S-REC markets around the country continue to grow and expand.  Almost half of the twenty-nine states (including the District of Columbia) that have enacted a renewable portfolio standard (“RPS”) have instituted a special solar requirement in their RPS program.  These solar standards require that a certain percentage of the RPS be satisfied using solar energy or give solar electricity more credit than other forms of renewable energy generation.  It appears that New York may be joining the race to ramp up solar energy development with the introduction of Bill No. A11004 in the New York State Assembly and its sister bill, Bill No. S7093A, in the New York State Senate, each titled the “New York Solar Industry Development and Jobs Act of 2010.”

The proposed legislation is intended to “enable the rapid and sustainable development of a robust solar power industry in New York by creating a scalable, diverse and competitive solar energy market within the state.”  While doing so, the legislation also anticipates additional benefits including “significant creation of much needed jobs within the state, a reduction of the long-term costs of electricity generation for New York’s energy consumers, increased reliability of the state’s electric grid, and a decrease in the emission of harmful air pollution.”

The bill would amend New York’s Public Service Law and Public Authorities Law by inserting a requirement that retail electric suppliers(1), the New York Power Authority (“NYPA”) and the Long Island Power Authority (“LIPA”) procure a minimum amount of S-RECs based on a percentage of the electric supplier’s total electric sales for a particular compliance year.  As discussed below, the S-REC requirements for NYPA and LIPA are significantly higher than those imposed on retail electric suppliers.

The current draft of the bill requires that each retail electric supplier procure 0.05% of their electric sales in S-RECs for 2012, increasing incrementally to 2.50% in 2025. In order to encourage development of smaller generation facilities, the bill also requires that at least 20% of the annual obligation for each retail electric supplier that is an electric distribution company(2) be met through S-RECs procured through small retail distributed solar energy generation.  The bill defines small retail distributed solar energy generation as “retail distributed solar energy generation produced by a photovoltaic device that is equal to or less than 50 kW in size.”

Similar to other programs, retail electric suppliers would be required to pay a solar alternative compliance payment (“ACP”) for any shortfall it has in meeting the goals set forth in the legislation.  The ACP would be established by the New York State Public Service Commission (“PSC”) at a level that “shall stimulate the development of new qualified solar energy generation equipment necessary to achieve the obligations established” in the bill.  The bill requires the PSC to establish an ACP schedule through 2025 by January 1, 2011.  The ACP collected will be used for “solar initiatives to be developed by the New York State Energy Research and Development Authority.”

NYPA and LIPA (who are governed under the Public Authorities Law) would each be required under the proposed legislation to procure 0.25% of its annual electric sales in S-RECs in 2012, increasing incrementally to 4.50% in 2025.  Similar to retail electric suppliers, at least 20% of NYPA and LIPA’s annual obligation must be met through the S-RECs procured through small retail distributed solar energy generation.

The proposed bill requires the PSC to establish an automated S-REC tracking system within three months of the effective date of the legislation.  In addition, as an incentive for retail electric suppliers that are electric distribution companies to create effective programs, the PSC is charged with creating an incentive program by July 1, 2011 that will reward those companies that show exemplary performance in accomplishing its obligations “(i) in a cost-effective manner that achieves the obligations at least cost and avoids long-term costs to the transmission and distribution system, (ii) provides enhanced electricity reliability within companies’ service territories, and (iii) minimizes peak load in constrained areas.”

Retail electric suppliers are permitted to own and operate their own solar projects, the S-RECs of which may go toward satisfying their requirements under the proposed bill.  However, the S-RECs generated through the retail electric supplier’s own solar facilities may not exceed 25% of the supplier’s obligations in any calendar year.  Retail electric suppliers are permitted to resell any excess S-RECs that are procured.

This proposed legislation follows on the heels of emergency regulations that were recently issued in Massachusetts requiring that retail suppliers provide a portion of the Massachusetts’ RPS from in-state, interconnected solar facilities.  The Massachusetts program requires 0.0680% of the RPS be satisfied using solar energy and imposes a $600/MWh ACP for entities failing to comply with such requirements.  With New Jersey, Pennsylvania, Massachusetts, and now potentially, New York, implementing S-REC programs in the Northeast, we may see the trend continue with other states in the region.

For more information or questions regarding the proposed legislation, please contact Craig Kline at Craig.Kline@troutmansanders.com.

Assembly Bill No. (A11004): http://assembly.state.ny.us/leg/?default_fld=&bn=A11004%09%09&Text=Y

Senate Bill No. S7093A: http://open.nysenate.gov/legislation/bill/S7093A

(1) A “Retail Electric Supplier” is defined in the proposed legislation as “an entity authorized to sell electricity at retail to end-use customers in New York, including an electric distribution company acting as a provider of last resort or an energy service company licensed by the commission for such purpose.”
(2) An “Electric Distribution Company” is defined in the proposed legislation as “an investor-owned utility that distributes electricity within New York state.”