Archive for January, 2010

State SREC Markets

Posted January 28th, 2010 by SRECTrade.

The following map shows all the SREC markets in the U.S. along with the states that have a solar requirement as part of the state renewable porfolio standard (RPS).  There are three conditions that must be present in order for a state to implement an effective SREC market:

  1. RPS Solar Carve-Out: The RPS solar requirement distinguishes solar from other renewable energy resources and in most cases will value solar electricity at a higher rate than other renewables. Most states will set a target for solar, either as a percentage of the total electricity sold into the state, as a fixed capacity target in megawatts (MW) or as a solar energy target measured in megawatt hours (MWh) or SRECs produced in a year.
  2. Unbundled, Tradeable RECs: A state must allow the SRECs to be owned and traded by the generating facility. In some states, your utility company owns your SRECs. This is a common stipulation in state solar grant or rebate programs. Other states have a budget for solar. For example, California is currently not a viable SREC market because the state requires that utilities purchase the SRECs bundled with the electricity that the system produces. The SRECs cannot be unbundled and sold separately.
  3. Penalty for Non-Compliance: Finally, in order to have a robust SREC market, your state must implement some sort of fine or penalty for non-compliance. This is commonly known as a solar alternative compliance payment (SACP). The SACP is what drives the values of SRECs above any other type of REC. Without the SACP, it is difficult to incentivize buyers to pay prices that promote solar growth.

The states with robust SREC markets have the three criteria of a solar requirement, SREC ownership and the SACP. This map shows all the states that have solar requirements and those that specifically have SREC markets. In addition, we’ve added states that don’t necessarily have their own solar requirements, but are eligible to sell into the SREC markets of other states. The states that they are eligible for are listed in the map under each state.

SREC States and Solar RPS States


SREC-Based Financing Program for ACE, JCP&L and RECO

Posted January 28th, 2010 by SRECTrade.

ACE, JCP&L and RECO have an SREC-Based Financing Program that is available to solar project developers. The utilities are expected to issue three RFPs (requests for proposals) per year available to solar developers in these territories for projects under 500kW with 10-15 year contracts.  In theory, the program is intended to promote solar by providing reasonable assurances regarding the prices of SRECs, however, the RFPs, run by NERA Economic Consulting have not reached the targets set by the program.  In the first solicitation, only 8 bids were received, the most recent one reached 44. The firms intend to increase the targets for future RFPs in order to meet the original goal of the program. As seen below, the average prices tend to be around $400/SREC, while the lowest price bid by a developer was well under $300/SREC! Although these RFPs aren’t viable for the majority of the prospective developers out there, it should serve as an indication of the long term contracts that are out there.

The New Jersey Board of Public Utilities (“Board” or “BPU”) has approved the results of the second solicitation of the SREC-Based Financing Program for ACE, JCP&L, and RECO, which was held in December 2009.  The results are as follows:

Forty-four (44) bids were received, totaling 7,009.628 kW.

Thirty-nine (39) awards were made, totaling 6,521.798 kW.

Five bids (5) were rejected because pricing was found not to be competitive, totaling 487.830 kW.

The simple average NPV of all accepted projects was $2,864.93 (corresponding to an average price of $405.15/SREC for a ten-year project).

The low NPV of all accepted projects is $1,926.53 (corresponding to an average price of $272.44/SREC for a ten-year project).

SRECs and Taxes: A Customer’s Perspective

Posted January 25th, 2010 by SRECTrade.

The following is a piece of advice that comes to us from one of our customers, Michael from Maryland. You can find out more about his adventures in solar at www.solarpvhome.com.

Here are my thoughts on the SRECs and taxable income topic. ANY INCOME YOU RECEIVE IS TAXABLE whether if it is from selling items on EBay or selling SRECs. However, if it does not lead to a PROFIT then how can it be reported.

Key Point – To sell SRECs I had to install a Solar PV setup and that cost me money.  My initial cost to sell those SRECs was my total cost of the PV installation less the federal and state incentives. So the proceeds from my SRECs is offset by the cost of the Solar PV system. Therefore, one should not have to declare the proceeds until the total cost of the system has been reached.

For example – my PV system cost me $14320 after federal and state grants.
I received $720 for SRECs in 2009 = my cost is reduced to $13600. If I get $1200 for SRECs in 2010 = my cost is further reduced to $12400. It is not until my total cost is zero that my SRECs will give me a profit. Keep in mind, I am selling my SRECs to recoup my initial investment in solar not to initially profit from selling SRECs. That is how I am going to proceed.

