REI: RENEW Energy Initiative

SOLAR ENERGY PROVIDES AN EDGE

Friday, March 07, 2014, 12:10

Dennis McCarthy, President & founding member, REI

Every penny counts. The challenge of getting and keeping customers requires competitive advantages like low supplier costs, innovation or sparkling customer service. One edge to consider is the solar energy incentives available through Federal and State sources.

Many States have solar energy incentive programs but Massachusetts is one of the most popular in the country. Energy officials launched Phase I of the Solar Renewable Energy Certificate (SREC) Program in 2010. A goal of getting 400 MW’s installed by 2017 was surprisingly met four years ahead of schedule.

The Governor has tripled the size of Phase II of the program to 1200 MW’s. The four primary incentives are: Electricity that your panels generate offset bills from your utility company. Second, a 30% Federal tax credit allows you to reduce your tax liability in the current year, the previous year or future years. Third; the IRS allows for MACRS depreciation. Check with your accountant. The fourth incentive involves you, the power producer, selling SREC’s for cash.

A “market” was created by Massachusetts that requires the power suppliers (electricity generators) to source a percentage of their power from solar sources. In order to meet their goals the power suppliers will buy SREC’s from the power producers. As the power suppliers purchase SREC’s from the power producers they get credit toward their goal.

There’s a supply and demand component that could affect the trade value of these SREC’s. The MA DOER has set a floor for the value of the SREC’s for each of the 10 years that the program lasts. This floor price is available at a government run auction at the end of the year. However, suppliers and producers may transact SREC’s on a spot market throughout the year.

SREC’s not sold throughout the year are entered into the July auction. Power suppliers will purchase the SREC’s at the floor price in order to meet their goals. However, if they have purchased SREC’s throughout the year then their demand at the auction may be lower than the supply from the producers. In this case the auction may only exchange a percentage of the available SREC’s. Unsold SREC’s could have from one to two years to be sold on the spot market. It’s been shown that supply and demand forces will put pressure up or down pressure on the value of the SREC’s.

Let’s take a look at an example. First, power producers earn one SREC for every megawatt hour ( MWh) of electricity generated. Second, let’s say we have a rooftop project and the power producer sells 100% of the SREC’s at the auction.

A 15,000 square foot roof could support a 120,000 watt solar array. This array could produce 135,000 kWh’s of electricity or 135.0 MWh’s. Multiply the floor price, $285, times the SREC’s, 135, times the factor, 0.9, to get $34,720 annual revenue from this array. Combine this revenue with the other incentives and you may have an edge on the competition. (Factor values vary based on the type of project.)


 Dennis McCarthy is the Managing Director of MGD & Associates, a business building consulting firm focused on renewable energy and president of RENEW Energy Initiative, a not for profit corporation working to educate the community about the alternative energy and energy conservation methods. See the event calendar at www.reiteam.org or email dennis.mccarthy9@gmail.com.

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