Commercial Solar Step 2: How to Use Renewables Incentive Programs to Fast-Track the Solar Interconnection Process
This is the second post of a series written by engineers and technical professionals from REC Solar | Duke Energy Renewables, one of the top providers of renewable energy solutions in the US. See the full stories as they roll out here.
As we write this, we are impacted by the novel coronavirus and COVID-19, sheltering in place and working remotely. As the pandemic continues to transform daily lives and business operations, much has been written about the effect on supply chains and manufacturers. That includes the supply of renewable energy equipment and technologies, like those used in solar PV and energy storage systems.
However, as keeping distributed energy generation and renewables running smoothly are essential to critical infrastructure, we are on the job. Yet it has us thinking about what may stall planned build-out of new projects.
Even before COVID-19, the grid interconnection process slowed photovoltaic (PV) installations. Managing interconnection has always been essential to avoid project delays. Understanding and securing financial incentives relationship to government programs and utility rate tariffs is one of the most complex aspects of interconnection.
Financial incentives and interconnection: don’t let either slow deployments
Around the nation, there is a widening pipeline of mechanically complete projects that are sitting idle per data from the Solar Industries Association (SEIA). Massachusetts, for example, had its lowest quarter in Q3 2019 of non-residential PV interconnected since 2011.
So it got us thinking. What can we do to further help avoid (as much as possible) being part of long interconnection queues?
One of the most straightforward ways to not delay vital grid interconnection is to start with the various financial incentives. Which applications are due during interconnection and what mistakes or ill-timed applications can delay the interconnection process?
In order to benefit from solar incentives, programs and rebates, the applications must be accurate, complete and submitted as part of the interconnection processes. Your solar and renewables contractor should know these answers.
Financial incentives support sunny forecast for solar
At the US federal level, the Solar Investment Tax Credit (ITC), is in the process of phasing out or being revised.
Where things get more complicated is at the state and local level. Financial incentives by state and local utility vary widely and frequently change. For example, recent data from the National Renewable Energy Laboratory (NREL) highlights the diversity, and resulting complexity, of changing incentives, which can include:
- Solar renewable energy certificates or SRECs
SRECs are available from at least 18 states and Washington, D.C. that have Renewable Portfolio Standard (RPS) or “solar carve-out” provisions for its businesses and residents. SRECs can be bought and sold in spot markets or long-term sales, helping to offset the proactive investment to help shift us faster to sustainable energy infrastructures.
- State and Local tax credits
Example: Solar PV systems are exempt from property taxes in at least 26 states and Washington, D.C. See a more robust list in this article on incentives.
- Credit sharing
Renewable Energy Self-Generation Bill Credit Transfer (RES-BCT) allows local governments and universities to share generation credits from a system located on one government-owned property with billing accounts at other government owned properties. The system size limit under RES-BCT is 5 MW. Bill credits are applied at the generation-only portion of a customer’s retail rate. RES-BCT allows local governments and universities to share generation credits from a system located on one government-owned property with billing accounts at other government owned properties. The size limit for systems using RES-BCT is 5 MW.
- Production-based incentives
By far the most broadly adopted and arguably most effective means to incentivize personal and corporate investment in renewables has been net energy metering (NEM) or net metering.
Net Energy Metering (NEM) and Impact on Grid Interconnection
Net Energy Metering or NEM programs are the most widely accessible utility programs, now offered in various forms across 39 states.
NEM programs enable utility customers with solar generation to earn billing credit for excess electricity they produce over what they use. At the end of a customer’s 12-month billing period, any surplus electricity generated is “trued-up” at a fair market value (net surplus compensation), which is based on a rolling average of the market rate for energy.
In California, where more than 90% of customer-owned solar sites qualify for NEM credits, market rates hover between $0.02 to $0.03 per kWh. There are permutations to California NEM programs and how they are apportioned, including:
- Virtual Net Energy Metering (VNEM)
VNEM is a California utility tariff available to multi-tenant properties. It enables the property owner to allocate a solar PV system’s benefits to tenants across multiple units. Otherwise, this functions the same as the NEM program.
- NEM aggregation (NEMA)
Allows eligible customers to aggregate the electrical load from multiple meters, and NEM credits can be shared among all the property that is attached, adjacent or contiguous to the generation facility. In order to use NEMA, the customer must be the sole owner, lessee or renter of the properties.
