Jake Schnur, AVP Commercial Relationship Manager, Renewable Energy Finance
Businesses and communities in Illinois looking to save money on their energy costs by switching to renewable solar energy may now have the opportunity. There is a new program to take advantage of that incentivizes solar development: the Illinois Adjustable Block Program.
The core of the Adjustable Block Program is the concept of a “block,” a pre-established amount of program capacity with an associated transparent price, for each type of project in the program. According to the Adjustable Block Program Guidebook, blocks are intended to create a progression from one price level to another based on the response of the market. Under the program, a party seeking a Renewable Energy Credits (REC) contract will know the REC price in advance and will have visibility into when and how that price may change.
Business owners interested in making the switch to solar should act quickly to take advantage of all that the Adjustable Block Program has to offer. Based upon minimum and maximum number of days for each block, the application window for 2019 will close once all blocks are filled, and strong demand is anticipated.
Solar Installations Rise While Prices Continue to Fall
Launched at the end of January 2019, the Adjustable Block Program mirrors a national movement towards solar energy as prices continue to drop. For business owners in the state, the reasons to transition to solar energy are compelling. With an average of 95. 1 kilowatt- hours (kWh) of electricity used per square foot annually, depending on the subsector, businesses are finding that using solar energy is just a smart business decision.
According to EnergySage’s marketplace data, businesses with solar panels can reduce their electricity cost by more than 75%.
EnergySage estimates that businesses can reduce their monthly electric bill on average from $1,950 to approximately $500, a monthly savings of more than $1,400.
Let’s take a topline view of the new Adjustable Block Program and what it may mean for businesses and communities looking to save on energy costs through renewable solar energy.
A Key Driver Behind Illinois Solar Installations
With the passage of the Future Energy Jobs Act (FEJA), which took effect on June 1, 2017, a new Renewable Portfolio Standard (RPS) was established, requiring that Illinois produce 25% of its electricity from renewable energy by 2025. One of the programs established to help Illinois achieve this goal is the Adjustable Block Program, a key driver behind new solar installations in Illinois, providing incentives for both business and community solar developments.
Adjustable Block Program Features
As opposed to the previous “sealed bid” approach, the new Adjustable Block Program promotes transparency in the solar market with predetermined prices offered on an ongoing basis until capacity is filled, instead of discrete procurement events.
Run by the Illinois Power Agency through its program administrator, InClime, the Adjustable Block Program offers a set price for purchase of Renewable Energy Credits (RECs) through 15-year contracts between a utility and an approved vendor representing one or more solar projects. RECs are issued when one megawatt-hour (MWh) of electricity is generated and delivered from a renewable energy resource. The Adjustable Block Program provides incentives through payments made for RECs for participating projects in the following categories of new solar projects:
- Small Distributed Generation (DG*): 1-10 kWAC
- Large Distributed Generation (DG): above 10 kW to 2 MWAC
- Community Solar**: 1 kW to 2 MWAC or 4 MWAC co- located (Please note there is no longer capacity for community solar)
*Distributed Generation (DG)—those systems located on-site, primarily used to offset that customer’s load, and connected to the customer side of the meter
**Community Solar projects—those who own or subscribe to a solar project and receive bill credits in exchange for their participation
Although the REC contracts have a 15-year obligation, payments are front-loaded based on the fixed REC price and the RECs projected to be created over the 15-year term. Small DG projects receive 100% of REC payments on day one of operations. Large DG projects will receive 20% on day one of operations, with the remaining price paid quarterly over the following 16 quarters.
How the Adjustable Block Program Benefits Illinois Businesses
Business owners looking to save money on their energy costs should investigate the benefits the Adjustable Block Program offers. For example, we recently worked with one such business, a privately held grocery store in Illinois that is planning to install photovoltaic (PV) solar on their roof and lithium-ion energy storage in their parking lot.
We are working on a term loan to the grocery store to purchase the equipment and finance the construction. As a result, the grocery store will own the equipment and benefit from energy cost savings, and it will receive the RECs and a federal tax credit (“Investment Tax Credit” or “ITC”) equal to 30% of eligible project costs. The developer will oversee the installation and service of the solar-plus-storage system. Under the Adjustable Block Program, the RECs provide an opportunity for the grocery store to purchase the system with a quicker repayment period for their investment.
Businesses interested in making the switch to solar energy should consider some of the other advantages of the Adjustable Block Program. Currently, the Adjustable Block Program also offers a smart inverter rebate of $250 per kW as well as full net metering, both of which may be adjusted depending on net metering loads going forward.
Participants in the Adjustable Block Program can also be assured of the program’s stability since funds are held with the utilities. Funding for the program comes from a variety of sources, including Alternative Compliance Payments (penalties for utilities that do not meet their solar obligations), charges on customers’ electric bills and RECs procured from various programs.
Finally, the federal ITC can be coupled with RECs to further incent solar projects. Projects that start construction in 2019 will receive a 30% ITC, while those that start construction in 2020 and 2021 will receive 26% and 22% respectively.
For construction that begins after that, the credit drops permanently to 10% for commercial and utility projects and 0% for residential projects.
Businesses Should Act Now to Take Advantage of Solar Energy Savings
Overall, the Adjustable Block Program provides an opportunity for business owners who are interested in the benefits of solar energy to reduce their power and operating costs in a way that has a quicker repayment for their investment than was historically available.
With a potentially brief window of price blocks available this year, it’s time to act on an opportunity to start realizing the benefits of solar energy.