Massachusett's SREC-II Program is in the Crosshairs

Remember a few months ago in our blog post "The RECS are too Damn High" when we said to expect a major fight in the MA legislature over raising the net metering caps? Well it's here and it's getting ugly. We'll start with a little background and then dig into the current state of affairs which are volatile and subject to change.

In early 2014, Representative Frank Smizik, a solar friendly Democrat from Brookline, introduced House Bill 3901 which would have removed the caps on net metering through 2016 and mandated a commission to study the costs/benefits of net metering, etc. A similar bill, Senate Bill 2019 was introduced by State Senator Anthony Petruccelli. The solar industry cheered, but rumors quickly began swirling that the utilities were going to file a competing bill. In March 2014, they did when S.B. 2030 was filed by State Senator Michael Rodrigues with the ominous title "An Act reducing the cost of solar power through increased competition."

Fast forward to June 2014 and we have House Bill 4185. This bill was developed in closed door sessions by the utilities, MA DOER, and selected renewable energy stakeholders. The table below includes a brief synopsis of the provisions of the bill (although its possible there are some Easter eggs in here that we aren't catching at first glance).

This bill has really split the solar community in MA. On one side is the Solar Energy Industries Association (SEIA) and the New England Clean Energy Council and on the other is the Solar Energy Business Association of New England (SEBANE) and SREC aggregators like SREC Trade. The big takeaway that we take from this is that if you are planning any significant solar project in MA, you need to stop and wait for this process to play out. We think the residential and small commercial markets will be fine, but the impacts to the economics for larger (60+ kW) SREC-II based projects in the proposed SREC-II wind down period are unclear and it's hard to tell if this new regime will be better or worse. Our take is that compensation rates will go down, but financing might be easier and more predictable. 

This turn of events isn't entirely surprising as the utilities strongly expressed that central procurement/feed in tariff programs were their preference, but it is disappointing. The SREC-II program was the result of more than a year's worth of stakeholder input facilitated via a structured MA DOER process. It is now being dismantled by legislation that was crafted by a select group of insiders behind closed doors. We don't doubt that the proposed new solar regime in this legislation will be less costly (based on CT's ZREC experience and RI's current Feed in Tariff), but solar will get built more slowly and cynicism will reign regarding the regulatory climate in MA. What's the point of participating in a lengthy development process like SREC-II if it will get dismantled by legislation less than 4 months after going live? At a minimum, our take away is that its important to have good lobbyists on Beacon Hill, because if you aren't paying attention, something bad will probably happen to you.

Why Can't I Buy New York RECs?

Have you ever wondered why you can't buy RECs for New York State? The reason is because they don't exist, at least not in the wild. There has been a vigorous debate in renewable energy circles about the most effective way to spur renewable energy development. Places like Ontario have embraced feed-in tariffs. many states have adopted REC markets, and some states have pursued a central procurement mechanism to buy renewable energy.

New York has embraced the central procurement mechanism or centrally awarded grants/incentives to spur development of renewables. There is a system benefit charge on all electric bills in New York State that say "Renewable Energy...". The exact wording varies a little by utility, but this line item collects funds for the New York State Research and Development Authority (NYSERDA) from all rate payers to support NYSERDA's energy programs. NYSERDA, in the proud tradition of New York State quasi-governmental authorities, has been the main driver of renewable energy development in the state for many years. While New York has developed a significant amount of wind capacity, it has lagged behind its neighbors New Jersey and Massachusetts in solar development.

Governor Andrew Cuomo vowed to accelerate the adoption of solar for large consumers via the NY-Sun Initiative. Although NYSERDA has historically had several solar incentives, NY-Sun is unique because it involves a competitive award process for systems greater than 50 kW. The results of the first solicitation seem to be encouraging and NY will serve as a great test case of the central procurement system as a mechanism to drive solar development.

Luckily for small scale and residential solar systems, NYSERDA also has a decentralized incentive program so that you can install solar without partnering with a developer in an auction process. In addition, New York State has a very generous tax credit for solar and certain cities, New York City in particular, offer a property tax abatement for investments in qualified solar energy systems. If you are thinking about a small scale solar system, New York state is a pretty attractive place to buy one presuming that you have a tax liability. The graphic below lays out hypothetical costs for a solar PV system installed in New York City.

New York State Solar Incentives.png

As you can see, after taxes and incentives, the cost of the system is less than 25% of the sticker price. The NYSERDA incentive is formulaic in that it's a set $/Watt value, but it can't exceed 40% of system costs after tax credits have been applied. One really good aspect of the NYSERDA incentive is that it isn't considered taxable income if it goes right to the solar developer. Instead, it represents a discount on the system price and isn't subject to income tax. You'll note in the graphic above that the Federal and State income tax credits may be slightly overstated. When the customer does their taxes, the tax basis for the system would be adjusted downward by the NYSERDA incentive, but you won't know the exact amount of the NYSERDA incentive until you apply. For ease of calculation, I just presumed the tax basis was the sticker price.

All of the New York State electric utilities have net metering so honestly, there is no excuse for New Yorkers to be lagging their neighbors in solar deployment.