Solar Incentives in Maryland and How to Sell Your SRECs

Wondering exactly what incentives are available to homeowner’s who purchase their solar PV arrays here in Maryland? We know there is a lot of misleading information out there and we want to help. The purpose of this article is to provide you with a little bit of our reliable and knowledgeable expertise on solar-panel installations here in Maryland and what kind of opportunities there are for paying down the system you invested $20,000 – $50,000 in faster.

Residential Renewable Energy Tax Credit

Most are aware of the federal 30% tax rebate. This rebate was scheduled to end in 2024, however it was recently extended with the Inflation Reduction Act! This means if you plan on going solar in the near future, and have your system fully installed and paid in full by December 31st, 2032 you will receive a 30% tax credit! After 2032 the credit is reduced to 26% in 2033, then 22% in 2034, and disappears in 2035, unless Congress continues it.

In order to qualify for this federal tax credit you must have a tax burden/taxable income. If you are unable to apply the full credit amount for the tax year in which your array was installed, you’ll have the opportunity to roll the remaining value in to the next year, thanks Uncle Sam!

 

 

2.      The next option, our preference, is to actively look for a buyer. There are several sites out there for you to create an account on, these sites are typically user friendly, with “sell now” pricing clearly displayed. The credits are typically sold to an aggregator or broker, who collects the small portions of accumulated residential credits, and then sells them in bulk to the larger organizations. Please refer to:

 

• SREC Trade
• Flett Exchange

Once you have a buyer lined up, with an agreed upon price, the transaction occurs back in your PJM-Gats account. Some buyers will ask for your log-in information to complete the transaction on your behalf, others will provide detailed instructions on how to complete the transaction yourself.

  Maryland SRECs: The Good, The Bad And The Ugly

As we’re sure many of you are aware, SREC values have really taken a nose dive in the State of Maryland this past year. It’s been a major bummer for us and we know that it’s been hitting our current customers hard. While we speculate that the market is depressed for several reasons, we do expect the market to reinvigorate this winter. Additionally, there is some good news for some solar customers in Maryland who live close enough to DC to enable them to sell their SRECs in the DC marketplace. Knowing how bad the market is right now in Maryland, we are eager to share this tip and to impart our knowledge on the situation.

Why Has The Market for SRECs Dropped In Maryland?

Many people in the industry, ourselves included, have theorized that the market has been depressed for two reasons: low demand combined with high supply. In the first instance, there was an urgency to go solar in 2015, especially late 2015/early 2016, as the Federal Residential Renewable Energy Tax Credit was set to expire in December 2016. In fact, PV solar has been so popular in Maryland that 124 megawatts of PV solar was installed in 2015, double to the amount installed in 2014! While this amount of deployed solar has been great for the environment and is propelling little Maryland towards the head of the pack in efforts to combat greenhouse gas production nationally, it has depressed our market by flooding the market with more supply than is demanded.

That brings us to our next topic: demand. In Maryland, it is the Renewable Energy Portfolio Standards put forth and set into law by the Maryland General Assembly that drives the SREC market. The RPS dictates how much of our consumer market electricity must be generated from renewable sources. If a Maryland utility is unable to generate their own renewable energy, either via wind or solar, they can either pay a stiff fine or they can buy SRECs from residents and businesses that have privately invested in solar and are generating clean energy. 2016 has been what is referred to as a “compliance year.” A year in which utilities were well situated to meet their legislated goals and did not have a high demand for SRECs. In combination with an over-abundance of SRECs, the low demand has meant a depression in the market and falling prices. Essentially, the current RPS has been unable to keep up with the popularity of solar here in Maryland.

We Remain Hopeful That SRECs Will Regain Lost Value

As we reported in an earlier piece, the General Assembly in Maryland is well aware of the situation and are taking steps to stem the tide of bad SREC tidings. During the last few days of the last session, members passed revisions to the Renewable Energy Portfolio Standards contained within the Clean Energy Bill that aimed to strengthen and escalate the deployment of renewables. Unfortunately, the Governor Larry Hogan declined to sign it into law. While this an unfortunate turn of events, especially considering his prior approval of the more stringent 2016 Greenhouse Gas Reduction Bill, the Clean Energy Bill was passed by a veto-proof majority and is expected to be passed in the new year when the General Assembly reconvenes. The bill is thought to drive the demand for SRECs back up.

Is Your Home in Maryland Servicing a Feeder to DC? If So, You Are Able To Sell Your SRECs in the DC SREC Market

According to PEPCO, “in some parts of our service territory, electricity feeders may be located in Maryland, but serve residential or commercial customers in the District of Columbia. When behind-the-meter solar or other renewable energy generators are located on those feeders in Maryland, the customer is eligible for Solar Renewable Energy Credits in the District.” This may be a boon so to some Marylanders. Currently, Washington DC SRECs are selling for $480, per SREC. Check the maps below to see if you’re located on a PEPCO DC feeder line.

