Homeowners want to go green and place home solar panels on their roofs. The nation's capital, where SolarTown calls home, is ideal for rooftop applications of solar energy. But there are some challenges, as many homeowners are simply not apt to plunk down $30,000 for a solar energy system and wait years for the payback. Incentives have played a vital role in supporting the industry, but you want a stable legislative regime so that you can accurately predict what the payback period will be. The downturn in the market for solar renewable credits in Washington, DC serves as a mighty disincentive for those who want to go solar in Washington DC-and serves as a reminder that the incentive structure is still far from stable.
The federal government has done its bit to create a stable incentive structure through 2016, by providing tax credits. But the state programs seem to have fits and starts. In tight budgetary times, money allocated for solar energy programs dries up. One incentive that has been increasingly gaining ground and playing a role in providing incentives for developers to earn a fair return are solar renewable energy credits (SRECs). These SRECs allow utilities to meet their quotas for renewable energy portfolios mandated by the states (and the District of Columbia, which as we are too often reminded, is not a state).
Homeowners earn SRECs based on how much solar energy they produce from their solar arrays, and then they can sell their SRECs on the spot market or to aggregators. One would expect that the market over time would stabilize, but then think again. A stable SREC market is considered an important lever for the growth of the market.
So far so good, but what happens when the SRECs market is not stable. SRECs in the District of Columbia have fallen as much as 50-70%, according to one aggregator quoted on the local national public radio affiliate, WAMU. As reported on WAMU, "Now here's the problem. In D.C., the price of greenness -- that is, individual SRECs -- has crashed." According to the report, the major contributing factor is that DC doesn't require electricity suppliers to buy local: "Unlike most of the other states with portfolio standards, D.C. has no local requirement for SRECs." The energy suppliers can purchase SRECs from other states.
According to the report, "Now, D.C.'s solar constituency wants the D.C. council to plug that hole in the SREC market by walling in the market -- and increasing the amount of solar energy electricity suppliers are required to purchase. They argue this would effectively raise the price of 'greenness'. At least four states have done this already."
Andrew Gilligan, who works for an aggregator, describes in a blog post on Renewable Energy World, the effect on the markets: "In states like Pennsylvania and D.C., customers who entered into long-term contracts several months ago would be receiving higher prices per SREC than those available on today's spot market because the market in those states became oversubscribed." In other words, if you were holding onto SRECs, like many aggregators have been, then you have taken a bath as the SREC market has crashed in the last few months. And this crash in DC SREC market may portend similar problems in the SREC market of other states, which is not good for the aggregators, not good for the homeowners, and not good for the long-term health of the solar energy market.