美國太陽能產業獎助計畫之比較分析: 可再生太陽能證書(SRECs)之於住戶光伏設備效用之研究

國 立 交 通 大 學

企業管理碩士學位學程

碩 士 論 文

美國太陽能產業獎助計畫之比較分析: 可再生太陽能證書(SRECs)之於住

戶光伏設備效用之研究

Comparative Analysis of Supporting Solar Policies in the USA: A Study

of the Potential Effects of Solar Renewable Energy Certificates (SRECs)

on Residential Photovoltaics

研 究 生：柏強恩

指導教授：姜真秀

Comparative Analysis of Supporting Solar Policies in the USA: A Study

of the Potential Effects of Solar Renewable Energy Certificates (SRECs)

on Residential Photovoltaics

研 究 生：柏強恩

Student: John Edward Burns

指導教授：姜真秀

Advisor: Dr. Jinsu Kang

國 立 交 通 大 學

管理學院

企業管理碩士學位學程

碩 士 論 文

A Thesis

Submitted to Master Degree Program of Global Business Administration College of Management

National Chiao Tung University In partial Fulfillment of the Requirements

For the Degree of Master

in

Business Administration June 2011

Hsinchu, Taiwan, Republic of China

-i-

Comparative Analysis of Supporting Solar Policies in the USA: A

Study of the Potential Effects of Solar Renewable Energy Certificates

(SRECs) on Residential Photovoltaics

Abstract

Numerous studies and market reports suggest that the Solar photovoltaic (SPV) markets rely heavily, if not entirely, upon governmental support policies at present. Throughout the majority of the world, these policies are enacted at a national level. However, within the United States there are 50 states, and among these fifty states there are different policies in place to foster the growth of renewable energy, and specifically solar photovoltaic markets.

This paper is an economic and financial analysis of the US federal & state level policies in states with Solar-targeted policies that have Solar Renewable Energy Credit (SREC) markets. Measuring a discounted cash flow, Net Present Value (NPV), and Internal Rate of Return (IRR), the author attempts to measure and compare the different policies’ effect on Residential SPV markets. Then using the Present Value for each of the various policies each state has is compared to

California’s Feed-in-Tariff The analysis could help:

 Assess the impact of SPV policies in different US States

 Identify ineffective SPV policies

 Add information and analysis to policy discussions

-ii-

Acknowledgements

The execution of this study comes on the back of many different people, and to them I wish to

express my sincerest and deepest gratitude.

I would particularly like to thank my advisor Jinsu Kang, the chair of the dissertation committee. Further I would like to thank Dr. Jinli Hu, and Dr. Chan Hsiao for their input, expertise, and critique. I also must thank fellow classmate Joshua Elmore, whose professional insight and guidance helped immeasurably in conducting the research.

Finally, I wish to thank my family and friends for the support and encouragement they provided throughout the process of compiling this research

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Table of Contents

II. Supporting Policies ... 6

2.1 Overview ... 6

2.2 Tax Credits ... 6

2.3 Net Metering ... 7

2.4 Feed-in Tariff (FIT) ... 8

2.5 Renewable Portfolio Standard (RPS) ... 9

2.6 Credit Multipliers ...11

2.7 Distributed Generation ...11

2.8 Solar Set-asides ...12

2.9 Solar Renewable Energy Certificates (SRECs) ...12

2.10 Drawbacks to RECS & SRECS ...15

2.11 SREC Price Uncertainty ...16

2.12 Measuring Policies ...17

III. State-by-State Policies ...18

3.1 Overview ...18 3.2 District of Columbia ...18 3.3 Delaware ...19 3.4 Maryland ...20 3.5 Massachusetts ...22 3.6 North Carolina ...22 3.7 New Jersey ...23 3.8 Ohio ...25 3.9 Pennsylvania ...26

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3.10 California ...28

IV. Comparative Economic Analysis Framework ...28

4.1 Operational Hypotheses ...28

4.2 Theoretical Framework ...29

4.3 Operational Assumptions ...31

V. Results ...33

5.1 Research Question 1: State Solar Renewable Incentives ...33

5.2 Research Question 2: State SREC Strengths ...34

5.3 Research Question 3: Comparative Analysis of Incentives ...35

5.4 Research Question 4: Conclusions & Policy Implications ...36

5.4.1 DC ...36 5.4.2 Delaware ...37 5.4.3 Maryland ...37 5.4.4 Massachusetts ...38 5.4.5 North Carolina ...38 5.4.6 New Jersey ...39 5.4.7 Ohio ...40 5.4.8 Pennsylvania ...41 VI. Discussions ...42 6.1 Overview ...42 6.2 SREC Floors...42 6.3 Bureaucracy ...43 6.4 Marketing ...44 6.5 Other Policies ...44 6.6 Evolution of SRECs ...45

