The Massachusetts state government set a goal to install 1600 megawatts of solar capacity by 2020. To encourage progress toward this goal the state supported several policies to incentivize solar development. These policies, primarily net metering and solar renewable energy credits (SRECs) have been a success (some might argue too much of a success). As of the end of the first quarter 2016, enough projects exist at some stage of development to meet this goal. The incentives, though, were capped so projects in excess of the goal wait in limbo due the uncertainty of incentive availability. As a result, the pace of solar project development and installation, especially for larger projects, has slowed.
Recognizing this challenge (and the nearly 10,000 jobs in the Massachusetts solar industry) the governor signed a bill to increase the net metering capacity and the Department of Energy Resources (DOER), via emergency regulation, increased the availability of SRECs. Both of these measures are short term fixes but should help to get things moving again. How does this impact POAH and our continued efforts to incorporate solar into our projects?
Let's tackle net metering first. Net metering occurs when solar panels produce more electricity than can be consumed by the property hosting the panels. This extra energy gets sold back into the electric grid at a rate comparable to the current retail value of electricity. At the risk of flirting with the arcana of solar policy, there are two types of net metering: standard net metering (where the solar panels are on your property and the energy is used by your building) and “virtual” net metering (where the solar panels are on someone else’s property and you buy the energy they produce in the form of net metering credits). The new legislation, while increasing the capacity for net metering, reduces the value of the electricity sold back into the grid (in some cases by 40%). This won't be an issue for most POAH solar projects since almost all of the energy will be consumed by the building hosting the panels. Solar arrays smaller than 25 kilowatts, which would include most arrays POAH might install, remain eligible for the retail solar rate. We're in pretty good shape when it comes to net metering.
This new net metering legislation, though, could diminish the availability of solar energy to low-income consumers throughout the state. Since the legislation reduces the value of net metering for larger solar installations (which typically net meter 100% of the energy they produce), some low-income advocates argue that solar developers will stop building. Onsite solar is still too pricey for low-income people (the typical home installation is still north of $20,000), so their only option for solar energy is via virtual net metering. As net metering credits aren’t worth as much as they used to be, there is a fear that developers simply won’t be creating them. It could hurt our residents that pay their own electric, should they want to buy solar energy but we just don't have the data on how many of them would avail themselves of this option. It also limits our options to work with a solar developer to provide lower cost energy to our residents—the developer upside is limited to an extent that could stifle development.
SRECs are a different story. They often represent up to two thirds of the cash flow from a solar installation and without them it is difficult to justify the economics of solar investments. Our one solar project underway, at Melpet Farm, will now be eligible for SRECs (prior to the DOER's extending the cap this may not have been the case). While this is good news in the near term, the emergency regulation only covers systems constructed within nine months of the regulation (issued on April 8th). It remains uncertain what will happen with SRECs in the long term and that hinders our ability to clearly judge the viability of other solar projects in the pipeline that may not be constructed within nine months. We don't yet know what a new, longer term SREC program will look like.
As with the recent SREC regulation, the net metering legislation helps in the near term but remains a stop-gap solution. The legislation only raises the net metering capacity by 3%, which experts predict will be filled by 2017. We expect that longer term solutions, for both net metering and SRECs, will be hammered out over the next year but how those impact our ability to implement solar remains unclear. This uncertainty is especially frustrating in light of the unexpected extension of the federal investment tax credit (another critical incentive to solar development). The federal extension goes through 2021 but the local uncertainty hampers our ability to move ahead with our ambitious solar fund in Massachusetts. The good news is that the cost of solar continues a rapid downward trajectory and we might, in the not too distant future, be able to support solar investments, even in an environment of uncertainty.