For the last couple of years, the Massachusetts and New York markets have shown a lot of promise. But their diverging paths to success recall the fable of the tortoise and the hare.

As the hare of this story, the Massachusetts market took off quickly after launching its SREC program in 2010. The state now has more than 567 megawatts of solar capacity and counting. But Massachusetts’ rapid growth started slowing at the end of 2013 as regulatory uncertainty loomed during the transition between the SREC I and SREC II programs. Now, SREC II is alive and well, and third-party financing has picked up in the Bay State.

However, only months after SREC II’s initiation, uncertainty looms once again, and Massachusetts is in the midst of the “Great Solar Compromise.” It is considering another new solar program that would lift the net metering cap, but replace the newly formulated SREC II market with a performance-based incentive.

As a result, developers are rushing to secure a spot in SREC II before the solar regime changes. This uncertainty has left a number of developers, investors and hosts frustrated with the ever-changing solar landscape in the Commonwealth, and has encouraged some to seek bankable opportunities in New York’s land of solar promise. 

However, one thing’s for sure: New York is not Massachusetts.  

With strong policy backing, New York seems to be brimming with solar opportunity. Currently, PON 2112 (for projects under 200 kW) and PON 2956 (for projects over 200 kW) are accepting applications. Shared solar legislation is poised to pass, and New York utilities are making revolutionary changes to incorporate renewables, demand response and storage.  

But although New York shows promise, the market has been slow to mature and create a large quantity of financeable deals. The state still lags far behind Massachusetts in total capacity installed. What's the reason behind this disparity?

For one, outside of major urban areas like the Big Apple and Long Island, New York’s electricity rates are relatively low, bringing down PPA rates and making third-party financing deals harder to pencil. This is especially true for industrial clients, which have often received ultra-low-cost power from programs like ReCharge NY.

Additionally, there are 200-kilowatt project size caps for PON 2112. Generally speaking, smaller projects with low PPA rates are less profitable and therefore harder to finance with third-party investors -- unless they can be aggregated into larger portfolios. Portfolio aggregation is a challenge, as New York does not have the plethora of municipal hosts that Massachusetts offers (portfolio aggregation is easiest when hosts are similar; this is a challenge in New York, which has more C&I hosts).

In addition, New York’s incentive programs are relatively new, and developers previously did not need to demonstrate site control, development work and other quality checks before incentive program dollars were allocated. Many of these deals died, though these quality checks are now in place, which should help New York projects become “real.”

With the maturation of these incentive regimes, deal flow is likely to increase in the Empire State. But the most successful developers will still need very sharp pencils when it comes to making their EPC and financing arrangements.

When looking at New York and Massachusetts side by side, both can be characterized as “hurry up and wait” markets for developers.

In Massachusetts, developers have now twice had to rush to fit their projects into the current regulatory regime before the next big regulatory change. Similarly in New York, developers of projects greater than 200 kilowatts must rush to meet PON deadlines (the next is July 17), and then must wait patiently until the next PON is released. However, we expect this dynamic to dissipate when the Empire State rolls out its “Megawatt Block” program in 2015. This program has many similarities to the California Solar Initiative, and should open the New York market to more extensive pipeline for third-party-financed deals.

Today, Massachusetts is the much stronger state market in terms of financeable deal flow for third-party financing at the commercial scale. Still, the characteristics of New York’s solar program show a lot of promise.

Maybe the hare is learning something from the tortoise, as the newly proposed Massachusetts regime is shaping up to look a lot like New York's.


Sara Rafalson handles business development and strategic partnerships for Sol Systems' SREC business. Sol Systems is a solar project finance firm based in Washington, D.C. that has so far financed approximately 100 megawatts of distributed generation solar.