Blog by Colin Murchie, senior director of project finance, Sol Systems
You’ve all heard about the rush for allocations in the Massachusetts SREC-II market. The outstanding question is just how real the project queue is. We feel there are two categories of projects likely to churn out of the program, creating an initial source of massive churn in the next few weeks and an ongoing source of more limited churn for what could be as much as a year. Projects that are, in fact, holding on to a quality interconnection agreement and ready for near-term construction start have more than a glimmer of hope for successful SREC-II qualification.
Churn #1 – The Unbaked
As we discussed in our previous blog entry on this subject, there’s been a massive rush of applications over the last 4 weeks:
1. On Tuesday, January 5th, the Massachusetts Department of Energy Resources (DOER) announced that 120MW would be set aside in the SREC-II program for projects under 25kW. This left a little over 250MW for those greater than 25kW.
2. On Monday, January 25th, that 250 became 100.
3. On Monday, February 1st, that 100 became 22.
4. On Monday, February 8th, that 22 will become 0. And so begins the wait list.
So: 250MW of applications in a month. These all could be legitimate and headed for ultimate approval! They totally could. But…. that would be unusual.
Take a look at the middle of this graph below, which represents “pending” applications. (Unlike the slug of January applications currently piled up at DOER, pending applications have passed at least initial review, have an interconnection agreement, and have received an Assurance of Qualification.)
A real crunch: The y-axis represents kilowatts, the x-axis represents days since qualification.
The graph is sorted by 30 day bins of age, so it reflects how much approvable project volume DOER has been seeing recently per month. This is a good basis of comparison if you’re wondering how many of the applications currently in bulging mailbags at DOER should be expected to be approved.
Essentially, in a typical 30 day window over the last 9 months, the Massachusetts DOER will see 16MW of good, complete applications that pass initial review. For the last two months, that’s been more like 30 or 31MW.
In the most recent 30 days? 230MW.
It seems unlikely that the number of fully-baked, ready-to-roll, shovel-ready, choose-your-metaphor-indicating-completeness PPA-and-interconnection-agreement-executed projects has increased by a factor of 8 to 10 in the past few weeks.
You should probably assume a significant proportion of this volume – 100 or maybe 200MW, amounting to a few months’ “runway” – will be recycled to the bottom of the wait list in the relatively near term.
Churn #2 – The Unfinished.
Now, keep in mind that there are two ends of the approval process where a project can fail. If you do have a compliant and complete application, your project will receive an Assurance of Qualification. That starts a 9 month clock to completion, and we all know that not every solar project makes it. Though DOER has historically proven reasonable in offering extensions to projects that are very close to completion, you should anticipate that as projects march down this “conveyor belt” to the right, some will fall off for not being even close. Currently 40MW of commercial and industrial (C&I) opportunities are more than 270 days beyond their SQA date. We don’t know how many are subject to some modest extension, but not all of them will get these extensions, and this bin grows all the time as projects move to the right.
In fact, you have to wonder how many projects in the 230MW that jammed in the SREC door in the last few weeks and do ultimately receive approval on interconnection were hoping to not obtain their SQAs until later in the development process. These projects could have other critical pieces missing or delayed (e.g. PILOTs, permits, or financing), and have been hoping not to start that 9 month clock. Fallout on the right side of these bins could increase over the next several months.
The Takeaway
Massachusetts just saw a giant surge of SREC applications. Interconnection agreement execution and other bottlenecks mean we don’t think that this correlates well to a giant surge of projects – and while applications take up room for a while, only real projects ultimately cap out the program. Over the next 2 to 6 weeks, historical numbers would suggest that the industrious dairymaids at DOER churn down a few months of new room in the program, with an ongoing opportunity for new headroom thereafter. The real question will be how this intersects with Massachusetts’ legislative timeframes for a more permanent fix.
This blog originally appeared on the Sol Systems website. Read this and other updates on the solar finance industry and more at www.solsystems.com/blog/.