A New Strategy for Residential Solar in Massachusetts
by TIM CRONIN, MARCH 19th, 2018
During the first half of 2017, the state of solar in Massachusetts was bright. The Commonwealth was second only to California in the total number of solar units installed and two years prior, Massachusetts was the national leader in solar growth. Solar workers in the state numbered 12,000, with 75% of them in the residential sector.
In 2018, however, challenges mounted for solar–– including uncertainty over new state regulations, the Eversource rate case decision, and of course, the Trump solar tariffs. The result? Massachusetts has seen a 50% decline in new solar installations, predominantly in the residential sector, and the state’s solar workforce has shrunk by about 20%, shedding just over 3,000 jobs.
CHALLENGES TO SOLAR
Homeowners now face steeper barriers and higher costs when investing in a solar unit than they did last year. This is not the result of one factor, but stems from a number of concurrent issues facing the solar industry.
Uncertainty over SMART
In spring 2017, Massachusetts regulators announced the creation of the SMART (Solar Massachusetts Renewable Target) incentives program. SMART was created to replace the SREC program, which expired in January 2018. It offered a novel, market-based system for distributing state solar credits that seemed promising. It also simplify the compensation process for homeowners with solar, and eliminated uncertainty in prices causes by speculation in the SREC market.
Yet multiple aspects of SMART pose new challenges, and create additional uncertainties for MA solar. Chief among them is an unsustainable compensation level for residential solar units. The declining block structure of the SMART program means that the state will need to adopt a new program in 2-3 years when the 1.6MW of capacity available to SMART runs out. Additionally, this built in decline does not track the projected trends in residential solar costs. On top of that, arbitrary regional compensation differences mean that consumers in western Massachusetts will get a little under half of the SMART value of homeowners in the east.
Eversource Rate Case & MMRCs
This past December the state’s Department of Public Utilities approved an unprecedented rate hike for solar users in Eversource’s service territory, known as a Minimum Monthly Reliability charge (MMRC). Eversource argued that the new rate structure was needed because solar users were not contributing enough to the upkeep of electric transmission lines and other infrastructure in its territory.
The result of this ruling is that consumers will face variable and opaque “demand charges” with unclear origins, which will add additional costs to solar customers in Western Massachusetts. A similar demand charge was introduced in parts of Arizona in 2015, resulting in a 95% decrease in solar adoption among affected customers.
Trump Solar Tariff
In January 2018, the Trump administration placed a new 30% import tariff (i.e. tax) on foreign-made solar panels. This has driven solar panel prices up for the first time in decades. Although providing short-term benefits to a handful of US solar manufacturers, the tarif negatively impacts 90% of American solar workers. This is because the vast majority of US solar jobs come from the service and distribution side of the market, not manufacturing.
As a result, homeowners must now wait up to 20-years, as opposed to the previous 10-years, in order to see their solar units turn a net positive profit. Although the tariff will decline over the next few years, until it expires, the effect on solar installations is expected to continue to hurt Massachusetts and the nation for at least a decade.
BENEFITS OF SOLAR IN MASSACHUSETTS
The benefits of solar are threefold: solar lowers costs for consumers, creates local jobs, and boosts the state’s economy.
Historically, fossil fuels are known for their price volatility, putting consumers and the economy at significant risk. Investing in solar power allows consumers to have a guaranteed source of energy with stable costs, and hedges against volatile electricity prices. Additionally, solar helps us diversify our energy portfolio, which builds Massachusetts’ energy independence.
In the last decade, solar energy has been a big job booster for the state. In 2016 alone the Commonwealth had added over 6,300 clean energy jobs, surpassing 100,000 clean energy jobs statewide. Additionally, the number of clean energy jobs in Massachusetts has increased by 75 percent between 2010-2016. Although similar gains are unlikely in 2018, if the state can counteract current challenges to solar then we could see similar job growth in the industry in future years.
In 2015 the Solar Task Force, created by the legislature, found that for every $1 invested in solar energy, the state receives at least $2.50 in benefits. Solar is one way to reclaim the lost economic opportunity resulting from the capital flowing out of Massachusetts each year for fossil fuels. In addition to the jobs directly created in the solar industry, solar creates positive economic “ripple” effects. Industries along the solar energy supply chain benefit, as do local businesses from increased household and business incomes.
SOLUTIONS FOR MASSACHUSETTS
The state Senate’s omnibus clean energy bill, filed in February 2018, contains more than a dozen policy provisions that would boost solar. If passed, some pro-solar policies within the the omnibus bill include:
- Eliminating the cap on net metering, allowing consumers to sell back as much energy to the electric grid as they can
- Increasing the Renewable Portfolio Standard (RPS) to 3%
- Removing the RPS exception available to the state’s 51 municipal light plants
- Establishing a statewide solar target of 20% power by 2020 and 30% by 2030
- Reducing a utility’s ability to use MMRC’s
- Increasing the ability of low-income residents to use shared-community solar
If adopted, these policies would help boost solar output in the state, in addition to bolstering solar jobs.
Despite support for this ambitious bill, the current political climate on Beacon hill– particularly in the House Chamber make the likelihood of the bill becoming law, slim. Even if legislation did make it to the Governor’s desk, it is unlikely to retain all of the pro-solar policies that help ratepayers.
Replacing Federal Tax Credits for Homeowners
A simpler way to pass policy helping homeowners invest in residential solar is replacing declining federal solar tax credits with higher state ones. Beginning in 2006, Congress established the Residential Renewable Energy Federal Tax Credit, which provided homeowners who invested in solar with a healthy tax credit . The recent Trump tax bill has cut this subsidy, setting it on a course to decline to 0% by 2022.
Massachusetts has a similar residential renewable energy tax credit, but it is limited to 15% of the system’s total cost, or up to $1,000. On average, this tax credit alone shaves about a year off payback time for homeowners, reducing a significant barrier to solar ownership. State lawmakers should consider expanding this credit in light of the future declines in the federal government’s.
The best way to do this would be to raise the existing cap to around $4,000 –$5,000, or an amount that the most sense for the state’s budget during a given fiscal year. Additionally, the state credit should be refundable to homeowners, just like the current federal one is. State lawmakers should also allow it to to be used in shared-community solar projects. Community solar allows a greater number of people to gain access to the benefits of solar, and would expand the positive impacts of the policy to previously untouched populations in the Commonwealth.
Previous bills before the legislature have tried to promote solar using tax credits, including Rep. Smizik’s H.2691 (An Act to modernize the renewable energy property tax exemption), but these would not go far enough to counteract the current challenges to the state’s solar markets.
Business leaders, residents, and environmental advocates must explore the possibility of using a simple tax credit like the one described above, as a means of promoting residential solar in the state. Such a policy is more likely to pass both chambers of the legislature, and has direct and tangible benefits on the state’s economy, jobs, and rate of residential solar. Doing so would allow Massachusetts to prevent poor policy decisions at the federal level from hurting our local economy, job growth, and standard of living.
TIM CRONIN POLICY ASSOCIATE
Tim assists in coordinating CABA’s Policy Program, and is a young professional with experience in community organizing and state politics. He is currently pursuing a B.A. in Economics at Stonehill College. Tim has previously studied Politics, Philosophy, and Economics (PPE) at Oxford University, and has interned at the State House and in local government. He currently serves as student-body president at Stonehill College where he has continued to fight for sustainable initiatives such as fossil fuel divestment, expanding the college’s solar farm, and reducing food waste. Tim is on the board of a local civic association in his hometown of Weymouth, and is the founder of the community nonprofit Green Weymouth. Tim enjoys reading The Economist, listening to podcasts, and exploring state parks in his free time.