II. Supporting Policies
2.7 Distributed Generation
Many states have Distributed Generation provisions as part of their RPS policies. This requires a certain percentage of energy production to be produced across the grid and integrated to it. The most common method used for promoting DG is to make a multiplier for RECs from Distributed systems (integrated residential SPV is classified as DG).
12 2.8 Solar Set-asides
Within the different RPS laws, some states have specific requirements for different forms of energy. These are called either a “set-aside” or a “carve-out” for different energy sources, including solar photovoltaics. As of December 2010, the USA had 16 states with solar set-asides or distributed generation [9]. These set-asides are required percentages of state energy
production from SPV. For example, Ohio’s RPS has a 2025 goal of 12.5% renewable energy production, and a 0.5% solar set-aside. These set-asides have shown to be more effective than credit multipliers [18].
Just like all other RPS energy production, a REC is created for every 1 MWh of solar energy.
However, these RECS are special Solar Renewable Energy Certificates (SRECs) and fall under different regulations. Specifically, the associated ACP is also a special Solar Alternative Compliance Payment (SACP), and these SACPs are usually significantly higher than the standard ACP.
Table 5: Set-Asides [17]
Positives Negatives
Greater certainty for the total amount of solar photovoltaics to be added
Higher risk of cost impact, and may force the RPS cost cap
Does not affect the overall RPS percentage target
More directly impacts the market for renewable
Easier to set effective levels and accompanying strength
Establishing level of support can be troublesome and often uncertain
Targets cost barriers Once established can become difficult to
modify
2.9 Solar Renewable Energy Certificates (SRECs)
Many nations have created green energy credit markets whereby utilities companies are required to purchase a set number of energy credits. Among the different states, this type of policy has
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picked up steam, and several states have enacted or planned these Solar Credit Markets (SREC).
As these policies are less costly and less invasive on the market, political opposition is weaker [14].
Table 6: Tradable Green Certificates (SRECs) [14]
Positives Negatives
Larger political support Can be complicated to understand and implement Generators like them, as they
result in a new revenue stream Newer policy with less history Administrative cost control is low Unclear relationship with carbon
or pollutant tradable credits A market mechanism International trading can further
complicate the programs
SREC markets are very new, and tradable SREC markets exist in 8states [19], with maturing markets existing in Maryland [20] and District of Columbia (DC), and New Jersey. Just like RECs, 1 SREC = 1 MWh of solar energy produced within a given energy year. After SPV is installed, the owner is required to certify their program with their state utilities authority. This usually takes about 2 months to accomplish.
They are required to set up an approved tracking system. This is surprisingly simple for the grid management companies to arrange. The electric grid is not run directly by electric energy
producers, but instead by private companies that operate across various regions, working with many utilities companies. The largest grid infrastructure company is PJM in the east where most of the SREC markets exist. PJM employs its GATS monitoring system [21], and stores each MWh produced by a system with a unique serial number.
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To help speed up the process, these private equity markets allow you to use their service to manage GATS, and sell through their markets. SPV owners are able to use SRECTrade’s
EasyRec Program to get their systems certified and GATS installed. This costs the “greater of 3%
- 5% or $5” [19].
These MW hours are then able to be verified RECs (or SRECs), and can be sold by the owner of the SPV system. Although depending on the specifics of an SREC market, or the contract signed by the household, they may not have rights to the SRECs from their systems.
The utilities companies within the states are required by law to purchase a set number of SRECs per year or pay a Solar Alternative Compliance Payment (SACP). Many SACPs have a set timetable whereby the price of SACP decreases annually, while others do not. At the same time, the quantity of SRECs mandated to be purchased increases annually as the solar carve-out percentage increases.
The way utilities companies acquire SRECs is up to them. They are allowed to build solar production plants, purchase SRECs from private SPV energy producers, or pay the SACP. Due to the ambitious scale of some SREC policies, the ever-evolving SPV technology, legal and bureaucratic obstacles to large-scale plants, the time it takes to create a SPV plant, and the conservative nature of utilities companies, companies tend to opt for either purchasing SRECs or paying the SACP. Even so, Concentrated Solar Plants (CSP) have increased recently in states whose carve-outs allow CSP megawatts to count as SRECs, and more utility-scale SPV plants are being produced [17].