Another way to look at it is that my $14320 investment needs to be depreciated over time. If a Tax expert purchases a computer for $3000 and the useful life is 3 years – it is depreciation over the three years. So if the Tax expert makes $1000 in profit the first year – that is offset by the $1000 computer cost using simple depreciation. Depending upon how you want to depreciate the Solar PV setup 5 Years, 10 Years or useful Life of 25 Years, that depreciation cost would offset my SRECs proceeds.

Moreover, it is just like when I sell items on EBay. I deduct the cost of the item, EBay/PayPal fees, shipping, and packaging from the sale price and then what is left is the PROFIT or “other income” on my 1040 that I report on my taxes.

If one keeps good records – as to the total cost of the PV system and SRECs received – it should be clear to the IRS that a PROFIT was not made until the system’s cost was totally paid off.

– Michael from Maryland

Check out Michael’s personal website at www.solarpvhome.com. It covers his family’s move toward “Going Green and Saving Green”.


DC State Eligibility Criteria

Posted January 25th, 2010 by SRECTrade.

The District of Columbia is one of the states that will allow its electricity suppliers to procure SRECs from out-of-state solar generating facilities. There are no defined boundaries for what states may qualify for certification in the DC SREC market. According to information received by SRECTrade, the DC PSC will approve SRECs for states in the PJM region and states adjacent per the following guidelines:

The DC Public Service Commission is responsible for approving applications to the DC SREC market.  Their rule of thumb is that if your state has an RPS similar to DC you are guaranteed certification in DC. Currently those states include Maryland, Pennsylvania, Delaware, New Jersey and Ohio.

Solar facilities built in all other PJM area states AND adjacent states are reviewed closely and the DC PSC will determine if they can be granted certification. Currently, they have not declined a registration from any of those states because of location. Based on the map of the PJM region, these states include: Indiana, Illinois, Kentucky, Michigan, Tennessee, Virginia, West Virginia and Wisconsin.

Here is a link to get you started:

DC Certification Instructions

Maryland Governor to accelerate the solar RPS

Posted January 22nd, 2010 by SRECTrade.

In a press release issued by the Governor’s office, Governor Martin O’Malley has prioritized solar electricity in his 2010 agenda. He plans to increase the solar RPS requirement in the earlier years. Currently, compared to other states, Maryland’s RPS solar requirement increases exponentially in the later years. It appears the Governor is planning to straighten out the growth path so that more solar is required earlier.  This is great news for the industry in Maryland in the next five years because it allows the state to remain competitive with other states in the region while the solar industry is in its formative years. Hopefully this will help establish the state at the foreground of industry along with New Jersey and Delaware.  Here are the specific agenda items relating to the solar RPS:

  • This legislation will accelerate Maryland’s solar RPS requirements in the early years (2011 – 2017), resulting in more residential and commercial solar installation and greater job creation.
  • It will make the phase-in of the Solar RPS more evenly distributed over the next decade and provide more long-term support for Maryland‘s growing solar industry.  This change will put the State’s solar goals more in line with New Jersey and Delaware.
  • Additional solar energy in Maryland will decrease peak load electricity prices in the summertime, reduce greenhouse gas emissions by displacing fossil-fueled powered generation, create new green jobs, and help Maryland meet its renewable energy goals.

SRECs and Taxes

Posted January 19th, 2010 by SRECTrade.

A quick disclaimer: We are hoping to provide this information to help people understand the issues and questions that arise around the tax treatment of SRECs. For definitive legal advice, consult a tax lawyer or tax accountant. If they don’t know, then perhaps this blog post will help them along their way.

With tax season rapidly approaching, we commonly get the following question:

Is the income generated from SRECs considered taxable income?

Questions constantly arise regarding the tax treatment of SRECs and it seems that no legislative body or government agency has explicitly answered the question. For example, the New Jersey Office of Clean Energy, the pioneer in SREC markets, provides the following information in their FAQs:

Is SREC income taxable? Will I be issued a 1099 if I sell my SRECs? Is there sales tax on an SREC?
– There is not a definitive ruling on this issue. We recommend you discuss the issue with your tax accountant and perhaps a tax lawyer.

