With technology and market conditions rapidly shifting, local and state governments are looking for new ways to meet energy goals and create incentives to spur more renewable energy deployments. California, for example, is adjusting its net metering program to increase the number of energy storage projects in the state and looking to implement a community solar program that would allow greater access to clean energy for state residents. Maryland recently passed several bills that will take the state’s community solar initiative from a pilot program to an ongoing program.
As more states implement or improve programs for renewable energy, REITs and private real estate owners should pay close attention. They can reach their own sustainability goals and maximize their return on investment by understanding the new landscape for solar renewable energy incentives and preparing their facilities for solar success.
Garden State’s Solar Evolution
Let’s consider one state’s program. New Jersey is a national leader in installed solar capacity, an accomplishment made possible by aggressive renewable energy targets and early and strong incentive programs. Last November, New Jersey Governor Phil Murphy signed into law Bill A3352, which requires all warehouses of 100,000 square feet or more built on or after July 1, 2022, to be constructed solar-ready. The law, passed as part of a state goal of installing 17 gigawatts of solar power by 2035, will make it easier to engineer, develop and build solar systems and accelerate project timelines.
The warehouse legislation came less than five months after the New Jersey Board of Public Utilities—the state governing body overseeing regulated utilities such as electricity, water and natural gas—approved Successor Solar Incentive, or SuSI, a program aiming to support the development of 3,750 megawatts of new solar generation by 2026, doubling New Jersey’s solar capacity and generating approximately 10% of the state’s total electricity needs.
SuSI signaled the end of the transition period following New Jersey’s Solar Renewable Energy Certificate program. Under SREC, renewable energy credits were purchased on an open market by utilities, which increased values in the short term but created uncertainties around long-term value. After SREC, the state developed Transition Renewable Energy Certificates, a short-term, intermediary program for those going solar between 2020 and 2021.
SuSI takes a hybrid approach, with two subprograms designed to uplift the solar market in the long term and provide tailored incentives for a variety of project types.
"Building owners can avoid shouldering the burden of these increasing costs by structuring leases to have a direct power purchase agreement, with a solar project developer owning the assets."
The first is the Administratively Determined Incentive. ADI is a 15-year, fixed-price incentive for net-metered solar projects less than or equal to 5 MW and all community solar projects. ADI is applicable to most commercial real estate projects, with pricing that varies based on each project’s type and size. As with most incentive programs, the owner of the solar system registers the project in the program’s portal, where the system’s kilowatt-hour generation is tracked. The project owner is then paid an incentive each month by the program’s administrator, based on the project’s energy generation. The incentive or credit value for individual investors or REITs looking at warehouses would be about $90 per megawatt- hour, which is earmarked for large, nonresidential rooftop, carport, canopy and floating solar systems that are net-metered. Unlike TREC, in which the certificates have a 15-year fixed value, SuSI incentive amounts will be reviewed and reset every three years to better regulate the market and ensure projects are being properly incentivized under the current market circumstances.
The second subprogram is known as the Competitive Solar Incentive. CSI is for grid supply projects, those supplying power directly to a utility’s grid and net-metered commercial projects larger than 5 MW. Under this program, solar developers bid for incentive dollars in a kind of reverse auction with the lowest requested incentive pricing winning. The program’s first competitive solicitation was expected to launch by mid-2022.
Another significant change came last October. The state made community solar a permanent program. Under the pilot program, individual projects were awarded by the public utilities board and required an intensive application. Now, community solar in New Jersey will be subject to a more relaxed stakeholder process and will offer even more opportunity to achieve impactful sustainability metrics, with an additional $20 incentive per renewable credit dedicated to projects that serve low- to moderate-income households.
New Jersey isn’t the only state with an SREC program. Pennsylvania has a program, and the state is looking at adjustments that would make SRECs more attractive. Maryland has a program that’s similar to New Jersey’s, and Washington, D.C., has a very lucrative SREC market. Other states, such as Illinois, Massachusetts and New York, have incentive programs that provide fixed amounts in year one, as opposed to an annual incentive.
Structuring a Clean-Energy Installation for Success
Often, new industrial buildings don’t have any spare rooftop capacity. It’s important for building owners to get ahead of engineering and design requirements and understand how they impact a solar installation. Ensuring rooftop systems do not violate or terminate existing rooftop structure and manufacturing plan warranties is a vital detail that should not be overlooked.
Additionally, utilities often have limits on how much energy can be connected through each electric meter, which may restrict the size of solar systems. Installing individual tenant meters or increasing the size of the incoming electrical service line to the building can allow for building owners to enhance the potential solar value of their asset. This could provide the opportunity for a single asset to have multiple solar energy systems onsite and allow maximizing the asset’s potential size if owners choose to pursue a single solar system.