Can You Afford NOT To Purchase Your PV Solar Array?

In this piece, we’re going to explore the differences between leasing and purchasing solar and then dig into the returns on investment that can be realistically expected from obtaining a solar array of your very own for your home or business.

According to Consumer Reports, the vast majority of Americans who go solar (72%) are leasing their panels or are participating in a Power Purchase Agreement (PPA). With virtually no upfront costs, it is no surprise that the vast majority of Americans are choosing to go solar with a Lease/PPA. It’s predictable that the high introductory costs associated with PV solar causes a lot of people to move away from purchasing and towards the alternatives presented by leasing and PPA’s. In doing so, they lose out on the real financial benefits that accompany the purchase of their own PV solar array.

We recently heard someone say that, “purchasing a PV solar array costs as much as a car note!” It sure does, but what solar gives back is what makes this a poor comparison. When looking past the initial similarity in price tag, purchasing solar makes a great long-term investment; a car does not. You may pay the same amount for a car, but the difference is that once you’re done paying down the solar array you will be looking at a predictable and reliable source of additional income for the remaining life of the system (10-15 years). That’s 10 – 15 years of free energy!

Of course we’re being a bit prejudiced, but we really do think that investing in solar is a wise choice and something worth pursuing. 

Break It Down Now: What’s the Difference Between a Lease and a Power Purchase Agreement?

While leasing entails that you pay a set price every month for the panels on your roof, with a Power Purchase Agreement you purchase the energy generated by the array per kWh. For example, if you are leasing a 10kW solar array from a leasing company for an agreed upon price of $200/month, you will be paying the leasing company $200/month regardless of how much energy the array produces. If you had a Power Purchase Agreement for the same size system, instead of monthly installments, you would be paying an agreed upon price per watt and your cost would be based on the amount of energy that the system produces. At the end of the day, both add up to the same thing: you do not own the panels and do not have access to the considerable financial advantages associated with going solar. In our newsletter and blog, we’ve recently highlighted the incentives available to Marylanders who choose to go solar, so let’s take a brief moment to look at Solar Leasing and PPA’s and the drawbacks associated with them.

The Financial Disadvantages of Leasing and PPA’s

In a Leasing/PPA situation, the solar company essentially has ownership of the roof they install on. In common parlance it is suggested that you are leasing the panels from them, but in fact, it’s the other way around; the Leasing/PPA company is leveraging your roof as a means to turn a profit, while enticing the lessee with modest savings and no upfront costs. Why do I say this? Several reasons:

Loss of Incentives

There are several “payback” financial incentives given out by the Federal government, State government and sometimes even Local governments (refer to blog to see the incentives available to Marylanders) that are forfeited when a system is leased. This also includes the value-added benefits of solar: Solar Renewable Energy Credits (SRECs) and Net Metering.

Let’s say that you have a system that is generating 12,000 kWh a year. In this instance, you would be entitled to 12 SRECs whether you use the energy or not. Depending on market rates that’s an additional $216-$2,220 a year. Using that same scenario, if you’re generating 12,000 kWh a year, but only using 9,000 kWh a year, not only would you be paying nothing for electricity, but according to the Net Metering laws set in place, your utility would have to pay you for the additional energy you provided for the grid. Utilities in Maryland pay 7-9 cents a kWh and will pay PV solar array owners for the energy provided if it has a net worth of over $25. Additionally, the installation of a purchased PV solar system here in Maryland is a home improvement that cannot be added to your Property Tax assessment as an improvement to be taxed. Pretty awesome!

Lastly, the purchase of a system has the potential to free you from having to pay for your electricity for 25-30 years. A Lease or a PPA will never free you from that cost. Purchasing your own PV solar array is an investment that keeps on giving!

Selling a Home

Due to the long nature of Lease and PPA agreements, it is often the case that the original lessee may want to sell their home at some point during the term of the contract. This is made more difficult if the homeowner does not own their panels. When it comes to selling, the homeowner has a few options, they can Transfer the Lease/PPA to the new homeowner, prepay the agreement, have the system moved to their new home, or in the case of a PPA they can purchase the system outright (losing out on incentives already redeemed by the company you signed the PPA with).

When it comes to transferring your Lease or PPA, the homebuyer must meet certain qualifications: they must be willing to assume all of your rights and obligations under the agreed upon contract, in addition to qualifying for one of these three typical standards: having a FICO score above a particular level (usually about 650), by paying in cash for the home, or be willing to pay a $250 “credit exception fee.” Once these qualifications are met the transfer can go through to the buyer.