Most Solar set-asides allow SRECs to be freely traded, so private equity markets have sprung up to capitalize upon the SREC policy trend: SRECTrade and Flettexchange. These exchanges are
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privately managed markets where people and companies can buy and sell SRECs throughout the course of a year. At Flett Exchange, and soon from PJM’s tradable market, SRECs are traded based on bid & ask prices, and can be bought and sold by these spot prices. SRECTrade is an online auction house and works like an IPO with a monthly SREC price.
Due to the nature of SRECs, the SACP acts as a cap on the price of an SREC, because a utility company has no need to buy an SREC at the same price as it does to pay the SACP. No scenario exists where an SREC will exceed the SACP in price. Accordingly, SREC prices per state tend to stay very close to the SACP.
It is to be expected that should the ratio of SRECs demanded to SRECs supplied ever dip below 1:1, or approach it, the prices of SRECs should become more drop quickly as SREC holders attempt to ensure they get revenue of some sort for their solar production.
There is no guaranteed minimum for an SREC, and should the number of SRECs produced exceed the set-aside requirement, many could go worthless, so some states allow multi-year contracts to be signed. These contracts can help lower the Utilities’ companies average cost for SRECs over the years of the contract. Similarly, SREC producers can decrease the market risk for their SRECs. By signing a long-term (and/or fixed payment) contract, SREC producers can be guaranteed of payment for the SRECs.
2.10 Drawbacks to RECS & SRECS
RPS requirements and their set-asides are not without their faults. Funding remains a major issue for all programs. The majority of the RPS Compliance Payments come with cost containment measures that cap the amount of money to be paid in the form of ACP or RECs.
Already, in New Mexico & New Jersey, these caps are being approached. Due to the higher
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SACPs, solar carve-outs may serve to complicate RPS cost containment [17], and potentially negatively affect the policy as a whole.
Given that residential SPV systems produce a small amount of SRECs annually, transaction costs for utilities companies to find each of these SRECs are prohibitively high. Therefore, SREC aggregators like US Photovoltaics [22], Sol Systems [23], and other private companies and individuals are emerging to purchase these residential SRECs and package them to utilities companies.
Essentially, the value of the SREC for the residential SPV owner is lessened by these transaction costs. PJM’s GATS group reported in 2009 that SREC generators are in need of brokers so they can communicate with the SREC buyers (utilities companies) [24].
2.11 SREC Price Uncertainty
The uncertainty of the SREC price also makes it hard to determine exactly how effective they can be. Under most SREC legislation, SPV owners are not guaranteed any minimum price at which they will be able to sell their SRECs in the future. The elasticity of credits is very much inelastic [25], and should the supply of SRECs begin to outweigh the demand, the price of an SREC will very rapidly approach zero.
Price volatility and inelastic demand are the key problems with SREC policies. The only way around this problem is to establish some sort of floor in addition to the ceiling (SACP price) to put SPV owners at ease. When a minimum is put into place TGCs can be effective, as is the case of Belgium’s TGC policy [8] [16]. However, to all intents and purposes, it becomes a sort of variable-priced FIT program. Then, the problems associated with FITs affect SREC policies, and make it hard to pass through as legislation due to funding questions [14].
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This lack of a floor means that the best available strategy to SREC buyers and sellers is to make
“long-term bilateral deals [25]. “ This will lower the average price of an SREC to the seller and the buyer, reducing the maximum impact of the SREC policy, but also lowering the risk
associated with the highly volatile SREC.
2.12 Measuring Policies
There have been many studies exploring the success of government policies on renewable energy sources. There is also no denying that government policies aimed at increasing SPV capacity growth are a major force driving the technology to date [4] [17]. Unfortunately, assigning value to each of the different policies is challenging [17].
Most studies have shown that RPS do indeed have an effect on renewable energy sources.
Probability Distributions have been used to measure the effectiveness of each program (Net metering, Compliance Penalties (ACP), existing capacity, etc.), and show that, on a whole, RPS have been successful [26]. An in depth study of wind power policies also reveals that they have been helped to promote wind energy [27]. However, in 2010 a separate two-part model showed that RPS had a negative impact on increasing installed wind capacity, and for solar it had a negligible impact (0.01 correlation) [28].
Still further attempts to measure the effectiveness of solar policies have been attempted. A study of UK banding (similar to a carve-out) and carve-outs indicates banding has been more effective than carve-outs, but that carve-outs are still newer and need more data to get a stronger result [29].
