1. Session 23 (R) Utility Scale Solar Development Solar Renewable Energy Credits (SRECs) April 06, 2014

2. Learning Outcomes An examination of the Solar Renewable Energy Credit (SREC) situation 2

3. Value to participants Another look at the importance of non-technical components of utility scale projects 3

4. Grid-Connected Utility-Scale PV Systems Growth at the utility-scale has several advantageous features 1. At project size larger than 5MW, the power is almost exclusively sold to utilities, since commercial customers do not have the load to support 5MW or more. 2. In order for solar projects to access relatively low-cost capital, PPA contracts must be signed with a counterparty that has an excellent credit rating. Utilities are generally considered excellent counterparties due to their bonding capability and regulatory mission to provide power to their customers. 3. Environmental permitting, grid integration, and site control can often be less burdensome at the utility-scale. 4. Companies are also considering development at brownfield sites, including former mining operations and other disturbed lands, which can further reduce environmental oversight of project development. 4

5. Grid-Connected Utility-Scale PV Systems Factors facilitating utility-scale solar development 1.The steadily dropping costs of solar modules and other PV system components 2.Federal and state policies that provide crucial support to the solar industry in the form of tax incentives, grants, loan guarantees, renewable energy standards, and production incentives 5

6. Grid-Connected Utility-Scale PV Systems Federal Economic Recovery Policies 1. The Energy Policy Act of 2005 increased the investment tax credit (ITC) for solar energy systems from 10% to 30% of eligible solar property. 2. The Emergency Economic Stabilization Act of 2008 (EESA) extended the 30% ITC for solar and other qualifying renewable technologies through December 31, 2016. EESA expanded the ITC use by making it available to public utilities (investor-owned utilities). 3. The American Recovery and Reinvestment Act (ARRA), passed in February 2009, further expanded the availability and usability of various tax credits, depreciation opportunities, loan guarantees, and other mechanisms designed to encourage private investment in renewable energy and energy efficiency projects. Specifically, the Recovery Act enabled ITC-eligible projects to receive a grant of equivalent value in lieu of the tax credit. 4. The Consolidated Appropriations Act of 2015 extended the ITC at 30% through 2019, ramping down incrementally through 2021, and to remain at 10 percent permanently beginning in 2022 6

7. Grid-Connected Utility-Scale PV Systems 7 Greentech Media

8. Grid-Connected Utility-Scale PV Systems Clean Energy Loan Guarantee Program 1.Section 1703: Section 1703 of Title XVII (from the Energy Policy Act of 2005) authorizes DOE to guarantee loans for projects that employ new or significantly improved energy technologies and avoid, reduce, or sequester air pollutants or greenhouse gases. 2.Section 1705: Section 1705 of Title XVII, added by the Recovery Act, authorizes DOE to guarantee loans for certain clean energy projects that commenced construction on or before September 30, 2011. The program was suspended after that date. 8

9. Grid-Connected Utility-Scale PV Systems 9 Section 1705 loan guarantees

10. Grid-Connected Utility-Scale PV Systems 10 Section 1705 loan guarantees

11. Grid-Connected Utility-Scale PV Systems Clean Energy Loan Guarantee Program 1. Loan guarantees are awarded in the form of credit subsidies. 2. A credit subsidy is a similar structure to a loan loss reserve, in which banks set aside money to cover defaults in their loan portfolio. 3. Likewise, for each loan guarantee award, the federal government sets aside a sum (the credit subsidy) in the project’s name, which acts as insurance in the case of project failure. 11

12. Grid-Connected Utility-Scale PV Systems Clean Energy Loan Guarantee Program Under this solicitation, DOE required that developers also partner with a private lender. DOE created the Financial Institution Partnership Program (FIPP), which specifies debt cannot exceed 80% of total capital. FIPP was designed for simple project finance structures without complex tax equity arrangements. 12

13. Grid-Connected Utility-Scale PV Systems Renewable Portfolio Standard Policies Currently, 29 states, D.C., and Puerto Rico have established mandatory RPS policies and eight more have established non-binding renewable portfolio goals (RPGs). Mandatory state RPS policies have been particularly successful at advancing new renewable energy development in a number of states. Renewable energy goals are non- binding targets either established by legislation or executive order. 13

