Northeast Solar Update - Summer 2012
In recent months, the states of Massachusetts, New Jersey and New York have each taken legislative steps to encourage the development of solar generating facilities. In summary, Massachusetts enacted Senate Bill 2395 ("SB 2395") that, in part, increases the existing regulatory cap on net-metering service and requires distribution companies to continue soliciting proposals for long-term contracts for renewable energy generation. New Jersey's Bill S-1925 ("S-1925") accelerates that state's solar renewable portfolio standard ("RPS") and reduces the cost of a solar alternative compliance payment ("SACP"). Finally, New York Governor Andrew Cuomo is considering signing into law a bill that would exempt the sale and installation of commercial solar generation facilities from state sales and use taxes.
Governor Deval Patrick signed SB 2395, entitled An Act relative to competitively priced electricity in the Commonwealth, on August 3, 2012, which contains numerous energy provisions including several which relate to net-metering and long-term contracts for renewable generation.
Net-Metering Cap Increased
Prior to enacting SB 2395, an electric distribution company in Massachusetts could only allow net-metering if the aggregate amount of generation from net-metered systems equaled less than 3% of its total peak energy demand. Net-metering facilities owned by government and municipality customers had a 2% cap while those facilities owned by private customers faced a 1% cap. SB 2395 raised the total cap imposed on electric distribution companies to 6% of the total peak demand and permits government customers and private customers to each represent, in the aggregate, up to 3% of the electric distribution company's total peak demand. Since the 1% cap on private customer-owned facilities has been reached by most of the electric distribution companies in Massachusetts, SB 2395 is expected to drive more investment in distributed generation, including solar, by private customers because the revenue from net-metering services would facilitate the project's financing.
Another important feature of SB 2395 is that certain small private projects are exempt from the net-metering cap and will be permitted to receive net-metering service.1
Long-Term Contracts for Renewable Generation
SB 2395 extends the mandate that electric distribution companies solicit proposals for long-term renewable generation contracts beyond December 31, 2012 to December 31, 2016. Within the extended time period (January 31, 2013 - December 31, 2016), electric distribution companies must jointly solicit long-term renewable energy contracts. Such contracts may have a term of 10 to 20 years and may include renewable energy credits ("RECs"), energy (including energy generated by solar facilities), or a combination of RECs and energy. Under such contracts, electric distribution companies cannot purchase energy (or the REC equivalent) in excess of 4% of the total energy demand of all customers in that respective electric distribution company's service territory. Subject to the approval of the Massachusetts Department of Public Utilities ("MADPU"), an electric distribution company may decline to enter into contracts that would "place an unreasonable burden on [its] balance sheet…." SB 2395 directs the MADPU to issue regulations providing, in part, that: i) electric distribution companies receive an incentive of 2.75% of the annual payments under such contracts as compensation for undertaking the financial risks associated with the contracts; and ii) the contract be "cost effective to Massachusetts electric ratepayers over the term of the contract."
Importantly, SB 2395 requires that the Massachusetts Department of Energy Resources complete "a study to assess whether the long-term contracting requirements reasonably support the renewable energy goals of the [C]ommonwealth…" before the electric distribution companies are required to solicit proposals for long-term renewable generation. Such study must include input from stakeholders and will be submitted to the Massachusetts Legislature. SB 2395 does not set forth a timeline for the completion of this study.
New Jersey Governor Christopher Christie signed S-1925 into law on July 23, 2012 as part of his goal to strengthen that state's solar market, which he set forth in his 2011 Energy Master Plan.