If the homebuyer does not want to go this direction, the homeowner has the option of Prepaying the Lease/PPA and just transferring the Use of the System. If this sounds like an awful option, do not worry, you are a completely sane person. With this option, you are essentially purchasing a solar system for your homebuyer that the homebuyer will only get to utilize for the amount of time left on the contract. During this time, they are responsible for all parts of the contract except for the monthly payment portion. This is very appealing for the homebuyer, as they essentially get a free solar system.

With moving the system you have two options. You can get the lessor to move it for you or you can go with a third party. It is wise to go with the lessor as getting a third party to move the system could potentially void any limited warranties that may be in place. This can be costly though. The price can be different depending on the installer. From the contracts we have seen, the installer requires that they perform an audit of the new property for $499. Then, if they deem the new property viable, they will perform the move for a minimum of $499. Imagine all your moving expenses, then add at least $1,000.

Although we have not seen this offered in a lease, in a PPA you have the option to purchase the system before the expiration of the contract. This can be done by calculating the amount you would have paid by using a production estimate and then multiplying that by the average kWh price you would have been subject to (times a 5% discount – maybe to make up for the fact they know they are overcharging?). Either way, if you think there is a chance you will sell your home in the next 25 years, read your lease or PPA terms and conditions very carefully…They don’t make it easy!

Additionally, by signing a lease or PPA agreement, there is a significant loss in potential home value. It is proven that adding a purchased solar system to your home increases its overall value. Then when you factor in the extra hassle of transferring or moving that leased/PPA system, you could even say you are depreciating the value of your home in a potential homebuyer’s eyes; not to mention the extra costs you could incur by having to buy out the remainder your contract.

Economy of Scale and Quantity Over Quality

Another drawback to big solar companies leasing or PPA option is that they are working within an economy of scale that does not see you as an individual. As of 2015 SolarCity boasts 190,000 customers in 16 states and have access to 190,000+ roofs from which they can deploy solar. In the lease/PPA business model, the solar array that they’re installing is an investment for the lessor and their backers, not for the lessee. While the Leasing/PPA scenario may be cheaper at the outset, the long term savings and benefits are modest.

Because they’re working within a much larger economy-of-scale Leasing/PPA companies do not need to spend as much money on equipment, nor do they need to confine themselves as strictly to the optimally-oriented roofs. We often have customers ask us why we do not install on northern facing roofs. In short, they do not produce as well since they face away from the most direct sunlight. Why would you pay full price for a panel that will, at best, only produce 50% – 75% of its maximum production? This is different for lease/PPA companies who are getting fixed payments from their customers, plus the added incentives, Net Metering benefits and SRECs. For lease/PPA companies the best bang for the buck is quantity over quality.

Figure 1: The figure above is determined using the rate of inflation for electricity in the US since 2000 and the current cost of electricity for residences in Maryland. The Lease and PPA numbers are from ACTUAL contracts from the largest Leasing/PPA company in the U.S. The Purchase numbers come from a system designed to closely mirror the size of the lease system utilized by the aforementioned Leasing/PPA company’s contract. The PPA system size is irrelevant as PPA costs are determined by power produced and not the overall size of the system. When placed at the optimal tilt and direction, each of these system sizes will cover all electrical usage of the average Maryland resident. The purchase numbers take into account all incentives that would be received (Federal ITC, Maryland Grant, SRECs, and Net Metering Benefits). The purchase numbers DO NOT take into account the amount of value a homeowner has added to their home. The lease and PPA take into account NO benefits as leases and PPA’s forfeit such incentives to the lessor.

Overall Cost Benefits of Purchasing PV Solar

When comparing the yearly costs for solar, purchasing is the only way to go. As seen in Figure 1, the yearly cost for purchasing your system stays consistent for the entire duration of the payback (assuming you took out a loan; if you paid completely out of pocket, you would expect to see no yearly costs) while the yearly cost of a Lease/PPA only rises by the predetermined escalation rate. While designed to ensure that you would not be paying more for your solar-generated electricity, this escalation rate may not actually result in lower payments. It is quite possible that you could be paying more for the power from the array than you would have paid staying on the utility after as little as ten years. This is due to the fact that the yearly PPA kWh price may rise faster than the prices per kWh that the utility could be offering. This is stated and built into the contract- we call this the “kicker.” The main reason the PPA company includes this inflated escalation rate is to maintain a steady, consistent revenue stream. Since the value of the SRECs generated by the system you are leasing steadily decrease in price, they must increase the amount they get from you per kWh to compensate for the loss.

At the end of the lease or PPA term, you will have spent as much money on your system as you would have with a purchased system. When you include the amount you would have gotten back in incentives, you actually end up paying substantially more for your solar system, as shown in Figure 2.

Figure 2: The graph above compares the total amount of money spent on a SolarCity PPA, SolarCity Lease, and MSSI Purchase both before and after incentives. All Lease and PPA numbers are from a standard 20 year contract.

