New York is a top-five state market for commercial and industrial solar energy. But you wouldn’t know it by looking at the state’s C&I Megawatt Block program.

The program, run by New York State Energy Research and Development Authority, has never really gotten off the ground after launching in early 2015.

The Megawatt Block program provides incentives on a per-watt basis for projects of different sizes. The incentives vary by region within the state and are slated to decline as more projects are installed. The first block pays $0.40 per watt in most of the state, and about $0.60 per watt in Consolidated Edison territory.

When the incentives were announced, developers and financiers were less than thrilled, although the general structure of the program was lauded.

“It was thought on day one there’d be tons of applications,” said Anna Noucas of Sol Systems, one of the financiers of commercial-scale solar that has been involved in trying to get the program changed. “We’ve seen quite the opposite.”

The goals of the first block of the commercial program have not been met, while the residential program, by contrast, has been a success.

The lack of uptake can be attributed to a number of factors. One of the critical reasons is that the incentives are, in part, based on the final auction of the previous commercial solar program, when there were different rules for remote net metering.

The regulators felt that the rules, as they stood, allowed for arbitrage where some commercial projects were installed at one remote site but interconnected through another site through non-demand meters. Some projects were grandfathered in, but others now have to compete under a new set of net metering rules.

“There’s certainly a case to at least re-evaluate the current state of economics given new net energy metering rules,” said Cory Honeyman, senior solar analyst with GTM Research.

That is what NYSERDA is currently doing. The agency called a meeting in late October to hear from stakeholders and is accepting modeling from developers and installers as to what they are seeing for project economics.

“Our clear goal is to create a self-sustaining solar industry in New York,” said David Sandbank, director of NY-Sun at NYSERDA.

For stakeholders like Sol Systems, the guidance will be that the incentives will need to be raised substantially. Noucas said Sol Systems believes the incentives would likely need to be doubled for the first block to about $0.80 per watt.

If incentives were that much higher, NYSERDA says that the program could run out of funds in about two years. “If we just raise it, it could create an unstable market,” said Sandbank.

Costs beyond net metering

It is not just the different net metering rules that are affecting cost. Sol Systems said that interconnection costs are coming back far higher than expected, sometimes as much as 40 percent higher.

Sandbank noted that there were more projects that would take advantage of the Megawatt Block program, but they are still fighting their way through the interconnection queues. Various utilities, including National Grid and Iberdrola, are putting increasing attention on interconnection issues, but it remains unclear when those efforts will lead to tangible solutions that help unlock the market.  

The substantial interconnection issues for commercial projects are just one barrier that the residential Megawatt Block program does not face. The residential Megawatt Block program also pays the full incentive upfront.

The commercial projects receive 25 percent upfront and that same portion for the next three years, a structure that developers should be able to work with, but which becomes less than ideal given that the economic incentives are misaligned. “It’s much more critical to make the economics pencil out for C&I,” said Honeyman.  

Another looming issue beyond the borders of New York is what will happen to the federal Investment Tax Credit. NYSERDA will not make a decision on the rates for the Megawatt Block program until there has been a decision on the ITC. Even so, Sandbank acknowledged that any changes must focus on helping the New York solar industry from stalling despite external issues which NYSERDA has no control over.

The layers of uncertainty that have stymied the C&I Megawatt Block program are not entirely unique to New York. “This is a microcosm of the commercial market as incentive programs are in transition and rate structures are being redesigned,” said GTM Research's Honeyman. “The market in the near term is highly dependent on healthy incentive programs, so any disconnect can lead to underwhelming outcomes.”

Even so, the pipeline of commercial projects completed under the previous program in New York still makes it a leader for commercial solar. The issues plaguing the Megawatt Block program, however, “raise some red flags beyond 2017,” added Honeyman.