Other studies attempt to compare different nations or states. Comparative financial and
economic analysis of individual European countries using Net Present Value and Internal Rate of
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Return for each of the different European nations’ policies contrast different policies levels of
effectiveness [7][8]. A similar study of solar thermal heating and residential SPV in Michigan and Hawaii suggest Hawaii’s system is positive, while Michigan’s remains negative or even [6].
These studies each measure the direct impact of policies on the SPV industry.
This study compares the SREC policy’s portion of the whole incentive package by applying a Present Value (PV) for each of the SREC policies over 15 years. Then it measures this present
value against the other policies that exist within the USA (California’s FIT, net metering, and the federal tax credit, and net metering) as an attempt to measure and compare the potential effects of the emerging SREC policies within the USA.
III. State-by-State Policies
3.1 Overview
In this study, only those American states with Renewable Portfolio Standard solar carve-outs that contain Solar Renewable Energy Certificate (SREC) policies are evaluated. An in-depth
overview of the state policies that apply and are calculated in the NPV analysis is provided for each of these eight states. Then, an overview for the successful Cailfornia Feed-in-Tariff is provided.
3.2 District of Columbia
DC passed its RPS in 2005, and in 2008 it amended it, increasing the requirements and ACPs.
DC uses a similar method to Maryland. It has a Tier I, Tier II, and solar carve-out requirement.
DC’s solar target began at 0.005% in 2007, scaling up to 0.40% by 2020. The SACP is a fixed amount of $500 each year until 2018, after which it is undetermined. In order to convert a MWh
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produced by SPV into an SREC, the SPV owner must be certified by the DC Public Service Commission (PSC), and use the PJM GATS accounting system like most other SREC markets.
Like Ohio and Pennsylvania, DC allows solar credits produced outside of DC in states as far as Wisconsin to be purchased and retired by DC utilities companies in order to meet their RPS requirements. Out of state generated MWh can be used as SRECs in DC only if the resources within DC are “exhausted [9].”
Table 7: DC Overview [9] [30] [31][32]
2010 SACP SREC
Lifetime Carve-out Goal SPV Price per Watt
Avg. Solar Output (kW/kWp)
2009 Energy Price per
kWh
$500.00 3 years 0.40% by 2020 $8.80* 1240 $0.1376
$500 until 2018, then undetermined
3.3 Delaware
Delaware established its RPS originally in 2005 with a 10% goal by 2020, but was then modified to be 20% by 2026 with a 2.005% solar carve-out in 2007. Later it was scaled up again to 25%
& 3.5% respectively. Delaware’s RPS also has a 3x multiplier for SRECs, meaning an SREC counts as 3 RECs towards the utilities’ ACP requirements, in addition to the 1 SREC towards the solar set-aside requirement.
Delaware’s SACP system is particularly unique in that there is a punishment attached. Each time a company uses an SACP instead of submitting an SREC, the next year it must pay $50 should it use SACPs again. If a Delaware energy producer meets its compliance by acquiring 70% SRECs, and paying 30% SACPs of $400 each, the next year the number of SACPs purchased at $400 go
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up to $450, and any subsequent SACPs are paid at the lower $400 price. This scales up indefinitely at $50 each year with no maximum.
Undoubtedly, this strict and aggressive Solar Set-aside should jumpstart the SPV market within Delaware. However, the 2010 amendment adds provisions allowing for the compliance
payments to be frozen should the payments (either in purchased RECs or paid ACPs) exceed 3%
of total energy retail for that year. SREC requirements are ceased should SREC paid for or SACPs exceed 1% of total retail energy.
Table 8: Delaware Overview [9] [30] [31][32]
State 2010 SACP SREC
*National Average for SPV / Watt
3.4 Maryland
Maryland enacted its RPS in 2004, and subsequently revised it several times to include a solar carve-out, and tiers to target a wide range of renewable. The solar carve-out is aggressive, and scales up from 0.005% in 2008 to 2% in 2022. Maryland’s SACP is set at $400, and was set to decline according to a set timetable, but in December 2010, Maryland approved extending the
$400 SACP through 2016 to increase the strength of the program.
Maryland’s solar set-aside requires the owner of a system that generates an SREC to first offer the SREC to an electricity producer for RPS compliance. It is not specified, but the law requires the SREC producer to post the SREC for sale on Maryland’s Public Service Commission
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(PSC)’s website for a minimum of 10 days before the SREC holder is allowed to sell their SREC to another person or entity [33].