14. Grid-Connected Utility-Scale PV Systems 14

15. Grid-Connected Utility-Scale PV Systems State and Regional Renewable Energy Certificate (REC) Markets 15 Renewable Energy Credits Also called Tradable Renewable Certificates (TRCs) or "green tags" Created when a renewable energy facility generates electricity Each unique certificate represents all of the environmental attributes or benefits of a specific quantity of renewable generation

16. Grid-Connected Utility-Scale PV Systems Solar REC Resources energysage https://www.energysage.com srectrade http://www.srectrade.com solsystems http://www.solsystems.com wikipedia https://en.wikipedia.org/wiki/Solar_Renewable_Energy _Certificate 16

17. Grid-Connected Utility-Scale PV Systems Renewable Energy Certificates (RECs) and Solar RECs To meet the requirements of RPS policies, electricity providers must obtain renewable energy certificates (RECs), which serve as proof that they have either produced renewable electricity themselves or paid someone else who is producing renewable electricity for the right to “claim” the electricity As part of their RPS, some states also specify what is known as a solar carve-out: a minimum percentage of electricity sales that come specifically from solar power systems. In states with solar carve-outs, owners of solar modules receive one SREC for every megawatt hour (MWh) of electricity their modules produce. These SRECs work the same as RECs, but only count towards solar electricity specifically 17

18. Grid-Connected Utility-Scale PV Systems Renewable Energy Certificates (RECs) and Solar RECs If a utility fails to meet a state’s RPS requirements by securing the necessary number of RECs, it must pay a penalty called an Alternative Compliance Payment (ACP). Generally, this is accomplished by establishing a higher ACP for solar energy than for other technologies so that energy suppliers are financially incentivized to purchase solar energy specifically. SRECs are often more valuable because of this higher ACP. 18

19. Grid-Connected Utility-Scale PV Systems Renewable Energy Certificates (RECs) and Solar RECs A typical size for a home solar PV system is five kilowatts (kW), which will produce about five to eight megawatt hours (MWh) of electricity per year. This means the typical homeowner who installs rooftop solar will earn about five to eight SRECs per year Solar module owners can sell their SRECs to utilities that have to meet their solar carve-out requirements by buying SRECs. The amount of money a solar module owner will receive for her SREC varies by state, and can range from under $50 to over $300 per SREC. 19

20. Grid-Connected Utility-Scale PV Systems Renewable Energy Certificates (RECs) and Solar RECs RECS and SRECs are electronic certificates that receive a unique ID number. RECs and SRECs are monitored, counted, and stored on attribute tracking platforms such as PJM-GATS or NEPOOL- GIS (for Mass) The value of an SREC varies based on a number of factors. Some of the major factors include: o Value of Alternative Compliance Payment (ACP) o The number of qualified generators producing SRECs (SREC Supply) o The legislated demand for SRECs (SREC Demand) 20

21. Grid-Connected Utility-Scale PV Systems Renewable Energy Certificates (RECs) and Solar RECs https://enlighten.enphaseenergy.com/systems/406904/graph s?range=last7Days&view=power_production 21

22. Grid-Connected Utility-Scale PV Systems Solar RECs 22

23. Grid-Connected Utility-Scale PV Systems Value of Solar RECs for the residential PV system https://www.energysage.com/solar/cost- benefit/savings-with-solar 23

24. Grid-Connected Utility-Scale PV Systems Solar RECs - Arizona Arizona's renewable portfolio standard (RPS) seeks to meet a 15% renewables goal by 2025. Of this target, 30% is to come from distributed generation facilities, which is broken up into 50% residential systems and 50% non-residential, non-utility systems. The RPS includes solar, but does not have a specific solar carve-out Arizona's larger investor owned utilities once provided up front and production based incentives for residential and non- residential solar systems. These incentives tied customers into long term REC agreements The current incentive structure keeps Arizona from having a viable SREC market There is currently no viable SREC market in Arizona as the state Renewable Energy Standard does not have a solar carve- out. The Renewable Energy Standard in Arizona requires the utilities to acquire renewable energy bundled with RECs. 24

25. Grid-Connected Utility-Scale PV Systems Arizona Solar RECs http://www.srectrade.com/blog/srec- markets/arizona/arizona-solar-incentives 25