III. State-by-State Policies
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 it as an attempt to combat the uncertainty problems associated with SRECs. In April 2008, PSE&G (a major NJ utilities provider) created its Solar Loan Program, and was subsequently added upon in 2009 as Solar Loan II through the end of 2011 PSE&G signs agreements for 40-60% of the cost of installation for residential SPV systems in return for a 10 year 6.05% annual loan [9].
This loan repayment is to be financed with the SRECs generated throughout the lifetime of the SPV system until the loan is repaid. The 2011 basement price is $420 (which is 62% the SACP of the same year). This type of system is almost an ideal, and helps to alleviate many of the problems associated with SREC markets. There is a guaranteed return, paid up-front, and the uncertainty in the price of SRECs to the SPV buyer is completely eliminated. The BPU has since been pressuring the other three major utility providers to present long-term contract plans as well.
25 Table 12: New Jersey Overview [9] [30] [31][32]
State 2010 SACP SREC
Lifetime Carve-out Goal SPV Price per Watt
Avg. Solar Output (kW/kWp)
2009 Energy Price per
kWh
New Jersey
$693.10 2 years 2.21% by 2021 $8.10 1216.5 $0.1631
Declines 2.5%
annually
3.8 Ohio
Ohio targets 0.5% solar retail energy production by 2024 and beyond, and has tasked the Public Utilities Commission of Ohio (PUCO) [36] with enforcing Ohio’s RPS. Ohio’s SRECs have a 5-year lifespan, during which they can be used by utilities companies to count against their SACP requirements. The SACP in Ohio has a set time-table decreasing $50 bi-annually until 2024 where a $50 SACP is set to be permanent.
PUCO does allow long-term SREC commitment contracts by utilities with SREC producers. To date, only FirstEnergy, one of the four major utilities providers in Ohio, is offering these
contracts. FirstEnergy agrees to purchase SRECs on or before 12/31 of each year at a payment amount equal to the weighted average price of an SREC within the applicable calendar year.
The 2009 contract price was $390/SREC or $0.39/kWh [37]. Through its Residential REC Purchasing Program [38], First Energy offers 15 year contracts for residential SRECs.
Unfortunately, the program enacted in 2009 is set to expire May 31, 2011.
26 Table 13: Ohio Overview [9] [30] [31][32]
State 2010 SACP SREC
Lifetime Carve-out Goal SPV Price per Watt
Avg. Solar Output (kW/kWp)
2009 Energy Price per
kWh
Ohio
$400 5 years 0.5% by 2024 $7.50* 1176 $0.1067
Declines $50 bi-annually
*National Average
3.9 Pennsylvania
Pennsylvania titled its RPS “Alternative Energy Portfolio Standard (AEPS),” and its SREC is called a “Solar Alternative Energy Credit (SAEC).” However, they act the same as other SREC programs. Pennsylvania has a tiered system of requirements totaling 18% renewables by 2021 with a 0.5% solar set-aside.
The SACP is calculated every year by the Pennsylvania Utilities Commission (PUC) [39], and is based on the weighted average price for an SAEC within Pennsylvania during the previous year.
In 2008, the SACP was $528.17, $550.15 in 2009, and in 2010 it was $654.37.
It is important to note that, this SACP is based on the SAEC price paid for Pennsylvania’s energy credits, and these energy credits are also available for sale in other states (OH, NJ, DC, DE, MD, and NC), and the lower SACPs in those states could drag down the weighted average price for SAECs as the program progresses. Despite a 2009-2010 SACP of $654.37, the average SAEC for that year was $325.
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If early 2011 is any indication, then Pennsylvania’s SREC value is decreasing rapidly, reaching as low as $80 on SRECTrade’s exchange. On the Flett Exchange, the 2011 prices dropped down to $120, and appear to be operating at an effective maximum of $199. In March 2011, a major Pennsylvania utilities company completed its request proposal for submitting SRECs to meet compliance with the RPS carve-out. Pennsylvania Power Company is offering a 9 year long-term contract for SRECs at $199.00 per SREC [40].
Pennsylvania’s SPV market grew among the fastest in the nation since they established their rebate program. For residential SPV systems 1-10kW in capacity, a $0.75/W ($7.50/kW) rebate is provided to certified systems up to the lesser of $7,500 or 35% of installation costs.
This rebate program is of note, because it is backed with $100 million in Pennsylvania state bonds, and is expected to last between 3 and 4 years after program was initiated on May 5, 2009 (through 2011 to 2012 or 2013).
