Massachusetts’ Solar Renewable Energy Credits (SREC) are an unquestioned success, creating green jobs and clean energy while protecting taxpayers. As the program enters its second phase, it’s time for Governor Baker to reaffirm the state’s commitment to a sustainable economic future.
Governor Patrick established the SREC program in 2008 to incentivize 400 megawatts (MW) of new solar power. Under the program, solar arrays earn one “credit” for each megawatt-hour of energy generated with credits auctioned off in competitive bidding to provide support as the industry matured.
It worked. The program met its target four years early as gleaming rows of solar panels sprouted up on fields, commercial and government property, and even landfills. Massachusetts now has 752 MW total installed solar capacity, according to the Massachusetts Department of Energy Resources (DOER), while the Massachusetts Clean Energy Center reports 12,122 solar workers employed across 1,415 businesses.
SRECs spurred this surge through clear signals on what types of installations the state wanted, ensuring stable incentive pricing for solar developers, and empowering utilities to facilitate zero-emission electricity. But instead of extending the program once its goals were met, Massachusetts went further by increasing the target to 1,600MW by 2020 with eligibility limits on new development. Under the second SREC phase, new projects are directed toward homes, small businesses, landfills, and community projects while minimizing state and ratepayer costs.
SREC II, as the new phase is called, reduces the value of solar credits every year through 2030 as installations rise and project costs fall. Cutting incentives over time is an incredibly strong market feature. By providing stable incentive pricing and long-term guidance on market targets, solar developers and owners can bank on their project’s value while preventing overcapacity.
SREC II also incentivizes the solar development regulators want across the state. Arrays for homes, carports, emergency power, and communities receive full credit value while commercial building projects receive 90 percent of a credit and those on landfills or brownfields receive 80%. Larger projects on commercial and agricultural properties (most of the initial 400 MW) receive 70 percent of a credit, with truncated capacity targets relative to the rest of the market.
Directing development toward underserved markets helps SREC II build stronger communities. Environmentally contaminated sites become productive once again, homeowners and businesses lower energy costs, and those who can’t install solar on their property can join community-based projects.
Contrast SREC II to other SREC markets, and its value becomes clear. In New Jersey projects were built too fast, and in Pennsylvania regulatory tweaks allowed out-of-state projects to count for in-state targets, leading SREC prices to spike then collapse virtually overnight in both states. Massachusetts addressed these risks in the SREC II program design rollout, and investors have gotten comfortable with the market construct.
SREC II incentives are also expected to cost 30-50 percent below SREC I levels without undercutting new investment. Rational state programs must recognize solar costs are falling, and benefits given three years ago aren’t necessary today. Indeed, average solar project costs have fallen 45 percent nationwide since 2012, and I expect that trend to continue with at least a 10 percent decline in average costs through 2015.
In the future, solar markets will need fewer benefits to achieve the same level of growth. SREC I prices moved from $570 in 2010 to $270 in 2013, while the SREC II price floor auction mechanism started at $300 in 2014 and will decline to $199 in 2024. This reduction provides price support while preventing overcompensation by matching expected project and capital cost decline.
In fact, SREC II will likely generate additional private investment. DOER estimates Massachusetts residential solar alone will require $600 million in loans, and local banks are heeding the call. Regional banks are rarely the first movers into a new asset class, but those in Massachusetts and the Northeast have watched solar’s rapid growth and created tailored loan products for residential, commercial, and small utility projects.
My company’s most recent Massachusetts project, a 1.8-MW system under construction in Brookfield, demonstrates new investment through SREC II. The array is part of a fund jointly financed by U.S. Bancorp, pension fund capital from North Sky Capital’s CleanTech Alliance Fund, and investors GoldenSet, and will go online this year supplying clean energy with reduced utility bills to Quinsigamond Community College for years to come.
With such a positive track-record of solar investment and growth, it’s hard to think the SREC II system should change, but a 2014 state legislature bill would have done just that by separating future SREC incentive systems and establishing a “minimum bill” for solar system owners who generate more power than they use.
Current state-level dynamics include addressing the ability to sell power from remote solar projects to energy users who are not physically adjacent to the solar system, called “net metering”, and expanding the ability to sell power within various energy markets across the state.
Governor Baker recently revealed Massachusetts is facing a significant state budget shortfall, and as his administration works to close the gap, we encourage him to preserve SREC II — a fiscally responsible program that drives economic growth while protecting our environment.