Many Existing Solar Incentives Will Either Expire or be Significantly Reduced by Year End

March 28, 2011

Currently, there are numerous incentives
available to companies seeking to develop solar photovoltaic (PV) projects in Massachusetts. These
include the Federal Investment Tax Credit (ITC), the Federal treasury grant in
lieu of ITC (the Cash Grant), the 100% bonus depreciation, the Massachusetts
solar renewable energy certificate (SREC) market, and the Massachusetts net
metering regulations (net metering). To ensure that your solar development
project qualifies for all of the currently available incentives, it should be
fully committed and moving forward by May 15, 2011.

For developers electing the Cash Grant, the
U.S. Department of the Treasury will appropriate funds (30% of the project
value) within 60 days of a project becoming operational. Currently, the Cash
Grant is set to expire on December 31, 2011. We do not currently know whether
the federal government will extend the Cash Grant into 2012, and they will
likely wait until December 2011 to make that decision.

While the ITC will not expire until December
31, 2016, many developers do not have the tax liability to allow them to
benefit from it. Therefore, the expiration of the Cash Grant will have an
enormous impact on the capacity of most developers and potential system owners
to finance a PV project.

The 100% bonus depreciation, enacted as part
of the Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Act) and expiring
at the end of 2011, allows for a developer to depreciate 100% of the value of
the project the year that it is placed in service. In 2012, this incentive will
be reduced to a 50% bonus depreciation, with a Modified Accelerated Cost
Recovery System (MACRS) schedule thereafter. Preliminary financial modeling
indicates that after 2011, as a result of the elimination of the 100% Bonus
Depreciation reduction, paybacks for solar PV projects may lengthen by a year
or more. 

In Massachusetts,
SRECs are currently trading at more than $500/MWh. The supply for SRECs is low,
because there is not yet a large universe of solar PV facilities in the state
producing SRECs. 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, the trading prices for SRECs will remain

Finally, net metering requires IOUs to credit
their customers’ accounts whenever their 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 to allocate the credits to other customers within the same load zone.
The IOUs are obligated to account for these credits in a total amount of up to
three percent of their historic peak load (one percent for nongovernmental
facilities and two percent for governmental facilities).  

Consequently, once the IOU reaches its three
percent threshold, it is not obligated to continue to provide net metering
credits to new renewable energy facilities, unless its peak load increases. As
of March 8, 2011, the Massachusetts Department of Public Utilities reports
that  the IOUs have indicated that their interconnection data shows that
the aggregate capacity of eligible nongovernmental net metering facilities is
nearing the one percent limit. When capacity is reached (and net metering is no
longer available), the returns on projects will be reduced on a per kWh basis
by the difference between the value of the credit and the price per kWh that
the project can generate.

Equipment pricing continues to fall, but not
at a rate necessary to offset the gap which will result from the extinguishing

Now is the time for solar.

If you would like
additional information about the available incentives for solar PV
projects,  or want to learn more about renewable energy and energy
efficiency regulations, please contact Craig M.
at 617 456 8021 or

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