Table 14: Pennsylvania Overview [9] [30] [31][32]
State 2010 SACP SREC
28 3.10 California
California’s FIT is the basis of California’s overall solar-targeted policy. The policy is similar to the program implemented in Germany, and both have been very successful. As previous studies suggest, the California FIT is effective, and the targets have even been surpassed [14].
California offers SPV owners long-term, guaranteed money per kWh. They are offered contracts for 10, 15, 20, or 25 years. For purposes of this study, the 15-year contract starting in 2010 is used. California utilities providers are required to purchase all kWh produced by registered SPV the guaranteed price of $0.09066/kWh.
Table 15: California FIT Overview [12][30][32]
State 15-year FIT rate
Avg. Solar Output (kW/kWp)
2009 Energy Price per kWh
California $0.09066/kWh 1414 $0.1474
IV. Comparative Economic Analysis Framework
4.1 Operational Hypotheses
1. The NPV and IRR of a residential SPV system in each state over 15 years is calculated and compared, and the highest of these is to have the most potent potential policy.
2. Cash flows from each SREC policy are computed and discounted, and then the highest Present Value per Watt of installed capacity (PV/ ) is used to measure which state’s policy has the highest potential.
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3. The same (PV/ ) for each SREC policy is then compared to California’s Feed-in-Tariff (FIT) PV/ , net metering, and state & federal tax credits to measure and compare SREC policies with other financial incentives.
4. After a thorough analysis of each state’s policy, a comparison of the problems and positives of each policy is presented.
4.2 Theoretical Framework
In this study, of the 33 states with RPS, the 8 states with SREC markets are evaluated. The comparative economic analysis is performed by calculating the cash flows, NPV, and IRR for each state’s package of policies. Then a present value for the cash flows from each separate individual policy is calculated to compare the potential for the SRECs against the other policies that make up the state incentive package.
Cash flows depend on many factors (average state energy price, solar radiation, SPV price, etc.), and various policies from the package of federal and state-level incentives (SREC income, net metering income, tax credits). The Cash Flows for each state is calculated the same as has been done in previous studies [7][8]. The cash flows are taken as the sum of all the costs and profits in any year t using the following:
(1)
where:
F is the SREC value in year t (for California’s FIT, this value is the series of payments under the terms of the FIT contract);
Et is the energy produced in kWh in year t;
30 ckWh,t is the energy price per kWh in year t;
C0 is the up-front cost of installation;
is the Federal tax credit (as a percentage of initial cost);
is the state tax credit (as a percentage of initial cost);
u is the maintenance fee, estimated as a percentage of initial cost;
Cadd is the insurance cost for the system over its lifespan
Then, these cash flows are discounted using the classical expression for discounted cash flows to get the present value of each year (to be summed later) as has been done in prior research [7][8]:
(2) where i is the discount factor or cost of capital.
Then the classic methods for calculating NPV and IRR are applied as follows:
(3)
(4)
where N is the lifetime of the investment.
The present value for each of the different portions of cash flow (as calculated in Equation 1, and discounted in Equation 2) are calculated. This helps give a clearer view of exactly which of the various policies have the largest impact on the NPV analysis, and to compare each different policy separately. Finally, each separate these present values is divided by the capacity of the system to get an accurate view of just how much value a residential SPV owner receives per Wp installed from each separate financial incentive.
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SREC or FIT PV/ :
(5)
Net Metering PV/ :
(6)
Federal Tax PV/ :
(7)
State Tax PV/ :
(8)
4.3 Operational Assumptions
Residential SPV systems range between 2kWp and 10kWp, so in this comparative analysis is based on a 4kWp BIPV residential system. Some studies use a 10kWp system, but that is larger than the average residential SPV. The following assumptions are taken when performing this analysis, in accordance with what has been used in previous journal studies [6][7][8]:
Different policies are enacted in different states, but this focuses on the effects of solar
targeted set-asides.
o Rebates are ignored, as they are paid on a first come, first serve basis, and tend to have lower caps, and are typically enacted at a municipal level or levied against specific utilities companies;
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o Grants, loans, and capital subsidies are also cast aside for the same reason.