6.7 SREC as a Long-Term solution ...46

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List of Tables

Table 1: 2010 Worldwide Photovoltaic Capacity Growth ... 1

Table 2: 2009 State PV Capacity ... 3

Table 3: Feed-in-Tariff Law Pros & Cons ... 9

Table 4: Credit Multipliers ... 11

Table 5: Set-Asides ... 12

Table 6: Tradable Green Certificates (SRECs) ... 13

Table 7: DC Overview ... 19

Table 8: Delaware Overview ... 20

Table 9: Maryland Overview ... 21

Table 10: Massachusetts Overview ... 22

Table 11: North Carolina Overview ... 23

Table 12: New Jersey Overview ... 25

Table 13: Ohio Overview ... 26

Table 14: Pennsylvania Overview ... 27

Table 15: California FIT Overview ... 28

Table 16: State NPV & IRR ... 33

Table 17: Present Value of Each SREC Policy ... 34

Table 18: Present Value for Each Policy ... 35

List of Figures

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Abbreviations

SPV Solar Photovoltaics

Wh Watt-hour

Wp Watt of installed capacity kWh Kilowatt-hour

kWp Kilowatt of installed capacity MWp Megawatt of installed capacity FIT Feed-in-Tariff

RPS Renewable Portfolio Standard REC Renewable Energy Credit ACP Alternative Compliance Payment SREC Solar Renewable Energy Credit SACP Solar Alternative Compliance Payment TGC Tradable Green Certificate

PV Present Value

1

I. Introduction

The past 10 years has seen a strong upward trend in renewable energy use in the USA, and

around the world. In 2009, 8% of all US energy consumption was renewable, of which 9% was

wind, and solar roughly 1% [1]. Meanwhile, in 2010, Germany had reached 17% of energy

consumption from renewable sources.

The SPV market is a rapidly increasing one, and the global market grew 139% in 2009 over 2008,

creating a total of 18.23GW of solar capacity worldwide [2]. In Europe, where there is a long

history of strong government support, and as such Germany ranks strongly ahead of all other

nations with 7.74GW of SPV capacity installed in 2010. In 2010, Italy and the Czech Republic

also each grew by over 1GW of installed SPV capacity.

Table 1: 2010 Worldwide Photovoltaic Capacity Growth [2]

Country

SPV Capacity Growth (in Gigawatts of Capacity)

Germany 7.74 Italy 3.74 Czech Republic 1.42 Japan 0.96 USA 0.95 France 0.72 China 0.53 Spain 0.38 Australia 0.27 Belgium 0.23

There are many reasons for the growth in capacity of renewable energy across the various

2

generation; windy areas are particularly suited for wind, while sunny areas are better suited for

solar power. Additionally, some nations embraced renewable sources sooner than others, and/or

targeted different renewables more heavily (Wind, Solar, Nuclear, etc.).

Figure 1: Drivers for solar photovoltaic growth [3]

While there are certainly other factors driving global SPV demand, this is a good view of the

forces behind the rapid growth in SPV installation. This study focuses on the government

policy drivers, specifically focusing on financial incentive policies implemented in support of

SPV. SPV is a high cost renewable resource, and therefore has lagged behind other sources of

renewable energy, so subsidies and incentives are considered among the key drivers of global

SPV demand [2].

The USA SPV market is ranked only 5th in the world despite being the largest economy. Even so, during the recession 2008 year, SPV capacity increased 36%, and began to boom in 2009 with 92%

growth in installations [4]. Just like in Europe, government policies at both the federal and state

3

The problem within the USA for renewable energy is that unlike other nations, energy is not

regulated at a national (federal) level, but at a state level and even lower. Likewise, electrical

energy companies in the United States operate at a state or regional level, not typically on a

national scale. Consequently, each state functions effectively as a separate energy market, and

thus each state is effectively a separate SPV market. Currently, the largest SPV markets in the

United States are California and New Jersey, and they have different types of policy initiatives

and sun radiation levels.

