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PA Bill Could Alter Regional SREC Market

Posted July 9th, 2010 by SRECTrade.

House Bill number 2405, currently waiting for review in the PA house of representatives, contains many changes that would significantly alter the PA SREC market. The Bill has yet to be subjected to a vote, largely because its supporters understand that the bill is a solid 10-15 votes shy of the 102 votes it would need to pass the 203 person house of representatives in Pennsylvania. The House is currently not in session, so the Bill remains stagnant for now, and is most likely not to be voted on before the legislative period ends in November.

Notable changes in the Bill include a six-fold increase in the solar requirement for utilities. The requirement is currently slated to reach .5% by the 2024-2025 energy year, but would be 3% in this same year if Bill 2405 were passed. The Bill would also set an SACP of $450 per credit starting in 2011, decreasing by 3% each year. The SACP as currently stated in PA is double the average price of SRECs in the state for each year ($550 for 2010). The bill would also close the Pennsylvania SREC market, limiting buyers to SRECs exclusively from in-state solar facilities. Each of these changes is geared toward promoting the growth of the solar industry in Pennsylvania, keeping the job creation and other economic benefits local.

Changes from this bill, if it is passed, would be scheduled to be put in place on December 31, 2010. Regarding systems from out of state that have already been approved for the Pennsylvania AEPS program, unfortunately, if this legislation passes, buyers will be unable to purchase SRECs from out-of-state, even if they have previously been accepted into the Pennsylvania AEPS program.  The pending legislation states the change shall apply to “all contracts and short-term purchases made after December 31, 2010.”

This Bill is still a long way from being passed. In order to become law, the Bill would need to gain the extra 10-15 votes it needs in the PA House of Representatives, presumably through key revisions, and then pass the state Senate as well. Because the representatives are currently on summer recess, these changes do not appear to be imminent, but could be on the horizon.

Here is a table detailing the changes made by PA HB 2405, and comparing them to the market under current legislation:

For more information, click here to see the entire Pennsylvania House Bill No. 2405

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PACE Energy Efficiency Program Derailed

Posted July 8th, 2010 by SRECTrade.

Property Assessed Clean Energy (PACE) programs face push back from Fannie Mae and Freddie Mac. PACE is a financing program through which local governments raise money for renewable energy retrofits by selling municipal bonds. Homeowners can then access this capital to help finance home energy improvements, such as solar panels for their roofs. The loan is paid back over the course of 15 to 20 years through a property tax assessment, which stays with the home in the event of a sale.

The problem, in the eyes of Fannie and Freddie, is that the loan is senior to the home mortgage. In a foreclosure process, the energy efficient loan is paid off before the mortgage lender gets their money back. The financing structure was implemented with other types of specialty property taxes in mind. Other property tax assessments for municipal improvements (i.e. sewers and sidewalks) are senior to home mortgages and have not raised red flags from mortgage lenders in the past. Additionally, the loan’s first lien status helps during the fundraising process when cities sell municipal bonds.

The Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie, announced that it directed the mortgage lenders to allow current borrowers with existing energy efficient liens on their homes to participate without penalty. Additionally, the FHFA instructed Fannie and Freddie to consider avoiding the programs or tightening lending standards in areas where PACE programs move forward. Tightened standards could include approval from the lenders prior to borrowers implementing PACE financing or require homeowners to payoff the assessment in a sale or refinancing.

These tightened standards could seriously hinder PACE programs, which were intended to increase clean energy jobs and incentivize renewable energy adoption. Some municipalities have been holding back PACE applications because of the future uncertainty of the program. The municipalities are wary of putting the homeowner in a position that would violate their mortgage. The FHFA announcement was followed by letters from Reps. Henry Waxman  and Barney Frank stating that resolutions should be developed to continue the PACE programs without increasing the risk taxpayers or mortgage investors take on.

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North Carolina launches NC-RETS for tracking SRECs in state

Posted July 8th, 2010 by SRECTrade.

The North Carolina Renewable Energy Tracking System (NC-RETS) designed by APX, Inc. launched earlier this week.  This will be North Carolina’s online mechanism for the issuance and tracking of SRECs.  Both solar photovoltaic and solar hot water projects are eligible to receive Solar Renewable Energy Certificates (SRECs) through NC-RETS, and North Carolina electricity producers will use this system to demonstrate their compliance with North Carolina’s Renewable Energy Portfolio Standard.

