Solar Panels, SREC’s and Public Utilities

from WSSC

Last week in the Washington Post was an article by Katherine Shaver about the Washington Suburban Sanitary Commission’s (WSSC) solar farm. The WSSC plant in Montgomery County, Maryland has 8,500 solar photovoltaic panels covering 13 acres of land that began operations last fall and is expected to save the WSSC 25% of their electrical costs. They WSSC expects to save $3.5 million over 20 years without a single dollar outlay, while neighboring Fairfax Water found that even with today’s low solar photovoltaic panel prices that the solar project they considered would require 36 years of operation just to break even. How is that possible that two adjacent utilities have found such vastly different economics of solar photovoltaic installations? The answer is financial incentives provided by the state and paid for by the electric utilities and their rate payers.

Solar incentives exist in Maryland, but not Virginia. Some of the rebates are state wide, others are county incentives, there are rebates based on sales of SRECs which in turn are based on the power produced by the solar panels. A SREC is a credit for each megawatt hours of electricity that is produced, but used elsewhere. SRECs have value only because some states have solar set asides from their Renewable Portfolio Standards, RPS, which require that a portion of energy produced by a utility be produced by renewable power. Maryland has such a set aside. Maryland has a healthy and robust SREC market because they have both a significant solar carve out for solar that will be 0.35% of the RPS in 2014, a market that is open only to solar installations located in Maryland and a current $400 Solar Alternative Compliance Payment, SACP. The SACP is the amount that electric utilities, must pay per MWh of solar electricity that they are required to have, but are unable to generate themselves or buy rights to through SREC purchases to meet the state RPS solar requirement. In other words, the SACP is the maximum value of an in-state SREC. The minimum value is based on the supply. Right now Maryland has 153 MW of installed and registered in-state capacity with a 2013 requirement of 136.5 MW solar requirement under the RPS, but that requirement will jump to 194 MW in 2014 so the market will once more be under supplied and SREC value should approach the SACP price.

WSSC is engaged in a solar leasing contract with Washington Gas Energy Systems who actually paid the $12 million to install the solar panels on the WSSC land and will maintain and service the installation. The solar leasing companies are profit making enterprises that excel at managing, government guarantee loans, rebates, incentives, tax credits and SRECs, to maximize their profit while providing discounted electricity from renewable sources to landowners with favorably oriented roofs or large areas of open land in locations with adequate rebates. However, many of the solar panel leasing companies have enough scale to negotiate multiple year deals with utilities to buy their SRECs reducing their financial risk and ensuring a better deal than a small generator and eliminating market risk. They can in essence they can lock in a guaranteed annual profit for setting up the deal.

There are no RPS solar requirements in Virginia, thus no value to SRECs beyond the $10-$15 that a RPS credit is worth. Thus, Fairfax Water would have to pay about $12 million dollars today to save $14 million over 20 years in addition to incur the expenses to maintain the solar photovoltaic panels and borrow the money to buy the solar panels. This is not an expenditure that would be a good deal for their rate payers. If they paid just 3% interest on the money borrowed to install the solar panels then it would cost $21 million to save $14 million in electricity over 20 years. Lack of financial incentives for solar leasing companies is why Fairfax Water cannot “afford” to install a cool solar photovoltaic panel farm to power their water treatment and waste water treatment plants. However, Virginia electric rate payers have lower electricity costs than Maryland.

Washington’s DC Water has a different problem. The District of Columbia passed a law in 2011 which prevents out-of-state systems registered after January 31st 2011 from participating in the DC SREC Market. DC is currently the only under-supplied SREC market in the nation, because of the lack of large commercial solar farms and large industrial installations. Washington DC is a city with limited non-governmental buildings and no available private land. Approximately 288 MW of solar capacity is required under the Washington DC law by 2023. The 2013 RPS requirement is approximately 49 MW of solar power. Currently, there is only 28 MW registered, and Washington DC SREC prices are the highest of any SREC market at $480/SREC. Yet, despite the very rich SREC incentive in the District, construction of solar photovoltaic arrays has been slow. The leasing companies have been stymied by the lack of locations to install solar farms and building capacity one single family home and church at a time is simply slow going and requires a lot of overhead and sales staff. DC Water’s Blue Plaines Advanced Sewage Treatment Plant own much less buffer land than either Fairfax or WSSC, but is considering installing solar panels on the waste water treatment structures to allow them to reap the benefits of the SREC based solar savings.

I am watching these developments closely because due to a bit of luck, and the soul of an accountant, I registered my Virginia based solar photovoltaic array in the Washington DC market in July 2010 and I can sell my SRECs in the Washington DC market. The dollar value of the solar power I generate from my solar panels is worth less than half the money I have sold my SRECs for over the past three plus years. However, there is no guarantee that my SRECs will be worth anything next year and as more solar power is registered in DC the value of my SRECs will decrease. A nice big installation at DC Water or the Aqueduct properties could potentially eliminate the value of my SRECs.