Table 2: 2009 State Photovoltaic Capacity [5]

State 2009 Capacity in MW 2008 Capacity in MW Percentage Change Market Share California 212.1 197.6 7% 49% New Jersey 57.3 22.5 155% 13% Florida 35.7 0.9 3867% 8% Colorado 23.4 21.7 8% 5% Arizona 21.1 6.2 240% 5% Hawaii 12.7 8.6 48% 3% New York 12.1 7 73% 3% Massachusetts 9.5 3.5 171% 2% Connecticut 8.7 7.5 16% 2% North Carolina 7.8 4 95% 2% Other States 34.2 24.6 39% 8% Total 434.6 311.3 1.2 Problem Statement

California and Hawaii have the oldest history of solar targeted support policies within the USA.

Other states have been passing renewable energy support policies over the past decade, and have

began creating solar “set-asides” or “carve-outs” specifically targeting a percentage of energy to be derived from SPV. Given the maze of different incentives each state provides, it is difficult to

4

compare and measure the potential of US policies with solar-specific policies as part of their Renewable Portfolio Standard policies.

1.3 Research Questions

1. Which US states with Solar Carve-outs that include SREC policies have the most robust

package of incentives for SPV?

2. Which of the Solar Renewable Energy Certificate (SREC) policies have the highest

potential to affect residential SPV installation?

3. Do any of the solar carve-outs have the potential to be as effective as California’s

Feed-in-Tariff, the federal tax credit, net metering, or state personal tax credits?

4. What are the shortcomings of the solar renewable energy certificate markets within the

USA?

1.4 Study Significance

This study gives homeowners in each of the states discussed a clear view of the incentives.

Other studies have attempted to quantify the incentives for some states [6], and for European

nations [7][8]. Similarly, this study examines the potential economic impact of solar renewable

energy certificate markets in the USA on residential SPV systems.

Additionally, the study can help aid policy makers in fine-tuning their solar credit markets. By

providing an in-depth comparison of the different solar carve-outs, policy makers can isolate the

shortcomings of the policies. Many policies are created in an effort to stimulate the SPV

5 1.5 Methodology

First, the different policy mechanisms are briefly explained. The positives and negatives of each

policy are laid out. Then, those states with RPS solar carve-outs are analyzed in depth

state-by-state.

Subsequently, an economic analysis using Net Present Value (NPV), Internal Rate of Return

(IRR) and the present value (PV) for each policy is calculated. Data comes directly from the

different government database of laws. Energy prices and residential SPV prices for the analysis

are taken from the Energy Information Agency and National Berkeley Laboratories respectively.

1.6 Limitations

This study limits the incentives to direct incentives provided only at the federal and state levels

of the United States. Also, while many of the policies have cost caps associated, for the private

residential SPV analysis discussed, it is assumed that all cost caps will not be reached.

Furthermore, the tradable credits (SRECs) investigated here are not fixed in price, and can range

in price from $0 to the maximums that vary from state to state. In this analysis, the potential of

these policies is investigated, so an effective maximum of 80% the penalty is taken as the price

per credit.

Most of the states investigated have only recently enacted SPV-targeted incentive packages.

Additionally, the size of the SPV markets, and current levels of installed capacity for these states

is typically under 1 Gigawatt of installed capacity. As such, attempting to draw a correlation over

6

II. Supporting Policies

2.1 Overview

In the United States, there are many policy measures introduced at all levels of government to

support renewable energy production. Federal incentives, state-level support strategies, and even

municipalities all employ a plethora of tactics.

Renewable energy sources, especially SPV, have a fatal flaw in that they cost more than

traditional energy sources. That is why governments intervene with a variety of measures that

are all separately and collectively, aimed at covering the difference in cost between energy from

traditional resources and energy generated from solar photovoltaics.

The policies examined thoroughly in this study are monetary incentives, however a multitude of

other strategies are also in place. Most of these policies are designed to limit the bureaucratic

impediments that can prevent residences from installing solar photovoltaic systems. In most all

states solar easing laws and permitting laws have existed for decades whereby they allow solar

panel installations on buildings to streamline through zoning red tape [9]. Additionally, many

state organizations maintain communities and web portals that help put solar installers,

manufacturers, and customers in contact.