Those are just upfront costs and totals!! When you begin to compare savings, you begin to wonder why anyone ever chooses a Lease or PPA Agreement!

The Long Term Gains Associated with Purchasing PV Solar

Although a PPA/Lease is initially a cheaper option, when it comes to the long term gains, purchasing is, without a doubt, the most financially beneficial way to go solar. When you lease or sign a PPA, you are paying continuously for the full length of the contract, which is conventionally 20 years. With a purchased system, you are expected to be receiving energy for 25-30 years. This is an extra 5-10 years of solar energy and if your system paid for itself (through the avoided electric purchase from the utility and incentives) in 10-12 years (the average for purchase system paybacks), you would be seeing 15-18 years of free energy. This can catapult your savings! Not only are you no longer paying for your system, you are getting free energy, money for your SRECs, you have increased the value of your home, and you are potentially getting paid by your utility! In figure 3 you can see this in action. Initially, with the Lease and PPA, you are saving more. Then around year 8-10 the purchase option surpasses the Lease and PPA in savings. Once you hit that 12-year mark (on average), it is off to the savings races!

Figure 3: The amount of savings you would experience with the same 3 solar options used previously.

Figure 4: The difference in savings between purchasing and the other two solar options.

Figure 4 illustrates in more detail the money you could lose out on by not choosing to purchase your system. By the end of your system’s life, the average homeowner in Maryland, with a system built to cover their energy needs, would see tens of thousands of dollars in revenue that they would never acquire had they gone with a Lease or PPA Agreement. When you look at the long-term advantages, the option on whether to purchase your system or not becomes a no-brainer.

At the End of the Day…

If going solar is something you have been considering, you should now know that Leasing or signing a PPA Agreement is not an exemplary method to leverage your dollars. It makes it difficult to sell your home, you forfeit all financial benefits, and in the end you miss out on at least 5 figures of savings. No matter which path you choose, we urge you to thoroughly assess your contract and Terms & Conditions.

        PACE Funding Now Available in      Maryland for Commercial Solar Projects!

PACE Funding is Now Available for Some Counties in Maryland

We are pleased to announce the emergence of Property Assessed Clean Energy (PACE) funding for Commercial Solar Projects here in Maryland. Currently only available in Montgomery, Howard, Anne Arundel and Queen Anne’s Counties, PACE-funding opportunities are expected to spread into neighboring counties within the next few years here in Maryland.

What Is PACE?

As stated above, PACE stands for Property Assessed Clean Energy, and is a policy that gives business owners an affordable way to mitigate the high upfront costs associated with larger-scale commercial clean energy projects by attaching the amortization of a loan to your yearly property tax payments. Huh?

Here’s the nuts and bolts: in partnership with the State of Maryland, Greenworks Lending provides loans to commercial businesses wishing to invest in clean energy and/or efficiency upgrades. The loan is then paid back through your property taxes over the course of 20 years. The loan is added as a lien to your property taxes for the life of the loan. It does not raise your property taxes by assessing the added value of the solar, but simply adds the loan payments to your yearly property taxes.

In order to apply for PACE funding the borrower in question must be the private owner (i.e. not the government) of the property. The borrower cannot have gone through bankruptcy. The loan amount can be up to 20-30% of assessed value of the building and land of the property.

What’s So Great About PACE?

PACE makes is super-easy to take out a loan, and it gives businesses first-year cash flow. How?

In the first place, PACE allows businesses to lower their overhead immediately by either eliminating or significantly reducing their utility bills. Additionally, with PACE the business owner is able to utilize the Federal 30% Tax Credit, any local incentives, Net Metering, the Maryland Energy Administration Grant, MACRS and the production of SRECs.

Through PACE, Greenworks Lending offers “sculpted ammortization” which means that the bulk of your loan will be paid back within the first 6 years of the array having been installed. For instance, if a borrower takes out $100,000 in PACE financing, during the first year, the borrower would receive $30,000 back from the Federal government on top of being able to depreciate 50% using MACRS. After taxes the borrower will get back an additional $50,000 for having invested in solar. During the first year, the business will pay back a larger portion of their loan. Because of the incentives coming back to the borrower within the first 5-years, the loan payments at the beginning are higher and allow the borrower to virtually pay back the bulk of the loan within the first 6-years. This makes the remaining payments on the loan super-affordable. Pretty awesome!

MSSI is a Registered PACE Contractor

Here at MSSI we’re proud to be a registered PACE Contractor for the State Of Maryland. We can help you look at solar for your business and whether PACE will work for you. PACE really creates an affordable alternative to leasing and power purchase agreements and allow businesses to leverage solar power as an investment and create tax-free value for their properties. Really, its a win-win.

  2016 Maryland Greenhouse Gas Bill