The cost of solar panels varies little among manufacturers, but it’s the state policy that we give an A+ to Massachusetts for one of the lowest solar panel costs in the country.
According to a recent study by Environment America, the top 12 states in the country for per capita solar capacity represent only 28% of the country’s population while accounting for 85% of the nation’s total installed capacity of solar energy. The common denominator in all of these states is not their equatorial proximity to the sun but rather the legislative policies they have implemented to support solar development.
Massachusetts is leading the way in progressive state solar policy. The National Renewable Energy Lab (NREL) gave Massachusetts an A+ rating and ranked the state first in the country for the effectiveness of their solar policies.
Effects of State Policy on Solar Project Economics
State policy provides the framework for success in the solar industry establishing the tools for market driven investment in solar development. State policy can influence project economics by effectively lowering the cost of solar development, by providing an incentive to invest in solar or by providing a means of increasing project revenues which generate more favorable returns on investment for project financing.
Policies that help lower the cost of solar panels
Renewable Portfolio Standard (RPS) – The state renewable portfolio standard requires energy providers to use a fixed amount of renewable sources as a portion a of their fuel source portfolio. This policy essentially establishes demand for renewables in the energy market which is a fundamental principle of market economics.
Power Purchase Agreements (PPA’s) – Independent power producers provide solar electricity through the use of Power Purchase Agreements (PPA). A PPA clearly sets forth the terms, conditions and requirements of the energy service provider and the customer who is purchasing the electricity. The agreement typically includes the cost of the electricity in terms of cents per kilowatt hour (kWh) produced and purchased. It also includes the duration of the agreement, the method of billing and payment and legal specifications concerning termination, insurance and other issues related to the transaction. Many states do not allow PPAs for independent power producers which represents an obstruction to successful project financing.
Interconnection Policies – Interconnection policies are designed to streamline, simplify and expedite approvals for interconnection to the grid.
Net Metering - Net metering is a policy designed to foster private investment in renewable energy. It requires electric utility companies to purchase excess solar energy produced on site by crediting the consumer for their electricity production. Compensation in cost per kWh can vary by state. In Massachusetts consumers are credited at the same retail price charged by the utility.
POLICIES THAT LOWER SOLAR PROJECT COSTS
Rebates - Rebates are often provided by utility companies to encourage the use of solar by their customers. They are a means by which the utilities can meet renewable energy standards set by the state.
Sales Tax Exemption – Sales tax exemption on the cost of solar equipment such as the panels and invertors significantly reduces project costs.
Property Tax Exemptions – Solar panels, the electricity they produce and energy cost savings they provide all increase the value of a home or business. Quite often property assessors will increase property values because of the investment in solar, similar to the investment in an addition to a home. This is an inadvertent cost of solar projects which is averted in states that have an exemption policy.
Personal Tangible Property Tax Exemptions – Personal Tangible Property Taxes have a significant impact on the economics of third party owned solar assets. Third party ownership is the key to competitive pricing of electricity enabling customers to purchase solar electricity through a PPA rather than come out of pocket for the capital cost of the solar equipment. In states without property tax exemption, taxes are paid by the third party and the cost passed on to the customer in terms of higher kWh charges. This cost can increase the cost of electricity by as much as 3 to 4 cents per kWh. The exemption policy enables prices to be reduced and compete directly with grid retail prices.
Low Interest loans - Solar projects rely on debt to pay for the capital costs of equipment and construction expenses. Low interest loans provided by the state encourage residential investment in solar by lowering capital costs. For commercial and utility scale projects low interest loans enable the solar provider to lower the cost per kWh in power purchase agreements making solar competitive with traditional fuel sources.
POLICIES THAT CREATE INCENTIVES FOR SOLAR PROJECTS
Feed in Tariff (FIT) - A Feed in Tariff is a policy mechanism designed to accelerate investment in renewable energy. It achieves this by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology.Long-range contracts offered by local governments enable lower cost debt financing from banks because of the security of the revenue source.
State Investment Tax Credit (ITC) for personal and corporate income. – Similar to the Federal ITC, states that impose income taxes can choose to provide a credit for investment in solar (renewable) energy. This can be used by a home or business owner who purchases the solar equipment to offset the cost. For third party owned projects, the ITC is used to effectively write down project costs while enabling Tax Equity Investors to obtain a return on their investment from income that would have otherwise paid for the taxes.
POLICIES THAT GENERATE REVENUES FOR SOLAR PROJECT
Solar Renewable Energy Credits (SRECs) - SRECs exist in states that have Renewable Portfolio Standards (RPS) legislation with specific requirements for solar energy. The additional income received from selling SRECs increases the economic value of a solar investment and assists with the financing of solar technology. In conjunction with state and federal incentives, solar system owners can recover their investment in solar by selling their SRECs through spot market sales or long-term sales. The value of the SREC increases revenue from the power purchase agreement providing an attractive asset for banks and tax equity investors ensuring favorable terms for project financing by providing more favorable returns.
When combined, the outcome of these policies reduces costs, increases revenues and generally provides for more favorable project economics enabling solar energy producers to beat grid retail electricity prices. Moreover, since solar is not a commodity based energy source the cost for electricity can be stabilized compared to the volatility of fossil fuel prices. Solar power is generated by the free renewable energy source of the sun, the cost is fixed based on the price of the installed equipment, thereby enabling a hedge against future cost increases associated with traditional fuel sources. In Massachusetts these policies have established the most explosive solar market in the country in recent months and this is why the cost of solar panels is low. Would you like to see how much solar would cost you? Request a Quote!
As a Managing Partner of Clean Footprint and professional Urban Planner with over 25 years of consulting experience, Kurt has an extensive background in both public and private sector initiatives. His experience provides valuable insight into public/private negotiations for renewable energy development. His network of municipal contacts through the Florida Redevelopment Association and Florida League of Cities enables direct access to decision makers for the successful development of solar PV projects throughout the State.Contact Kurt at firstname.lastname@example.org.