2.2 Tax Credits

Perhaps the most effective method for promoting solar energy, tax credits are currently in place

in the USA at a federal level in the “Residential Renewable Energy Tax Credit [10].” This law is

a non-refundable personal tax credit and applies only to residential renewable energy systems.

SPV falls under this category. As this is a federal incentive, there are no differences among

7

It is important to understand that this is a personal tax credit that individuals can apply for when

doing their tax returns. It is non-refundable, so if an SPV owner’s tax liability is $10,000 in year

0, and their credit due from the SPV system is $15,000, said SPV owner’s liability is reduced to

$0 for year 0. The remaining $5,000 is available for carryover into the next year to decrease the

liability in the following year.

The tax credit was established on January 1st, 2006, and is scheduled to expire on December 31, 2016 after recently being extended past 2011. The federal government allows SPV installations

a one-time credit equivalent to 30% of the cost of installation. The price of the installation

includes equipment, on-site preparation, assembly or original installation, labor costs, wiring &

piping for connection with the grid. This price less other incentive offsets offered at state levels

(rebates, etc.) can be claimed on an individual’s tax form. It is not guaranteed, and must be

approved when filing income taxes.

2.3 Net Metering

The simplest incentive for renewables is Net Metering. This allows customers to offset their

electrical use by the amount of energy their integrated renewable systems generate. Integrated

SPV systems are required to have a specified meter that records the flow of electricity in both

directions.

Depending on the particulars of the different laws in place, the SPV owners are able to apply for

rebates or simply pay less in their monthly energy bill. Effectively, net metering is designed to

8

Unfortunately, the cost of energy from SPV is above the current market price, thus net metering

alone is not enough to put SPV in competition with traditional means of electric energy

production.

2.4 Feed-in Tariff (FIT)

A Feed-in-Tariff (FIT) is usually a contractual obligation placed on a utilities company to

purchase electric energy from integrated renewable systems at a fixed per kWh price. These

contracts usually have a set time limit (20 years in Germany [11], 10-25 in California [12])

whereby the SPV installers are guaranteed a set amount of income per kWh of energy they

produce.

This FIT price is paid in addition to net metering. FIT prices typically decrease over the course

of their lifespan as the price of photovoltaic panels decrease in cost, unless energy costs are

projected to increase faster (as they are in California). In essence, a FIT is designed to help

offset the higher cost of generating electrical energy from SPV in the form of either a

government payment, or a required payment from utilities.

These policies have been enacted with differing levels of effectiveness around the world.

Germany’s strong SPV position can be attributed to its successful FIT program [13]. Research

on the various FIT programs around the world consistently shows that they are indeed successful

at stimulating growth in SPV and other renewable resources.

However, FIT programs are not without their detractors. In the book Renewable Energy Policy,

FITs are classified as “effective but not efficient [14].” FITs are also against the “growing role in the electricity industry of competitive markets and pricing – which are replacing

9 Table 3: Feed-in-Tariff Law Pros & Cons [14]

Feed-in-Tariff Laws

Positives Negatives

Effective at getting various new renewable installations

Reduced incentive for cost reduction

Not a direct general-revenue tax No direct competition between suppliers

Can be very simple Sets up a dependend and powerful constituency

Costs paid by ratepayers, not general public as a tax

Price paid reflects outcome of a political process, not costs Low uncertainty Not a market mechanism Low direct cost to government Can create excess profit for

producers Little Bureaucracy

In California, they use a Market Price Referent (MPR) to determine the FIT price for each year.

This MPR is “the predicted annual average cost of production for a combined-cycle natural gas

fired base load proxy plant [12]” and in 2010 the incentive was a 15-yr contract at $0.09066 per

kWh of energy produced.

2.5 Renewable Portfolio Standard (RPS)

In the United States, each state has strong, but not complete, authority to regulate utilities

companies serving their markets. As such, many states have been setting goals and requirements

for electrical energy production from renewable resources similar to those seen in Europe [8].

What qualifies as a renewable energy source may vary from state to state, as do the requirements.

