Renewable Energy Projects After the Expiration of the 1603 Grant

There are a variety of state and federal incentives available to companies seeking to develop renewable energy projects in Massachusetts. Several of these incentives have changed over the years. Specifically and most notably is the recent expiration of the Federal 1603 treasury grant (the Grant) in lieu of Investment Tax Credit (ITC). The Grant allowed for the U.S. Department of the Treasury to appropriate funds to qualified applicants installing renewable energy facilities. The Grant was generally equal to 30 percent of the cost of a project and was paid within 60 days of the project becoming operational.  Now that the Grant is gone, the question is, are renewable energy projects financially viable?

The answer is yes. There are federal and state incentives available to renewable energy developers, and the cost of solar photovoltaic (PV) modules has decreased significantly over the past year. As a result, the continuing incentives and cost savings make developing solar energy projects in Massachusetts financially viable. 

The ITC remains in place in an amount generally equivalent to 30 percent of the eligible cost of the renewable energy facility. However, because the ITC is a tax credit, there are more eligibility limitations associated with it than there were with the Grant. These limitations reduce the pool of eligible recipients primarily to corporations with significant tax liability. Nevertheless, the good news is that (a) the ITC is available to applicants until January 1, 2017 (after which it will be reduced to a ten percent credit), and (b) we continue to work with companies (third parties) willing and able to invest in renewable energy in Massachusetts. 

These third-party companies continue to bet on solar in Massachusetts because: 

  • There is currently a federal 50 percent bonus depreciation incentive for renewable energy facilities. The bonus depreciation, which expires at the end of 2012, allows for a developer to depreciate 50 percent of the value of the project in the year that it is placed in service. In 2013, this incentive will expire and the developer will need to rely on a Modified Accelerated Cost Recovery System (MACRS) schedule. Therefore, the facility must be placed in service in 2012 to take advantage of the bonus depreciation.
  • The Massachusetts solar renewable energy certificate (SREC) program is a production and market-based incentive. One SREC is equal to 1MWh of production of solar renewable energy.Currently, the supply of SRECs is low, as there are not yet a large number of solar PV facilities producing SRECs in the Commonwealth. Conversely, the demand by Massachusetts investor owned electricity utility companies (IOUs) to buy SRECs is high because of their obligation to fulfill their solar Renewable Energy Portfolio Standard (RPS) requirements. While the demand stays high (in January 2012, Q3 2011 SRECs traded at $540/MWh), the trading prices for SRECs will remain elevated.   
  • Massachusetts net metering regulations (net metering) require IOUs to credit the accounts of their customers (at retail rates) whenever a customer’s eligible renewable energy facility generates more electricity than is being consumed. Net metering also allows for customers to either realize the value of net metering credits on their utility bill, or allocate the credit funds to as many other customers as they want within the same load zone. The IOUs are obligated to account for these credits to up to three percent of the IOU’s historic peak load. 
  • Finally, as a result of a number of feed-in tariffs in major European countries that expired over the past year, there has been a reduction of solar PV installation activity, resulting in a surplus of PV modules. Consequently, PV module pricing has decreased by more than 40 percent over the past year. However, with accusations of trade infractions by foreign PV module companies, PV module pricing may fluctuate in the near future.  

A renewable energy project can be financially viable during a post-Grant era, but it will require a comprehensive understanding of ownership structures, the tax equity players looking to invest in the market, and the incentives currently available in Massachusetts.

If you have questions about any of the information presented here, or want to learn more about renewable energy incentives, please contact Craig M. Tateronis. You can reach Craig at 617 456 8021 or ctateronis@princelobel.com.