. If you recall, SRECs are not physical entities, but merely a credit for having made power (I used all the power produced by the panels in my own home). Because SRECs are not physical items their value depends entirely on regulation which can change over time and that is the inherent risk in making financial decisions based on regulations. There was always a risk that SRECs could become worthless at any time if regulations change. Of course they could become worth more. Meanwhile, I will continue selling SRECs on the spot market. I continue to observe the market and it appears to be due to changes in regulation.

Utilities in the state buy SRECs from solar installation producers to meet their mandated Renewable Portfolio Standard, RPS. It is a way for states to ensure that the upfront cost of solar power is recovered from utility companies (and ultimately from the rate paying consumers). Some states, like New Jersey and Maryland, require their utilities to buy SRECs only from residents of their states creating a closed market where the price is kept high. Other states, like Virginia, have no current RPS requirement. Still other states, like Pennsylvania allow their utilities to buy their RPS from any resident within the PJM regional transmission organization. The power in the grid is purchased and sold on a regional basis, so I suppose there is some logic to a regional SREC market, but it may not be in the best interests of state residents. There is a virtual market place where nothing is sold by virtual companies. Only accounting entries change hands in this market.

The SREC programs in the eastern states of Pennsylvania, Maryland, Delaware and New Jersey, have been one of the catalysts for solar development because they increase the return on investment in a solar photovoltaic systems in their markets. When Maryland, Delaware and New Jersey recently updated their SREC laws to increase the requirements and raise the fines, the price in their closed markets went up. However, that change coincides with the falling SREC price that I have received. In addition, Pennsylvania has been examining closing its SREC sales to out of state installations.

When the original PA SREC program was created in 2004, the law included SRECs from out-of-state facilities. A recent PA bill to increase RPS failed, but it would have excluded all out-of-state facilities that have already been built and certified by the Pennsylvania AEPS Program to sell SRECs in the state’s market. These are existing solar facilities like mine that have been selling SRECs for the Pennsylvania market, and could be shut out of the SREC market in the future. This may actually be a good thing for the PA SREC market, but has the potential to significantly reduce the return from my solar photovoltaic installation. This; however, was always the risk with financial incentives based on regulations and laws in other states. This was a risk I accepted and must now live with.

The legislation creating SRECs and RPS in various markets is always in flux. In the District of Columbia, the RPS market has requirements of about 8 megawatts of installations at the current time, but there are over 27 megawatts of solar photovoltaic systems currently registered and certified in DC that are eligible for the DC SREC market. Only 1.1 MW of the 27 MW are actually located within the District. This situation creates the dynamics to limit access to the market in the future.

California has a series of solar financial incentives that are location specific and very different from the eastern markets. I will be looking the various incentives and costs associated with a residential solar project in San Francisco in the coming days. California does not have a SREC or as they call it a Tradable Renewable Energy Credits (TRECs) market to meet California’s RPS. Though there are stiff RPS in California utilities have not been allowed to buy TRECs to comply with RPS. In addition, the CA PUC has maintained cap on TREC volume and price preventing the development of a TREC market in the state..