Tuesday, July 24, 2012

Managing SREC Risk in Maryland

Understanding SREC Risk 

If you are among the many in Maryland who have been considering solar renewable energy certificates as a means to finance your new solar project, then consider these updated facts about the SREC market and understand that it is less risky than you might think as a financial vehicle:

    SREC Information for the Maryland Market

    1.       SREC revenue is created when you sell the energy certificate generated by your system.  1 SREC = 1,000kWh of solar electricity generated.  Your system will be read monthly by the utility co (remotely through an Internet based connection built into the inverter which is installed near the main panel).  BGE, Pepco, Potomac Edison (Alleghany Power), or Delmarva Power will report how many SRECs were created for the month by your system.
    a.       Once your system is active, we will help you activate an SRECTRade account which is an electronic bulletin board to trade SRECs.
    b.      You will see past, current and future SREC values listed by state or jurisdiction and what current values.  You place your SREC for sale in this system.
    c.       A utility from any jurisdiction can execute a buy of current and future SRECs from MD SREC owners and upon settlement or execution of each transaction,  a check or electronic payment is issued to the owner of the SRECs.
    d.      SRECTrade.com transactions are somewhat similar to a commodities exchange or securities broker site.  SRECTrade.com acts as your agent to execute your sell orders and also offers full brokerage service to trade your SRECs on your behalf and just issue you monthly checks if you prefer not to be involved in the process.
    e.      This SREC revenue is considered ordinary revenue and is usually taxable to for-profit entities (in your case it would be tax exempt due to your tax exempt status).

    2.       You use the electricity generated by the solar panels in your facility powering your main panel and you also sell what your system produces to help you offset the cost of building your solar power plant.  
    a.       You are essentially creating a new solar power plant within the state of MD that will generate clean renewable solar electricity (which creates a commodity purchased by utilities called SRECs).
    b.      SRECs are sought by many utility companies in the North American Grid system because they have to meet mandates set by jurisdiction within which they operate and sell energy.
    c.       Utilities are mandated to either buy so much of this type of clean power (as a carbon offset), build their own solar power plants at their own expense or pay an alternative compliance payment (called an ACP) to their state or jurisdiction for shortfalls to their SREC goal mandated.
    d.      Solar renewable energy is a carve out that has been set apart from other renewable energy sources.   Utilities are mandated to meet specific amounts of power sold in their region to come from clean renewable solar power sources.

    e.      10 different states have steeply rising solar mandates for utility companies in their jurisdictions through 2022
                                                                  i.      It is often cheaper for utility companies to buy SREC commodities on the open SRECtrade market than to pay the compliance payment.
                                                                ii.      In MD the ACP is :
    1.        $400/SREC through 2014, currently production of renewable energy is falling short of mandated goal and is trading at $200
    2.       $350/SREC through 2017,
    3.       $200/SREC through 2018,
    4.       $150/SREC through 2020,
    5.       $100/SREC through 2022,
    6.       $ 50/SREC  through 2028.
                                                              iii.      Utility companies can invest their own funds in building clean solar power plants but they don’t because their main expense is on maintaining the grid, and if you or other customers are willing to build solar power plants it helps them and you (their customer) in two way – less electricity they have to deliver to your site, and a source for them to buy to meet their SREC mandate. 
    f.        This SREC mandate is essentially what drives the price for SRECs in multiple jurisdictions and is designed (in MD especially) with bipartisan support to help development of solar renewable power plants distributed all over the grid because it takes strain off the grid which is largely centralized from large generation plants pushing high voltage transmissions out to substations.  Your church, school, business or home becomes an interconnected solar power plant at the distribution level behind the higher voltage transmission lines and becomes a valuable asset to the state’s utility companies.  This is why the states are mandating solar carve outs and utilities are willing to pay for SRECs to help you build distributed solar power plants for them (in exchange you benefit by using that power for your own site). 
    g.       Any solar power plant that is interconnected to the grid according to code and installed by a qualified contractor is eligible to sell their solar power as SRECs (in MD).  If you did not interconnect with the grid and used it just to power your church, you would not be able to sell the power SRECs or be eligible for the lease (or tax incentives).  You would still be able to power your facilities and we could configure that for you if you wanted or needed that.  This configuration is called an off-grid solar power plant system complete with battery and generator backups for mission critical data centers (that must have continuous power where the grid is less reliable than having their own solar power plant – as in the case of many remote military facilities).  This is very rare.  Most people want the incentives available from state or federal government to sell their solar power as SRECs which are only available when you interconnect and use a qualified contractor who abides by national electrical code which is what we design, build and interconnect for people on the East Coast.

    SREC Trade Information:

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