Strategy and Implementation Summary
The year 2011 will bring many changes to the solar industry. The results of the 2008 presidential election and last year’s Governor’s elections accelerated that change. Additionally, as individual states begin to enact Feed-in Tariff legislation, the opportunities for investors will dramatically increase. Various state governments have mandated Renewable Portfolio Standards for utility companies operating within those states. In general the utility companies can meet those standards by either buying Renewal Energy Certificates or by buying power from energy sources generating power created with renewal technology (solar, wind, etc.) under feed-in tariff rules which include environmental attributes. California utilities must obtain 20% of their electricity from renewable sources by January 1, 2010 and 33% by January 1, 2020.
Under the Net Metering program, customers can significantly reduce or almost eliminate their electric bill. Utilities are obligated to credit customers for the power they generate at the same rate the utility charges. In most states, Net Meter customers are on a yearly true-up, meaning that what is produced in the high-yield summer months goes as a credit toward the less productive winter months. Combined with a time-of-use (TOU) rate schedule, electricity that costs more at the same time that a solar system is at its peak production generates a greater credit for the customer.
Renewal Energy Certificates (“REC”)
RECs are tradable certificates. One REC is proof that 1 megawatt hour (1MWh) of electricity was generated from a renewable source. A REC is a separate commodity from the actual electricity generated and each REC has a unique registration number and can be traded. The owner of a REC can demonstrate that they have met a requirement to purchase renewable energy. Utilities purchase RECs to comply with their Renewable Portfolio Standards.
As more projects are developed the increase in the number of available RECs will drive the price per REC down.
Bills to provide Feed-in Tariffs are moving through the legislative process in many states. In California, there are several bills pending and the enactment of a California Feed-in Tariff appears to be extremely likely by Q2 of 2012. The California Public Utility Commission will ultimately set a critical component of the Feed-in Tariff legislation, the price structure. As Chairman of the Feed-in Tariff Committee of CALSEIA, Phillips is closely involved with the legislative and price setting process. This legislation is being written to provide a 20 year set, “must take” price for the electricity produced on a per kWhr basis and would create for caps on the amounts of available Feed-in Tariffs on a per project and a total program basis.
The projects that are ready for applications once the Feed-in Tariffs are enacted are the ones most likely to obtain the maximum benefit. Feed-in Tariffs will also decline in rates as more projects are funded over time decreasing overall project returns. Federal tax credits (ITC) are in place through 2016. To ensure the ability to obtain the 30% Federal Tax Grant, project construction must be started in 2011. Together with the MACRS 100% year 1 bonus depreciation, these tax advantages form a significant portion of the financial incentives for renewable energy projects. It is critical to identify and position projects for construction beginning in 2011 in order to maximize this opportunity. The amount of renewable resources required for utility companies is finite. The amount of tax credits, incentives, Feed-in Tariff payments that can be effectively used to finance projects are likewise finite. Well-positioned and financed projects ready to start with all the construction issues thought through will be at the head of the line.
Identify and begin now!