Well that would be helpful, but chances are your tax accountant or tax lawyer probably doesn’t even know the answer to this question, let alone understand the concept of an SREC. We asked one well-respected accounting firm if they could help us answer this question and they quoted us a $5,000 fee to find out. In a recent article on NJ.com, in a response to a reader’s question on SREC taxation, the article’s author was able to get a quote from IRS spokesperson, Gregg Semanick. Kudos to their efforts, however, we are not sure that they completely understand the concept of an SREC.  It is clear from the exerpt shown here that both the article’s author and Semanick have SRECs confused with electricity:

“Semanick offers you kudos for being savvy enough to generate electricity, and in sufficient capacity to have some left over to sell. But, he said, the income from selling your “product” is taxable. You using the income to pay the PSE&G loan has no bearing on the issue of taxability.”

When you sell SRECs you are NOT selling your “left over” solar electricity. Electricity is indeed a product and it certainly makes sense that you would pay taxes on any income generated from that sale of electricity.  However, a solar renewable energy certificate, an SREC, is not electricity, it is a tradeable certificate, separate from the electricity, denoting that a megawatt hour of solar electricity was produced (regardless of what happened to the actual electricity).

How do you classify SREC revenues? The answer to this question is complex because, in reality, an SREC is a fabricated commodity created by a government program intended to use a market mechanism to subsidize the cost of solar. We’re not sure how easily the term “subsidy” could be used to describe SRECs, but if the government were subsidizing locally grown foods in order to incentivize you to support local businesses, would it make sense to also tax you on that subsidy, thereby decreasing its value? In the same sense, if the government is using SRECs as a way to level the playing field with other forms of electricity, does it make sense to tax you on the subsidy? That is one simple interpretation, but since the revenues from your SRECs are not a direct subsidy, the answer is a bit more convoluted. The government is lessening the cost of solar to you by forcing electricity suppliers to meet a solar requirement through the purchase of SRECs from solar generators. Those electricity suppliers then pass the cost onto the rate-payers. Therefore, some might argue, it is the consumer, not the government, who is effectively paying the subsidy, so taxation would apply since it is not a “government” subsidy.

Our conversation with the IRS. We spent a great deal of time on the phone with the IRS seeking answers to these questions. Everyone there was extremely helpful, but it took being transferred to several individuals within the organization, before we were able to get a hold of someone with some expertise in anything related to our questions. The first thing we learned is that there is no explicit ruling in IRS documentation relating to Renewable Energy Credits, so any information we were given was based on the interpretations of the individuals at the IRS that we consulted. Therefore, they were unable to provide anything in writing. The key question we were told to ask in this situation was “Are the SRECs sold in order to make a profit.” As long as that answer is no, then the individual we spoke to saw no reason why SRECs should be considered taxable income. Since you are selling the SRECs in order to recoup your investment in solar which supports the government’s intitiative towards clean energy, then you are not profiting from the sale of SRECs. However, if you have begun to turn a profit on the investment as a result of inflated SREC prices (or any other reason), then you should report it to the IRS and pay taxes on the revenues from any SRECs you sell to make a profit.

Our advice. We are often asked if we provide 1099s for our customers. We do not provide the 1099 tax form, but will leave it to our customers to decide how to handle the revenue from their SRECs. You do not need the 1099 to claim the income in your tax filings. If you decide not to claim the income, be aware that the IRS does have the authority to claim taxes as far back as seven years, so you should exercise discipline, understanding that you could some day be asked for that money. Until there is some definitive ruling on this issue, be careful!

And yes, you should definitely discuss it with your tax accountant or a tax lawyer.  We hope that the information provided here will give you a better understanding of what you and your advisors need to take into consideration.


2009 PA SREC pricing data

Posted January 14th, 2010 by SRECTrade.

As we have mentioned previously, the Pennsylvania market is slightly different than other SREC markets because the SACP is not published until December after the energy year trading has concluded.  The PA PUC recently published the prices paid by SRECs purchased for compliance in PA. Note: this only reflects prices paid by the electricity suppliers, i.e. the end buyers.  As you can see the SACP for 2009 was $550.15 in PA.  Up slightly from $528.34 the previous year.