Additionally, should the electricity suppliers decide to purchase their SREC directly from the SREC producer, the solar energy system owner must enter into a contract for at least 15 years.
Specifically, for SPV systems under 10kW in capacity (residential), the purchaser must pay the value of the contract in a “single, up-front payment arrived at by calculating the net present value of SRECs over the life of the contract using a standard SREC value of 80% of the SACP and federal secondary credit interest rate in effect as of January 1 of that year as the discount rate [9].”
This is designed to help provide residential SPV owners some security in their SREC revenue, and to make SPV more attractive. Should the utilities choose not to deal directly with the SPV owners, it stimulates the private SREC market.
US Photovoltaics, Inc. is a unique company that has since been created specifically to purchase SRECs from producers, and resell the credits to the utilities at a per-SREC basis. US
Photovoltaics make up the majority of SRECs for sale on Maryland’s official PSC SREC website (along with SRECTrade) [33].
Table 9: Maryland Overview [9] [30] [31][32]
State 2010 SACP SREC
Lifetime Carve-out Goal SPV Price per Watt
22 3.5 Massachusetts
The Department of Energy Resources (DOER) [34] has created a sufficiently complex RPS, with a total goal of 15% by December 31, 2020. It is tiered with 15% into Class I resources (of which SPV is included). In 2010, DOER created a unique Solar carve-out of 0.0679% the total energy produced each year until a capacity of 400 MW SPV is installed within MA. After 400MW capacity is reached, SPV falls back under the Class I status, and would have a lower ACP. A SPV system must be under 6MW in capacity to qualify for SREC production (effectively eliminating Concentrated Solar Plants).
In Massachusetts the SACP is $550, with no set increase or decrease. They guarantee no annual reduction in SACP greater than 10% in a given year to alleviate price uncertainty. Additionally, DOER has created a Solar Credit Clearinghouse Auction through which SREC holders can sell their SRECs. This auction has a minimum SREC cost of $300, effectively creating a floor of
$300 and a ceiling of $550 for the price of any SREC.
Table 10: Massachusetts Overview [9] [30] [31][32]
State 2010 SACP SREC
North Carolina’s RPS does have a solar carve-out of 0.2% by 2020, but the SACP is currently only $30 per MWh, and set to increase to $42.39 by 2024, which is effectively a $0.042/kWh of SPV produced.
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North Carolina does have a wide array of tax credits, grants, loans, and rebates. There is a strong personal tax credit at 35% of installation with a maximum of $10,500 for SPV (or wind)
installations. Progress Energy (an NC energy provider) has a commercial SPV incentive
whereby they pay $0.18/kW up to 50 MWh produced in a year. In exchange, they gain the rights to the SRECs generated from the SPV system.
Table 11: North Carolina Overview [9] [30] [31][32]
State 2010 SACP SREC
Lifetime Carve-out Goal SPV Price per Watt
New Jersey’s solar market ranks second only to California. New Jersey originally passed their RPS system in 1999 under a different name, and subsequently added in separate requirements for
“Class 1” and “Class 2” energies (SPV is a class 1). Then in 2006, NJ added a specific solar carve-out. NJ has a target of 22.5% renewable energy production by 2021, and a solar carve-out of 2.12%. This goal has since been revised to 5,316 GW of solar generation in 2026. The New Jersey Board of Public Utilities (BPU) is in charge of enforcing the RPS within the state [35].
The wide variety of mechanisms New Jersey enacts through its RPS and through successful solar loan, grant, and rebates have made New Jersey the USA’s second largest SPV market despite not being situated in the sunniest of states.
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There is a set timetable for SACP reduction, at $693 in 2009-2010 set to decrease by 2.5%
annually until 2016, and the NJ BPU has provisionally said it will continue this strategy through 2019. NJ SRECs currently have a lifespan of 3 years after the MWh is produced, having been revised up from 1 year in 2009.
Solar facilities are allowed to accrue SRECs per kW hour produced over its “15 year
qualification life [9].” This means a solar facility is only eligible to produce SRECs for 15 years after being connected to the grid, and can be sold any point within 3 years after their creation.
New Jersey allows long-term SREC contracts to be signed by utilities companies, and promotes
New Jersey allows long-term SREC contracts to be signed by utilities companies, and promotes