Late last month, the Illinois Power Agency (IPA) released its final supplemental solar procurement plan for renewable energy. It made several important changes to the original filing that will impact how new systems qualify andsolarcredits are valued.

In case you haven’t been following Illinois solar policy, here’s a quick crash course: the IPA, which is in charge of procuring electricity for a portion of Illinois customers, has been granted access to $30 million to spend on SRECs for 2015 and 2016 in order to help spur new solar development. Those credits will help the state meet its renewable portfolio standard requirements. We recently tried to explain the basics, and further background can be found on the Illinois Solar Energy Association website.

So here’s what changed between the original and revised plans -- and why 2015 will be a strong year for solar in the Land of Lincoln.

1. Credit

The IPA made the credit requirements less stringent, lowering the amount bidders must deposit to $16 per SREC for “speculative” systems and $8 per SREC for identified ones (versus $20 and $10 previously) and allowing participants to delay paying up to half of their dues for up to fourteen days after the auction.

Both actions serve to lower barriers to entry to the procurement process and should promote broader participation, especially among smaller companies. While this could be at the expense of potentially allowing speculative or less-than-concrete bids, overall development security levels are more or less in line with those in other successful markets.

2. Capacity factor

Second, the IPA bumped up its capacity factor, the number that SREC purchasers use to estimate total output in long-term contracts, from 11.416 percent to a far more realistic 14.38 percent.

The new capacity means that a standard 10-kilowatt system will produce about 62 RECs over five years, versus 50 with the old number. Here’s the math:

0.010 megawatts x 11.416 percent x 8760 hours/year x five years = 50 RECs

0.010 megawatts x 14.38 percent x 8760 hours/year x five years = 63 RECs

3. Qualifying as a “new” system

Third, the IPA also adjusted its definition of “new” systems. Before, a “new” system had to be energized after the specific procurement event in which it sold its SRECs. But now a new, looser definition is in place: systems must merely be energized after the procurement plan gets final approval (i.e., next January).  

This should help to mitigate any perverse incentives for solar owners, who might delay energizing their systems in order to get more favorable SREC prices, but it still leaves out those solar owners whose systems were energized in 2013-2014. Some of these people installed solar with the expectation that they could sell their SRECs, but the current plan excludes them from the Illinois-specific SREC procurement events.

In practice, Illinois should see a chill in new system energization from now until January, after which there should be a rebounding surge from projects that delayed commercial operation. The exception will be some rebate-funded “super systems" that may be able to submit rock-bottom REC bids -- but hopefully not enough to fundamentally alter the procurement results.

Remaining issues in the Illinois solar procurement plan

The IPA has created two separate categories of systems depending on whether they are smaller or larger than 25 kilowatts. The smaller system sizes have been given several advantages in the law, which is fair, but the IPA does not distinguish between any systems greater than 25 kilowatts in size.

This means that a system of 30 kilowatts or 35 kilowatts will have to compete with much larger systems (up to 2,000 kilowatts) for bids. Since larger systems typically come at significantly lower costs, only partially offset by higher retail rates, these “threshold” systems may face stiff price competition for their SRECs. This is a situation may sound familiar to Massachusetts SREC I policy wonks.

If this is a real possibility (it’s unclear whether it actually will be a danger, since supply and demand predictions are pretty murky right now), then we might see owners who are considering installing systems around the 25-kilowatt threshold decide to downsize their arrays.

The IPA can always create a sub-category in the future if it can be shown that small to midsize systems are having real trouble selling SRECs; until then, it’s adopting a wait-and-see attitude.

The great unknown: How much to expect for an SREC?

Now for the real question: how much will an SREC be worth? No one quite knows. The website Solar Power Rocks claims that SREC prices are estimated to be in the $75 to $150 range, but it’s unclear where this number came from. For a five-year PBI, paid to a project at typical building costs and offsetting a PPA in the typical commercial range for Illinois, bids well above $200 seem realistic to us. Given the uncertainty around “tail” SRECs, this would put Illinois on par with other SREC states such as Maryland and New Jersey.

Our guess is that not even the IPA really knows what to expect in terms of SREC prices. But developers and homeowners should get a fuller view of the situation as the IPA provides some guidance in anticipation of the first procurement event in June 2015.

The outlook for Illinois solar

We see 2015 shaping up to be a hot year for Illinois solar, which currently has a mere 53 megawatts of solar capacity installed, ranking 23rd in the country.

Though much of the growth in Illinois will be in the residential solar market, we see the commercial solar market also becoming increasingly attractive to solar investors.  One thing’s for certain: national solar developers and financiers with national-account-type contracts will be poised in the starting grid.   

Local developers with strong relationships but less familiarity with project finance or system development in this size range would be well advised to develop their projects quickly; simpler projects are probably out there in the market, but we predict this space will go from a sleepy pre-competitive market to a top-ten contender in a matter of months.

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Colin Murchie is a director of project finance at Sol Systems, a solar energy finance and investment firm located in Washington, D.C. Mr. Murchie’s solar industry experience dates to 2002. Mark Noll is a solar analyst at the firm.