Acceleration of NJ's Solar Renewable Portfolio Standard
New Jersey currently requires that each basic generation service ("BGS") provider and electric supplier serving retail electric customers in the state procure 22.5% of the electricity that it sells to such customers from qualified renewable resources by Energy Year 2021. S-1925 sets forth a percentage-based solar carve-out of 3.470% by Energy Year 2021, replacing the gigawatt hour ("GWh") carve-out, established by legislation in 2010, of 2,518 GWh by Energy Year 2021. BGS providers and electric suppliers must comply with the solar carve-out through the generation or purchase of solar renewable-energy certificates ("SRECs"). BGS providers that have executed supply contracts prior to the July 23, 2012 effective date of S-1925 are exempt from procuring any SRECs in excess of the GWh solar carve-out levels that were in effect at the time the contract was executed. The incremental requirements for those exempt providers will be distributed among those BGS providers that do not qualify for the exemption until those supply contracts expire. Importantly, S-1925 also extends the period in which BGS providers and electric suppliers may use a SREC from two compliance years to four compliance years following the date the SREC was created.
Reduction of Solar Alternative Compliance Payment Cost
BGS providers and electric suppliers that fail to comply with the RPS solar carve-out for the applicable energy year must pay a SACP, measured in dollars per megawatt-hour ("MWh"), for each of the SRECs that the provider/supplier was required to have for compliance, but failed to obtain. Under S-1925, the SACP will be reduced to $339/MWh for the Energy Year 2014, down from $641/MWh for the Energy Year 2013. S-1925 sets forth a schedule of decreasing SACP amounts until Energy Year 2028 when the SACP will be $239/MWh. The New Jersey Board of Public Utilities ("NJBPU") still retains the right to adopt increased SACP amounts, but not decreased SACP amounts, after a public hearing and opportunity for public comment. The New Jersey Legislature sets forth decreased SACP amounts to reduce the impact of the RPS on ratepayers. While the S-1925 was being considered by the New Jersey Legislature, stakeholders argued that it is critical to protect ratepayers from RPS impacts by reducing the SACP and that if the pace of solar generating facility installation will not satisfy future RPS goals, the SACP can be increased by the NJBPU at that time.
While SRECs are defined under New Jersey law as "a certificate…representing one [MWh] of solar energy that is generated by a facility connected to the distribution system…", the term "connected to the distribution system" was previously undefined. S-1925 defines that term as including, in part, facilities that are: i) connected to the net-metering customer's side of a meter, regardless of voltage; ii) an on-site generation facility; and iii) provided that the facility does not satisfy, among other things, the first two categories, directly connected to the electric grid at 69 kilovolts ("kV") or less (i.e., grid-supply solar projects) and certified as such by the NJBPU. With respect to the latter, the NJBPU must approve, during the Energy Years 2014-2016, applications for proposed solar facilities that are 10 megawatts ("MW") or less provided that: i) such facilities generally do not qualify as connected to the distribution system under the other qualifying categories; ii) the application includes a proper notice escrow of $40,000 per MW of the proposed facility's capacity; and iii) the proposed facility's capacity does not increase the aggregate capacity of likewise approved facilities over 80 MW for that energy year. Once the 80 MW threshold has been met, the applications are subject to NJBPU oversight. The NJBPU will provide public notice and an opportunity for public comment in response to the application and will consider numerous characteristics, such as whether the SREC production of the proposed facility will have a detrimental impact on the New Jersey SREC market. The facilities associated with the approved applications are deemed to be "connected to the distribution system" and, thus, are eligible to produce SRECs, which is critical to obtaining financing for a proposed project.
The New York Legislature passed Bill A5522/S3203 in late June which provides commercial solar projects with the same exemption from certain state taxes that residential solar systems are given. More specifically, under Bill A5522/S3203, the sale and installation of commercial solar projects would be exempt from state sales and use taxes. To be eligible for such tax benefits, the systems must be installed by contractors that are residents of New York. The bill also permits municipalities with a population of at least one million residents (i.e., New York City) to provide the same tax-exempt status with respect to local taxes to commercial solar projects, thus providing a further incentive to the development of commercial solar projects. This bill was delivered to Governor Cuomo on August 6, 2012 for his signature.
Massachusetts, New Jersey and New York have taken important steps to increase the development of solar generation as a means to both satisfy each respective state's RPS and to spur economic development, including job growth. These states see renewable energy, and solar energy in particular, as an important area of economic growth and continue to create new incentives to encourage more development and keep renewable energy prices competitive.