Registration of a solar project with NC-RETS requires the creation of a NC-RETS general account and prior registration of the project with the North Carolina Utilities Commission (NCUC). Projects under 1 MW will be able to self-report their energy production data into the NC-RETS system to receive SRECs, while larger projects will require a designated “Qualified Reporting Entity” with a separate NC-RETS account to upload generation data on their behalf.    There are no fees associated with the creation of NC-RETS accounts, and the cost of operating the tracking system will be billed to NC electric power suppliers based on each one’s percentage of load in the state.

RECs are readily transferrable between NC-RETS accounts and will be “retired” in the accounts of NC electricity suppliers in order to demonstrate their portfolio compliance.  NC-RETS also allows account holders to import SRECs from and export SRECs to tracking systems in other states.   As of now, there is 2-way transferability with the North American Renewable Registry (NARR) tracking system.  Transferability with PJM GATS is expected shortly and conversations are ongoing with WREGIS, ERCOT, and MRETS.  There is a negligible $.01 fee per SREC exported but imports will be free.

Although there is a “bulletin board”, no financial agreements will take place on NC-RETs, and SRECTrade is accepting bids from both sellers and buyers in NC in anticipation of a North Carolina SREC auction.  Our EasyREC program will streamline the process for solar power generators looking to receive and sell their SRECs efficiently in North Carolina.  When a solar facility owner signs up with EasyREC, SRECTrade will quickly take care of registering the project with the NCUC  and NC-RETS!  As always, the solar facility owner retains ownership of all SRECs until they are sold at auction, at which point SRECTrade takes care of transferring the SRECs to the buyer through NC-RETS.  Our EasyREC service also covers annual updates required for continued NCUC registration.

Find out more on North Carolina’s SREC program here

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Arizona – Utility Solar Incentives

Posted July 1st, 2010 by SRECTrade.

Note: Refer to our Arizona SREC page for specifics about any SREC potential.

There is currently no viable SREC market in Arizona as the state Renewable Energy Standard does not have a solar carve-out. The Renewable Energy Standard in Arizona requires the utilities to acquire renewable energy bundled with RECs.

While trading AZ SRECs in an an online auction is currently not a viable option, some Arizona utilities offer upfront and performance based incentive programs to encourage the installation of solar. Below is an overview of the incentives currently in place.

Tucson Electric Power Company (TEP):

  • Owners accepting the upfront incentive sign a 20 year REC agreement with the utility.
  • The residential (systems up to 20 kW) incentive through TEP for 2010 is $3.00/watt for grid tied systems and $2.00/watt for off-grid systems.
  • The small commercial (systems up to 100 kW) incentive through TEP  for 2010 is $2.50/watt for grid tied systems
  • The large commercial (systems greater than 100 kW) incentive through TEP for 2010 differs from the upfront incentive payments for the residential and small commercial programs. Large commercial solar installations are provided with a performance based incentive (PBI), which means that customers will receive a fixed price for their SRECs over a set period of time. This PBI is offered to commercial grid tied systems as follows:
    • 10-Year REC and Payment Agreement for 18.2 cents / kWh (1 SREC for $182)
    • 15-Year REC and Payment Agreement for 16.7 cents / kWh (1 SREC for $167)
    • 20-Year REC and Payment Agreement for 16.2 cents / kWh (1 SREC for $162)
  • The total upfront incentive can’t be greater than 60% of the total system cost. The incentive amounts for 2011-2014 are scheduled at the 2010 rates, but are still to be approved. Also, TEP incentives in combination with all federal and state tax credits can be no more than 85% of total the project cost. A customer must cover at least 15% of the total project cost.

