Last week South Carolina’s major utilities announced new residential solar incentive programs under the state’s Distributed Energy Resource Program Act (DERPA). Signed in mid-2014 by Governor Nikki Haley, DERPA requires utilities to establish distributed energy resources programs, authorized third-party solar leasing, and updated the state’s net metering program.
As reported in earlier posts, other Southeastern states such as North Carolina and Georgia, are supporting solar energy as an economic development driver and job creator. Development spurred by North Carolina’s renewable energy policies is reported to have resulted in 5,600 new jobs, at 166 different companies, in recent years. By contrast, despite plentiful resources, in 2014 South Carolina installed only 1 megawatt (MW) of solar electric capacity, for an aggregate total of 9 MW, and was ranked 33rd nationally, well behind North Carolina at 4th and Georgia at 16th.
South Carolina’s New Utility DER Programs
DERPA requires each major South Carolina utility to submit a proposed distributed energy resource (DER) program to achieve at least 2% renewable energy adoption by 2021, including plans to invest in or procure distributed resources. Earlier this year, Southern Carolina Gas & Electric (SCG&E) and Duke Energy reached separate agreements with state regulators, ratepayers and environmental advocates on programs for meeting this objective. SCG&E committed to invest $37 million to install approximately 84 MW of solar on the state’s electric grid by 2021, including 42 MW of utility-scale solar and 42 MW of residential, commercial-industrial, and community solar. Duke Energy agreed to a $69 million program to place in service 53 MW of utility-scale solar and 53 MW of residential and commercial solar. Duke Energy announced that later this year it will issue a request for proposals (RFP) for more than 50 MW of utility-scale solar facilities. As part of the RFP, Duke Energy will solicit purchase power agreements (PPAs) with 15-year terms and proposals to acquire projects. SCG&E has already issued its first RFP, for approximately 4 MW total, and is finalizing project terms with award recipients.
DERPA requires the utilities to promote residential DER ownership and leasing programs. The leasing mechanism allows a third party to own the rooftop solar system and its attributed tax credits and environmental benefits while selling power to the homeowner via a PPA. The third-party typically installs and maintains the system at their expense. This model has been successful for solar giants like SolarCity, and is incentivizing “big solar” to increase activity in the Palmetto state.
South Carolina residential solar also is supported by its Solar Energy Tax Credit, a state tax credit of 25% of the purchase and installation costs. The maximum credit that can be applied in a single tax year is $3,500 or 50% of state tax liability, whichever is less. Unused credit may be carried forward for 10 years. This credit can be used in addition to the 30% federal Investment Tax Credit (ITC).
Net Metering Updates
DERPA also established new net-metering standards, adding to the attractiveness of rooftop solar. A settlement between the utilities and ratepayers and environmental advocates was filed with the Public Service Commission in December 2014. This arrangement would allow residential and commercial customers to receive full credit for excess generation at retail rates, and bars utilities from imposing additional fees on projects installed by 2021. However, total net metering payments are capped at an aggregate of 2% of the utility’s peak demand, a cap that can impose a major constraint on the potential for net metered energy.
“Rush to Solar” For Residential, But Not So Clear for Utility-scale
Recent utility press announcements have described the new programs as creating a “solar power rush” in South Carolina. While the new incentives undoubtedly will accelerate momentum towards residential solar deployment, it remains unclear whether the new utility programs will foster sustained growth in larger scale solar in South Carolina.
While the utility RFPs are positive steps, opportunities for developers and investors may be limited. The processes and timeframes for project review and approval, interconnection requirements, and PPA terms will need to be carefully considered. In a market that was not that big to begin with, the goal of 2% renewables is quite modest. Given these factors, while there certainly will be increased opportunity in South Carolina, it is doubtful that these efforts will pay off in job creation and investment opportunity at the relative scope we have seen in North Carolina.