The US Northeast: Opportunities, Challenges, and Lessons Learned

California has long been America’s key market for PV, but it is clear that future growth in the US will need to be driven by other markets. The US Northeast is one region that industry insiders are relying on to support continued growth over the mid- to long-term. Though the region does show significant promise, for every opportunity there seems to be a corresponding challenge. Below is (A) a brief overview of just some of the opportunities and challenges that characterize the market, and (B) lessons that can be learned from the market.

 

 

Opportunities
The Northeast has sound fundamentals:

• The Northeast accounts for 7 of the 10 most expensive states for retail electricity sales – high electricity prices make solar more competitive
• There is significant political support for renewables – all 9 states in the US Northeast have set targets for renewable energy
• There is significant demand for electricity – the Northeast includes Pennsylvania and New York which are the 5th and 6th largest retail electricity markets in the US; together the region represents a market that is nearly twice as large as California
• While the solar resource in the Northeast is not as strong as it is elsewhere in the US, each of the 9 states has an average insolation that exceeds that of Germany, the world’s largest PV market

The region is moving past rebates:

• Existing and developing solar carve-outs in the region are driving Solar Renewable Energy Credit (SREC) markets
• Carve-out policies lay out clear long-term targets for solar
• These markets are much more sustainable than markets driven primarily by rebates

Policy support is likely to increase:

• Three states in the region already have operating SREC markets
• At least two others are giving serious consideration to legislating SREC programs

Challenges
Every state has a different approach to, and level of support for, the PV industry:

• This fact makes tracking opportunities and allocating resources more difficult for industry players

In the short-term, the Northeast is reliant on three SREC markets that each has its own difficulties:

• New Jersey will be a very important market in the US, a fact that is well known and will result in an ultra-competitive market
• Pennsylvania is already significantly oversupplied by solar and it will be some time before demand recovers in the state
• Massachusetts is a new SREC market; though it is attractive it is also limited (a total installation target of 400 MW)

SREC supply and demand can be volatile:

• In SREC markets, for every MWh of energy produced by solar PV, the owner of the installation is awarded one SREC; these SRECs are tradable assets that can be sold through long-term contracts (i.e. 10 years), short-term contracts (i.e. 3 years) or on the spot market
• There is a serious threat that supply will exceed demand and drive the spot price of SRECs down (as has already occurred in Pennsylvania)
• Long term contracts are not always available and when they are the valuation of SRECs can be quite low

Allowing the market to decide what projects get built may favor particular market segments:

• SREC programs are designed to drive down the price of solar installations
• When least-cost production of solar energy is favored, it is likely that markets will trend towards larger installations
• Clearly, utility-scale-only markets will shut out some developers and manufacturers
• Larger installations, while less expensive, do not produce the same level of job creation and other economic benefits that commercial rooftop and residential installations produce

Recommendations
The US Northeast region exemplifies the opportunities and challenges of the US market as a whole. There are three key lessons for those attempting to identify the most attractive US markets of the future.

Local Awareness: First, the solar industry is driven by policy and the US is a market with hundreds of policies. In fact, there are well over 1000 different incentives, rebates, grants, and programs for solar in the US. In order to maximize the benefit they derive from existing policy and program support, stakeholders need to be keenly aware of the opportunities that exist on a local level.

Continuous Tracking: Second, market dynamics can change very quickly. For example, Pennsylvania rapidly transformed from an attractive and promising market to a dramatically oversupplied market. To capitalize on new opportunities as they arise, stakeholders need to continually reassess local opportunities.

Strategic Alignment: Third, solar incentives and policies have different impacts on different players. It is not enough to know that a market will install 10, or 50, or 200 MW. It is also essential to know how those installations relate to unique strategic approaches. For example, manufacturers who focus on commercial rooftop and residential markets need to know whether individual REC markets will trend towards larger projects over time. To allocate resources most effectively, stakeholders need to assess local opportunities as they relate to their own strategic plans.

^[1] The US Northeast is made up of New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont) and the Mid-Atlantic (New Jersey, New York, and Pennsylvania)

Illustration photo by Lars Christopher Nøttaasen