Salt River Project Water and Power (SRP) – Earthwise Solar Energy Program:

  • Home owners accepting the upfront incentive sign a 25 year REC agreement with the utility. Small commercial systems sign a 20 year REC agreement.
  • The residential incentive through SRP is $2.15/watt up to $10,750. This incentive level is set through April 30, 2011. Once a total capacity of 4.5 MW (4,500 kW) has been reserved, any additional applications received will be reserved at future incentive levels.
  • The small commercial incentive through SRP is $2.00/watt up to $60,000. This incentive level is set through April 30, 2011. The small commercial incentive currently has funds reserved for 0.5 MW (500 kW). As of 6/10/10,  46 kW has been reserved with another 120 kW pending approval.
  • The large commercial (systems greater than 30 kW) incentive through SRP for 2010 differs from the upfront incentive payments as outlined for the residential and small commercial programs. Large commercial solar installations are provided with a performance based incentive (PBI), which means that customers will receive a fixed price for their SRECs over a set period of time. The large commercial incentive currently has funds reserved for 5.0 MW (5,000 kW). As of 6/10/10,  864 kW has been reserved. This PBI is offered to commercial grid tied systems as follows:
    • 10-Year REC and Payment Agreement for 18.8 cents / kWh (1 SREC for $188)
    • 20-Year REC and Payment Agreement for 14.7 cents / kWh (1 SREC for $147)
    • SRP will receive the solar renewable energy credits for 20 years for both the 10 year and 20 year PBI plans.

APS:

  • System owners entering into an upfront incentive program sign a 20 year REC agreement with the utility.
  • The residential incentive through APS is $1.95/watt; as of June 17, 2010.
  • Non-residential systems can choose between upfront incentives and performance based incentives. Below is an overview of APS’ current offering:
    • Grid Tied:
      • Upfront incentive – up to $2.50/watt, capped at $75,000
      • Production based incentives –
        • 10 Year REC agreement / 10 Year Payment: 18.2 cents / kWh (1 SREC for $182)
        • 15 Year REC agreement / 15 Year Payment: 16.8 cents / kWh (1 SREC for $168)
        • 20 Year REC agreement / 10 Year Payment: 22.5 cents / kWh (1 SREC for $225)
        • 20 Year REC agreement / 20 Year Payment: 16.2 cents / kWh (1 SREC for $162)
    • Off Grid:
      • Upfront incentive – up to $1.50/watt, capped at $75,000
      • Production based incentives –
        • 10 Year REC agreement / 10 Year Payment: 12.1 cents / kWh (1 SREC for $121)
        • 15 Year REC agreement / 15 Year Payment: 11.2 cents / kWh (1 SREC for $112)
        • 20 Year REC agreement / 10 Year Payment: 15.0 cents / kWh (1 SREC for $150)
        • 20 Year REC agreement / 20 Year Payment: 10.8 cents / kWh (1 SREC for $108)
  • For systems under 100 kW, funding is divided into 6 bi-monthly allocation periods. Funding for systems over 100 kW is awarded on a competitive basis two times a year.

SRECTrade Analysis – Upfront Incentive Payment vs. Selling SRECs On the Spot Market:

  • Currently, although there is no market Arizona SRECs can be sold into, SRECTrade has conducted an analysis to determine an approximate SREC value at which solar system owners in Arizona may consider forgoing their utilities’ upfront incentive payment to realize greater value selling in an auction platform.
  • The analysis is made up of the following assumptions:
    1. A market with a great enough demand exists in which AZ solar system owners can sell their SRECs into
    2. The system size is assumed to have a capacity of 5 kW
    3. The low end upfront incentive payment is $1.95/watt (APS) and the high end is $3.00/watt (TEP)
    4. Arizona systems receive approximately 5.5 sun hours per day (assumption from wholesalesolar.com)
    5. The system generates approximately 10 SRECs per year
    6. Both the upfront incentive and the SRECs are considered taxable income; assumed tax rate 35%
    7. 20 year fixed SREC agreement with utility
    8. 10% discount rate to determine net present value of future cash flow from SREC sales
  • After taking these assumptions into consideration, the following valuations would have to be achievable for system owners to consider foregoing the upfront incentive option. Systems that receive an upfront incentive of $1.95/watt would have to sell SRECs into a market that could support a valuation of approximately $115/SREC . Systems that receive an upfront incentive of $3.00/watt would have to sell SRECs into a market that could support a valuation of approximately $175/SREC. Both scenarios result in a simple payback on the upfront incentive of approximately 8.5 years.

SRECTrade is watching the SREC market place to see how our platform can generate more value for Arizona SRECs. We will continue to provide additional information as the landscape changes.

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