Net metering exists with a strong degree of similarity in all states, so it is included;
State & Federal Tax credits are factored in, but discounted as the end of year 1;
Solar Renewable Energy Certificate markets are factored in at a percentage of the SACP
annually of 80%;
o Due to the highly speculative nature of Pennsylvania’s SREC market, any attempt at quantifying is not realistic, so it will not be evaluated;
Discount factor is the average inflation rate for the USA, and is 3%;
The mean operative efficiency of the SPV system is calculated based on the National
Renewable Energy Laboratory program PV Watts [32], whereby solar insolation for each point in the USA is calculated and used to determine operative efficiency for any point on Earth;
o The base stations in each state are averaged to form a state average level of annual solar output per 1kWp of SPV;
o The default PV Watts rates for energy loss and positioning are used [32];
The average residential electricity price is based on the 2009 state price [30];
The electricity price in each state increases at 3% [8];
The total costs of the SPV system vary by state, and are based on the 2009 price per Watt
for SPV systems under 10kWp [31]. Except Ohio, Delaware, and North Carolina which use the national mean price from 2009 of $7.50/Wp;
The annual maintenance price is between 0.5% and 2.4% of the price of the installed plant cost [41] – for this study, 0.5% is used;
The annual insurance cost is the same for all states, and is set at $20 per kWp [42];
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The SPV system is assumed to lose 0.8% efficiency annually [42];
V. Results
5.1 Research Question 1: State Solar Renewable Incentives Table 16: State NPV & IRR
State NPV IRR
New Jersey $8,929.03 9.54%
Massachusetts $5,644.97 7.75%
Delaware -$671.62 2.54%
DC -$3,238.13 0.14%
North Carolina -$4,850.65 -6.17%
Maryland -$5,318.19 -1.36%
Ohio -$7,070.49 -3.90%
Table 16 shows the NPV and IRR for each of the states. The Carve-outs show that New Jersey and Massachusetts are clearly out in front with the strongest policies. Within only fifteen years, residential SPV systems are profitable, and the internal rates of return are significantly higher than the 3% annual inflation rate.
The other states all have negative NPVs within 15 years, though they come close to breaking even within that timeframe, and should the analysis continue out to 20 or 25 years as other studies have done [6][7][8], then they would also break even. North Carolina’s solar-carve out incentives are the weakest, but the investment is nearly positive on the back of its personal tax credit which is not set to expire until 2015.
*As Calculated in this study
34 5.2 Research Question 2: State SREC Strengths Table 17: Present Value (per Wp) of Each SREC Policy
State SREC PV/Wp
New Jersey $6.57
Massachusetts $3.46
Delaware $4.64
DC $4.26
Maryland $3.59
Ohio $2.79
North Carolina $0.43
The potential is evident simply in looking at the SACPs, and the present value analysis reflects them as the higher SACPs result in higher PV/Wp. Table 17 shows the PV/Wp of each state, and indicates that should the SREC market prices stay around 80% of each state’s SACP going forward, then all of the states except North Carolina clearly have strong potential to affect the solar markets.
The different SREC states can be broken down into three different categories: aggressive, medium, and ineffective. New Jersey and Massachusetts have aggressive policies and high SACPs over $500. These states also have the highest Present Value for their SREC policy.
Ohio, Maryland, DC, and Delaware fall into a second tier, and do have very strong policies. In fact, the PV/Wp suggests that each of these policies have the potential to be stronger even than the federal tax credit.
*As Calculated in this study
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North Carolina did pass an SREC market, but with a tiny SACP of only $30, the PV/Wp is below
$0.50, and the North Carolina solar set-aside remains insignificant. Instead, North Carolina’s photovoltaic market is dependent on its strong solar insolation and personal tax credit. In fact, with such an insignificant SACP payment, the resulting PV/Wp value of the SREC policy makes it so the North Carolina SREC market has little to no effect on residential SPV installations within the state.
5.3 Research Question 3: Comparative Analysis of Incentives Table 18: Present Value (per Wp) for Each Policy
State SREC
Table 18 shows the PV/Wp of each of the different state SREC policy’s against California’s FIT, and the other policies that make up each state’s portfolio of solar incentives. It shows that all the SREC policies except North Carolina have not just the potential, but significant ability to be as strong as California’s FIT. In fact, the New Jersey’s policy can be more than 3 times as powerful as California’s FIT, and more than twice as strong as the federal tax credit.
*As Calculated in this study
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The glaring limitation of this study is that SREC prices are highly uncertain, and a long-term, 15 year financial analysis does not take this problem into account. However, the financial options arising, and Massachusetts’ clearing-house policy can give us a view of a sort of minimum value for SREC policies.
Massachusetts’ minimum SREC strength with an effective SREC value of $300 has a present value per watt capacity of $3.46. This, when compared to the federal tax credit is 50% more powerful. Other SREC financing options that give 10%-60% of the initial upfront costs reveal
Massachusetts’ minimum SREC strength with an effective SREC value of $300 has a present value per watt capacity of $3.46. This, when compared to the federal tax credit is 50% more powerful. Other SREC financing options that give 10%-60% of the initial upfront costs reveal