Although solar panels continue to fall in price, federal and state incentives are still very important to the financial success of a solar project. In this post, we review the status of current and future incentives for solar projects in Pennsylvania.
State Level Incentives and Programs
Unlike its neighbors, Pennsylvania does not currently offer incentives or rebate programs. However, in the past, the commonwealth has periodically launched programs like the Solar Energy Program, which offered grants of up to 50 percent of solar project costs.
Pennsylvania does have various solar-advantaged programs that make it an attractive place to build commercial solar projects. The commonwealth’s net metering laws and its alternative energy portfolio standards create an environment for solar projects to thrive. Let’s look at these initiatives.
Net Metering
Pennsylvania is one of 38 states in the United States that has a net-metering program. According to Solar Energy Industries Association (SEIA), net metering allows customers who generate electricity from their solar panels to sell excess electricity back to the grid. Perhaps just as importantly, net metering is the mechanism by which excess electricity generation is credited to the owner of the solar array and is used to offset electricity consumption during other non-generating periods. For example, a business’ solar project may generate more electricity than the user consumes during daytime hours. This “excess generation” is logged and credited to the account. Then at night, when the project generates little to no power, the meter will draw from the excess daytime power credits first. In addition to daily variations, solar power generation can also vary across the calendar year. In Pennsylvania, net metering credit cycles last a full utility fiscal year.
Here are some FAQs on the Pennsylvania-specific net-metering program:
- Who qualifies for net metering? – All grid-connected solar projects can qualify for net metering.
- Are there any limits to net metering? – Residential projects must have an Alternate Current (AC) rating of at most 50 kilowatts (kW). Non-residential projects can have a maximum AC rating of three megawatts (MW) although in certain unique situations where they can be as large as five MW.
- Can an electric company deny a net metering request? – The Public Utility Commission (PUC) requires all investor-owned utility companies to offer net metering. The companies can deny a net metering application that does not comply with the utility’s interconnection standards. In Pennsylvania, most rural electric cooperatives (RECs) also offer solar net metering; although, they are not required to do so.
- Can third-party owned systems be net metered? – A growing number of solar projects in Pennsylvania are completed under funding arrangements where a third-party entity owns and operates the solar panels for the benefit of a host customer. In 2012, the PUC issued a ruling to allow net metering for third-party owned solar energy systems. However, third-party owned systems must be sized at no more than 110 percent of the host customer’s energy usage over the previous 12 months. If you’d like to learn more about third-party solar funding options, click here to read our blog post on the topic.
- What if I own multiple buildings in different locations? – In Pennsylvania, the PUC permits virtual meter aggregation for properties owned and/or operated by the same individual or entity within a two-mile radius of a host meter. In simple terms, the net metering rules allow the excess solar energy generation from one solar-panel system to be virtually applied to other utility meter accounts owned by the utility customer within two air miles.
SRECS and the Alternative Energy Portfolio Standards (AEPS)
Currently, electricity suppliers that serve Pennsylvania are required to generate 18 percent of their electricity from alternative energy sources. The AEPS mandates that of the 18 percent of alternative energy, 8 percent come from Tier 1 energy sources and 10 percent come from Tier 2 energy sources. Tier 1 sources include wind, solar, biomass, and geothermal energy. Solar energy has a specific carveout of 0.5 percent of the 8 percent Tier 1 allocation.
In Pennsylvania, all Tier 1 and Tier 2 resources must be generated in the state to qualify. In the solar industry, this rule is commonly known as the “solar border.”
This requirement created the alternative energy credit (AEC) market that supports solar renewable energy credits (SREC). A solar energy system earns one SREC for every megawatt hour (MWh), or 1,000 kilowatt hours (kWh), of renewable energy generation. Utilities and third-party electric suppliers in Pennsylvania can purchase these credits to satisfy their requirements. When an electric supplier fails to meet the alternative energy requirement, they are charged a compliance fee called the alternative compliance penalty (ACP), which is currently twice the average REC value for the fiscal year. This penalty gives suppliers a strong incentive to purchase RECs.
To illustrate this scenario, let’s assume a company pays $0.06 per kWh (or $60 per MWh) for electric supply. Currently, SRECs in Pennsylvania range in value between $30 and $40 per SREC. In other words, the value of SRECs is between $30 and $40 per MWh. If that company installs a solar energy system that offsets 100 percent of its annual electricity usage, based on the current SREC prices, SREC revenues could offset half the cost of the entity’s electricity supply costs. You can see how important SREC values can be.
Future Directions
Although the existing solar carveout of AEPS has spurred the growth of solar installations in Pennsylvania, it is widely believed that a more aggressive carveout is necessary to spur further growth in the state. Toward this end, recent legislative activity has attempted to increase the number of solar energy projects. To expand the current AEPS, Senate Bill 600 (SB 600), introduced in 2019, included the following measures:
- Expand the AEPS Tier I requirement from 8 percent to 30 percent by 2030, with a 10 percent carveout for solar. Of the 10 percent, the proposed bill further specifies that 7.5 percent be generated from in-state grid-scale (or utility-scale) solar and 2.5 percent from in-state distributed generation sources.
- The bill directs the PUC to study the benefits that an energy storage program can offer the state.
- The bill introduces a fixed ACP payment that will feature a price floor for SRECs.
- The bill requires utilities to enter long-term contracts for renewable energy. This measure is seen as specifically benefiting utility-scale projects.
- The bill extends the lifetime of a SREC from 3 years to 15 years.
Currently, SB 600 sponsorship is heavily partisan. Although the job creation potential may expand its support, there isn’t a clear indication that SB 600, or several similar bills, will pass. It is more likely that several of the more popular provisions in the bill will find their way into other senate bills for passage. In any event, the introduction of SB 600 has caused a stir in the solar industry in the commonwealth. Many developers see Pennsylvania as the next solar frontier. This makes sense as currently only three percent of the commonwealth’s energy comes from renewable sources.
Obviously, there are other factors beyond incentives that determine if a solar project makes sense for your business. For some companies, the timing may be right to invest in solar. Others might need additional initiatives or incentives before it makes sense. To learn if solar is the right move for your business, we offer a free feasibility report to commercial and industrial entities that are considering a solar project.
To find out if you qualify for a solar project in Pennsylvania, contact us for a no-cost consultation.