III. State-by-State Policies
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 that while the potential for SRECs at first seem to be incredible, the realistic value brings it down to somewhere around that of the federal tax credit.
Additionally, the PV/Wp of North Carolina’s personal tax credit suggests that while its SREC policy is weak, within its package of solar incentives, the personal tax credit has great value, almost equaling that of the US federal tax credit.
5.4 Research Question 4: Conclusions & Policy Implications 5.4.1 DC
The DC SREC policy is designed well, and is simple enough to understand. DC is unique among the carve-outs in that it is not a state, but rather a special area the size of a large city.
Therefore, by allowing the utilities companies within the state to purchase SRECs generated from neighboring states, the goals should be reached.
Unfortunately, DC’s low 0.40% 2020 goal is not as aggressive as some other states, and due to its small size, the effect of DC’s SREC policy on the national SPV market should be minimal.
Additionally, the unclear SACP price after 2018 can dissuade potential SPV buyers, and cause issues.
37 5.4.2 Delaware
Delaware’s SACP is not set to reduce below $400, and it has a very strong solar carve-out target of 3.5% by 2026, which make Delaware’s policy quite strong. The $400 SACP is in the middle-range of current SACP prices, but while other states’ SACPs decrease in time, Delaware’s program helps bring some security that the price ceiling will not drop too low in the foreseeable future.
However, Delaware does have a glaring problem in cost control issues, and the way their SACP price increases are established makes it costly and more complicated. It puts energy producers in an interesting position. They have to choose to try to acquire SREC production capacity to avoid the ever-increasing penalties paid in SACPs, or simply accept that they will pay an additional 1%
of total retail energy prices. Furthermore, the 3 year lifespan on SRECs and increasing SACP penalties may also invigorate the private SREC trading market for Delaware SRECs, and Delaware SRECs may behave very violently.
5.4.3 Maryland
Maryland’s policy is one of the oldest SREC policies within the USA, and is already maturing [20]. Maryland has a high target of 2% solar energy by 2022, and has already altered their SREC policy to make it stronger once. Like Delaware, the Maryland SACP is medium-priced at $400, and is set to stay there until 2014, and decrease to $50 by 2023. This provides SPV providers with some measure of certainty that the policy will remain strong in the future.
Maryland’s unique attempt at helping its SREC market by having an official post for all SRECs makes it easier to buy and sell. As such, SREC aggregators like US Photovoltaics are working in full force to accumulate the SRECs making it easier for residential SPV to maximize the value of their SRECs.
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Maryland requires 10 days attempt at relieving the uncertainty attached with SRECs by giving utilities companies the ability to sign long-term contracts (at 80% SACP price). However, to date very few of the utilities companies purchase SRECs this way. Instead, they accept the risk of not having SRECs, and prefer purchasing from aggregators, or by paying the SACP. This lack of a floor and uncertainty still bog down the effectiveness of this SREC policy.
5.4.4 Massachusetts
On paper, Massachusetts has the best-designed SREC policy to date. Massachusetts has devised a clever SACP system that sets the SACP sufficiently high enough to make it attractive, and are the only state to have imposed a floor (at $300 is quite high) with their annual clearing-house system. The clearing-house system also solves another major problem for residences by helping bridge the gap between residences and utilities companies.
Massachusetts’ SREC system does require more government monitoring and cost (associated with managing the clearing house). It also has a nominal requirement of 400MW capacity (about 100 times the 2010 Mass. capacity of 4MW). While this is aggressive, should the 400MW capacity be reached, the value of an SREC loses value dramatically.
Therefore, the potential for a SPV bubble in Massachusetts is high. As the state capacity creeps up on 400MW total capacity, SREC owners cannot expect their SRECs to be valuable projected into the future. Over the next few years, this should not be a problem, and one should expect the Mass. SREC policy to stimulate growth, in the medium to long term, this problem needs to be addressed.
5.4.5 North Carolina
There are very little strengths to North Carolina’s SREC policy. The SACP is only $30, and the Present Value per Watt capacity is under $1. It is safe to say that North Carolina’s solar credit
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market is insignificant. However, that is not the case for North Carolina’s entire solar portfolio.
While not researched in-depth in this study, North Carolina’s rebates are similar to Florida’s and provide great short-term value to the SPV industry within the state [9].
5.4.6 New Jersey
New Jersey’s rebates have proven to be very strong over the past few years, and are largely why New Jersey (despite low solar radiation) is second in the US in installed solar capacity. However, New Jersey is attempting to make the step from short-term localized incentives through rebates to medium-term state-level policy through SRECs. New Jersey’s 2.21% goal is among the highest, and with the size of the energy market within New Jersey, is also ambitious.
The New Jersey SREC has the highest present value, and has the strongest potential to continue its strong SPV industry. In fact, solar leasing companies like 1BOG [43] and others are
capitalizing on the New Jersey market, and helping to aid in marketing the program.
These solar community/leasing companies along with aggregators are rising to lower the cash flows uncertainty for SPV installers, and allow the SREC policies to reach even the smallest residential homes. Additionally, New Jersey’s pressure on the utilities companies to provide contracts and financing of 40-60% in exchange for SREC payments make it one of the most complete SREC policies in the US (and in the world).
The major problems associated with New Jersey’s SREC is that with such a high SACP, they could have issues with cost control in the long-run, and the SACP decline rate may need to be adjusted should the average price for SPV installation decrease as predicted.
40 5.4.7 Ohio
Ohio’s policy is also very new, and began in only 2010, and if history is any indication adjustments will be made. The 0.5% target by 2024 is comparatively low, and the SACP is moderately priced at $400.
Ohio SRECs have the longest lifespan of 5 years, making it more tradable, but with a set
timetable for decrease; the value of the SREC should decline with each passing year. Ohio’s set timetable all the way to 2024 and beyond does provide more certainty than the apparently volatile and difficult to predict Pennsylvania market.
The same timetable, however, does make the policy weaker than other SREC markets that have
$400 SACPs The decreasing SACP lowers the cash flows noticeably, and makes Ohio’s SREC policy the second weakest, and their whole solar portfolio of incentives the lowest overall.
While Ohio does allow long-term contracts to be signed, and there was initial pressure by the
While Ohio does allow long-term contracts to be signed, and there was initial pressure by the