2008/2009 Alternative Energy Credit Pricing

AEC Type Weighted Average Price Price Range ACP
Solar PV $260.19 $225 – $690 $550.15

Our comments:  Although the price range was $225 – $690, the majority of PA SRECs must have traded in the mid-$200 range due to the fact that the weighted average price was only $260.  With the way this market is structured, buyers will try to purchase at the average price level throughout the year so as not to drive the average price up.  This is reflective of the market price.  However, at year end, if a buyer is in danger of not procuring enough SRECs to comply, the buyer will be willing to pay anything below their best calculation of the SACP for that year.  Based on the results above, it appears that most buyers paid around $260 for SRECs in PA in 2009, however, there was at least one buyer, who in an effort to avoid the SACP, paid a price of $690! We wonder if that was based on the buyer’s own calculation that the SACP would be at or above $700, or if it was the case that an SREC bought in the NJ market was used for PA compliance.

The good news for PA solar generators is that the average trading price is increasing.  We expect this trend to continue as the solar requirement increases each your for Pennsylvania electricity suppliers.

Cross Listing Your SRECs

Posted January 3rd, 2010 by SRECTrade.

2011 Update: State certification information can be found here

One of the benefits of the SRECTrade multi-state auction platform is the ability to cross-list in multiple states in which you have registered your SRECs. If an SREC is cross-listed, it will be included in any state in which it has been registered to be sold.  SRECs will be sold in the state auction that offers the most value. In order to qualify to sell your SRECs in a state that accepts out-of-state SRECs, you need to get your system certified in that state. The following section has information on what states accept out-of-state SRECs and how to get your systems registered and obtain a state certification number. For EasyREC customers, SRECTrade can help you register in the states available to you.

SREC Markets by State

SREC State Registration Information:

Delaware

To get a Delaware state certification number, your installation must be located in DE. You must apply to become an Eligible Energy Resource. The link for the application is here.  For more information, go to the Delaware Public Service Commission.

Contact:
Delaware Public Service Commission
861 Silver Lake Boulevard
Cannon Building, Suite 100
Dover, DE 19904
Main: (302) 736-7500
Toll-Free: (800) 282-8574
Fax: (302) 739-4849

District of Columbia

Eligible to states within and adjacent to the PJM Region. For information on the DC registration process, see DC State Certification Instructions.

Contact:
Dorothy Wideman
Commission Secretary
Public Service Commission of the District of Columbia
1333 H Street, N.W
2nd Floor West Tower
Washington, D.C. 20005

Maryland

To register in Maryland, your solar installation must be in MD and you must complete and file an application for certification as a Solar Renewable Energy Facility (REF) with the Public Service Commission. The link to the application is here.  For more complete details on the process, see Maryland SREC Registration Details.

New Jersey

New Jersey is a closed market, therefore only SRECs produced in New Jersey are eligible. New Jersey residents can apply for state certification at the New Jersey Office of Clean Energy’s website.

Contact:
New Jersey’s Clean Energy Program
c/o Conservation Services Group
75 Lincoln Highway, Suite 100
Iselin, New Jersey 08830
Phone: 866-NJSMART (866-657-6278)

North Carolina

North Carolina is still in the early stages of implementing an SREC program. The state is still accepting applications for a REC tracking system through December 15, 2009.  More information can be found on the North Carolina Utilities Commission website. A sample application can be found here.

Contact:
Chief Clerk
North Carolina Utilities Commission
4325 Mail Services Center
Raleigh, NC 27699-4325

Ohio

Utilities in Ohio are allowed to procure 50% of the SRECs from out of state facilities. However, these states must be contiguous with Ohio (PA, MI, IN, KY, WV). Instructions and forms required for Ohio certification can be found here: Application for Certification as an Ohio Renewable Energy Resource Generating Facility

Contact:
Public Utilities Commission of Ohio
Email: AEPS@puc.state.oh.us
Toll-Free: (800) 686-PUCO (7826)
Phone: (614) 466-3292 (in Columbus area)
Fax: (614) 752-8351
180 East Broad Street
Columbus, Ohio 43215
Directions to the PUCO

Pennsylvania

Utilities in Pennsylvania are allowed to buy out of state SRECs from solar generators in the PJM region to meet the Renewable Portfolio Standard. If you are interested in selling in PA, you need to get your solar system registered.  For a detailed explanation of the process with screenshots see our most recent post on Pennsylvania State Certification Registration Process.

Contact Info:
Dina M. Deana
Pennsylvania AEPS Program Manager
Clean Power Markets, Inc.
Phone: 1-877-AEPS-773 (1-877-237-7773)
Fax: (610) 444-9213
Email: paaeps@cleanpowermarkets.com