Last month Governor Edward Rendell wrote an opinion piece supporting an increase to the existing SREC program in Pennsylvania. The Bill is currently off the table, but will likely resurface later this year. Though we are hopeful that Pennsylvania steps up its solar goals, this Bill, as written sets a scary precedent: it essentially disqualifies any solar facilities from out-of-state that have been previously approved to generate and sell SRECs in the Pennsylvania market.
There is no doubt that the Solar Renewable Energy Certificate programs in Pennsylvania and other states, such as New Jersey, have been a major catalyst for solar development. Despite the success of these programs, one key challenge remains prominent in the daily efforts of installers and integrators looking to develop projects: long-term SREC financing. This is particularly the case for larger projects that require lending from banks. Without a long-term SREC project with an accredited buyer, many of these projects do not get done. Load-serving entities are the only credit worthy counter-parties in this market since they ultimately need to buy the SRECs to comply with state laws. The problem is that they only have short-term electricity supply contracts into the state and therefore are loath to enter into long-term SREC contracts for risk of exposure to the liability should their electricity supply contracts not be renewed.
Meanwhile, the only projects getting done on a regular basis are small commercial and residential systems that are finance-able without long-term SREC contracts. Absent a long-term SREC contract, the key to the success of the solar industry in Pennsylvania and other states with similar programs is the faith that the solar owners and financiers place on the SREC market. It is all too easy for someone to walk away from a solar investment because he or she does not trust the government to stand behind the law that created the market-based SREC program. This is why when Maryland, Delaware and New Jersey recently updated their SREC laws to increase the requirements and raise the fines, the greatest outcome of these changes was not the quantitative effect but the impact it had on the psyche of the industry. These three states all said loud and clear that the SREC program is here and it is here to stay.
Pennsylvania, in many ways, is doing the same with House Bill 2405 by setting a schedule of fines and increasing requirements. However, there is one piece of the legislation that is a step back for the solar industry in general. When the original SREC program was created in 2004, the law included SRECs from out-of-state facilities. In a pragmatic move to place an emphasis on the local Pennsylvania solar industry, the new Bill, if passed would exclude out-of-state facilities. This is a perfectly fine change for solar projects moving forward… and it may actually be a good thing for the PA SREC market.
However, as written, the Bill would also exclude out-of-state facilities that have already been financed, built and certified by the Pennsylvania AEPS Program to sell SRECs in the state’s market. These are solar facilities that have been financed to produce SRECs for the Pennsylvania state market, expecting the payback to come from the proceeds of these sales. They will be shut out of the Pennsylvania SREC market.
Now if you’re a PA resident or legislator, you may not care since it really does not affect you in any tangible way. Out-of-state facilities increase supply, driving cost down, but excluding them opens up opportunity for local solar projects. If you’re a PA installer, you will likely be happy just to have it passed as it will be a great thing for the PA solar industry. However, if you are a solar industry advocate in general and/or someone with a penchant for fairness, you are probably holding your breath alongside the solar owners and installers in Virginia, West Virginia and other states that have been lured to solar by Pennsylvania state law.
It would be a setback to SREC programs everywhere to see the first real example of a change to a state law promoting SRECs that leaves its earlier adopters in the dark. Though we’re hoping for an improved solar legislation in Pennsylvania, we are rooting for legislators to not only do what is good for SREC markets, but also what is just plain right for the people who have made an investment based on the 2004 law. The implementation challenges won’t get any easier if you give the skeptics a reason to doubt the program.
In conclusion, Pennsylvania should most definitely pass HB2405, increasing solar requirements, but it should also grandfather in all facilities that were built on the promise of its predecessor.