However, SPV falls under this definition in every state that has an RPS. 33 states and the

District of Columbia have RPS programs in place [15]. 7 other states have goals, but no

10

These different RPS strategies cover the whole spectrum of renewable energy, and their

implementation is different in each state. The RPS sets a requirement (or goal) for a certain

percentage of retail electrical energy to be produced by renewable resources each year, scaling

up to their final goals at some future date. The states usually enforce the RPS by acquiring a

Renewable Energy Certificate (REC) which is equivalent to 1 MWh of energy created by a

renewable resource (similar to Tradable Green Certificates (TGC) often found in European

nations [8][16]).

Should an insufficient amount of RECs be produced or purchased by energy producers, energy

producers can pay an Alternative Compliance Payment (ACP). The ACP for each RPS is

different, and subject to adjustment. Ohio’s is $45/MW, New Jersey’s is $50, and New Jersey’s

remains unchanged since 2004, whereas Ohio’s ACP decreases $5 bi-annually. The revenue

from these ACPs is typically budgeted for Alternative Resources Projects being undertaken by

each state’s energy commission [9].

RPS policies solve many of the problems associated with FITs. FITs are seen as fighting against

the market, whereas RPS policies do not pick which technologies will succeed in replacing

traditional energy sources. Instead of setting a price irrespective of the market, RPS uses a

market-based approach [14].

However, this is precisely why RPS policies alone cannot stimulate SPV markets. Due to the

higher cost of SPV, the basic RPS goals have proven ineffective at stimulating SPV development

[17]. As a result, states have been modifying their RPS systems by adding credit multipliers,

distributed generation provisions, and/or technology-specific “set-asides” (also called “tiers,”

11 2.6 Credit Multipliers

Credit multipliers weight different technologies heavier in RPS portfolios. A credit multiplier of

2 for SPV means that for every 1MWh of SPV created or installed, the producer gets credit for

having created 2MWh of renewable energy towards their RPS obligation (or 2 RECS instead of

1). This mechanism has an obvious drawback in that it decreases the actual effective

percentage the RPS yields [18]. Furthermore, without a specific set amount of energy per

technology with set incentives and penalties for said technology, this form of policy has little bite.

Table 4: Credit Multipliers [17]

Positives Negatives

Gives solar an added incentive over other renewable sources

Does not ensure any specified amount for solar

Allows policy makers an avenue to promote solar

Does not have a strong effect on smaller SPV installations

Does not disturb the market as much as a FIT

Reduces overall RPS percentage target

May be effective depending on details and other factors

Setting an effective level is difficult to determine or maintain

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

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

13

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

14

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

15

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.

16

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,

17

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

18

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

19

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,

20

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

Lifetime Carve-out Goal

SPV Price per Watt Avg. Solar Output (kW/kWp) 2009 Energy Price per kWh Delaware $400.00 3 years 3.5% by 2026 $7.50* 1240 $0.1407 $400 indefinitely; increases $50 each time SACP is used *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

21

(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 Avg. Solar Output (kW/kWp) 2009 Energy Price per kWh Maryland $400.00 3 years 2.00% by 2022 $8.80 1228 $0.1498 $400 until 2014, decreasing to $50 by 2023

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

Lifetime Carve-out Goal SPV Price per Watt Avg. Solar Output (kW/kWp) 2009 Energy Price per kWh Massachusetts $600.00 1 year 400MWp by 2020 $8.40 1232. 5 $0.1687 $550 in 2011, but no set timetable; 3.6 North Carolina

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

23

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 Avg. Solar Output (kW/kWp) 2009 Energy Price per kWh North Carolina $30.00 2 years (effective) 0.2% by 2020 $7.50* 1310 $0.999 Increasing to $42.39 by 2025 ($0.826 annually) 3.7 New Jersey

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

24

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

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.

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

27

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

Lifetime Carve-out Goal SPV Price per Watt Avg. Solar Output (kW/kWp) 2009 Energy Price per kWh Pennsylvania $654.37 2 years (effective) 0.5% by 2021 $7.50* 1145 $0.1165 Calculated annually; based on the previous year's weighted average SAEC *National Average

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

29

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:

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);

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

31 SREC or FIT PV/ :

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

32

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;

33

 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.

34 5.2 Research Question 2: State SREC Strengths

Table 17: Present Value (per Wp) of Each SREC Policy

State

SREC

PV/Wp

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.

35

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

Federal

Tax

Credit

Net

Metering

State Tax

Credit

California

FIT

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.

36

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

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

38

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

39

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