- NEM Fuel Cell (NEMFC)
Fuel cells using non-renewable fuels and meeting greenhouse gas (GHG) emissions standards are eligible for the NEM Fuel Cell Program. NEMFC credits are applied at the generation portion of the retail rate.
There is a national Database of State Incentive Programs for Renewables and Efficiency from NC Clean Energy searchable by state or zip code.
Rules and Restrictions Impacting Incentive Programs
The Public Utilities Commissions for each state establish and monitor implementation of programs like NEM. Within that purview, there will be multiple rules that govern and may restrict which organizations benefit from these programs.
For example, in California, NEM program participation is restricted to a single ratepayer or customer, given the longstanding “over the fence rule” restricting customers from selling power to their neighbors. To better understand the over the fence rule, check out Public Utilities Code Section 218 and Section 2868 provide specific guidance.
It’s important to note that a solar PV system cannot have multiple tariffs and credits applied to the same generation source.
Two solar energy generation projects, for instance, owned by the same customer in El Dorado County, California are tapping two different programs: one NEM and one RES-BCT. Under a lease agreement, a ground-mount solar farm at the county sheriff’s’ facility will use RES-BCT, while the carport PV array going live in 2020 will use NEM. The overall power generated is expected to offset electrical use at public safety facilities and other county buildings, providing a total $3.2 million net benefit over 25 years. The incentive programs are a key part of that net benefit.
Qualifying for Net Energy Metering
As with any rebate or incentive program, there are fine details to keep in mind. For example, here are five important tips:
- Qualifying solar PV systems must apply for the NEM program.
You or your project developer must apply, and your application must be accepted by your utility prior to enrolling or gaining the credit.
- The NEM application process is much more than a form.
Your facility must meet all the requirements. The utility will not negotiate — either your system meets the requirements spelled out in the tariff or it does not. These requirements must be met before you receive permission to operate (PTO) and successfully interconnect with your electric utility grid.
- Just being eligible will not matter if your utility has hit its capacity for that credit.
For example, RES-BCT is available on a first-come, first-serve basis. Once the utility reaches its cap, the program will be closed to additional participants. Each utility has a set capacity limit. So it is important before making calculations for cost/payback of generation investments that you understand how much capacity the utility serving your project still has available within the program.
- How long it takes for utility approval is not something you can control, but you can plan for it.
While neither you nor your developer can change the local utility’s review process or interconnection queue, you can learn what the typical turnaround time is in your area and work with a vendor familiar with your utility and their unique processes.
- Every program has complex rules that can vary by state.
Looking at installing solar or solar plus battery energy storage in sites that cross multiple states? Then it is very important to work with vendors that are licensed and experienced working in and across multiple jurisdictions, utilities and state lines. Consider that in the top 10 states for solar generation installations, there are more than 998 policies and incentive programs available. Experience navigating such complexities will speed projects significantly.
What to do to make interconnection easy?
Knowledge of available financial incentives and utility programs, understanding if you qualify, how to apply and how to navigate each location’s unique rules and regulations is crucial. At the most basic levels, here is the homework to do:
- Upfront analysis and selection
Analyze the available incentives and availability before launching or during the project planning and analysis phases. These programs can substantially impact your projects’ internal rate of return (IRR), both on the cost and effort side as well as cost savings.
- Know your timeline
Even for experts, it’s hard to stay on top of policy changes and program details. Verify your vendor’s depth of expertise in incentive programs as well as how much of your own effort is required to successfully navigate your utility’s application process, program restrictions and issues that may stall your interconnection.
- Clear and regular communications
Expect that your developer keeps you looped in on communications pertaining to your utility account. You don’t need to drive these conversations, but you do need to be informed.
- Dedicated utility focus
Renewable energy project developers with dedicated interconnection teams will smooth the process in so many ways. Verify resource depth, knowledge, experience and electric utility relationships before moving forward with any vendor.
- What else?
Look at what may be changing over the next decade or two, changes that will potentially impact future generation needs. For example, transitioning to electric vehicle fleets or offering EV charging to employees, customers and communities will be separate interconnection processes. Such an addition will impact peak demand and general energy load changes. Significant increases in load may require upgrades to utility grid equipment and transmission. Understanding these costs or requirements will help avoid additional project delays and unexpected expenses.