NREL is a national laboratory of the U. S. Department of Energy, Office of Energy Efficiency

and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

Implications of Scheduled ITC Reversion for RPS Compliance: 

Preliminary Results

This presentation does not contain any proprietary, confidential, or otherwise restricted information.

NREL/PO-6A20-64809 

The objectives of this analysis are two-fold: 1) to investigate future trends in 

carve-out compliance based on market forecasts of installed capacity (GTM, 

2015) and required RPS demand (BNEF, 2015); 2) to account for the effects of 

a 10% ITC on PPA rates in the eight states with solar carve-outs and solar 

ACPs.

METHODS 

PPA rates were modeled for a 1 megawatt (MW) commercial-scale project in 

NREL’s System Advisor Model (SAM) using inputs sourced from interviews, 

published studies, and NREL internal data. Modeled PPA prices were 

compared to state-level commercial retail electricity rates as published by the 

Energy Information Administration (EIA)* and escalated over the 20-year PPA 

period by the compound annual growth rate (CAGR) in national commercial 

retail electricity rates as projected by EIA (0.79%) in its Annual Energy Outlook 

(AEO) 2015 Reference Case.

To model the effect of SREC pricing on current PPA prices, we obtained 

historical spot prices from a proprietary trading platform and discounted the 

most recent spot price by 10% for a three-year payment stream. We assumed 

an SREC price equal to 20% of the state’s solar ACP for years four through ten. 

After year ten, we assumed an SREC price of $0. This methodology was based 

on interviews with SREC trading professionals.

The analysis is limited by access to current and forecasted SREC market data, 

as well as state-specific commercial solar market costs and trends. We did not 

model deployment of commercial-scale solar, but rather examined projected 

scenarios for solar PPA prices compared to commercial retail electricity rates. 

Support was provided by the U.S. DOE Office of Energy Efficiency and 

Renewable Energy’s Solar Energy Technologies Office.

Travis Lowder, John Miller, Eric O’Shaughnessy, and Jenny Heeter

National Renewable Energy Laboratory

INTRODUCTION 

This poster displays DRAFT initial results of a forthcoming NREL analysis. This 

analysis investigates whether the scheduled investment tax credit (ITC) 

reversion from 30% to 10% for businesses beginning in 2017 could result in 

an increase the use of alternative compliance payments (ACPs) in lieu of 

solar renewable energy credits (SRECs) for renewable portfolio standard 

(RPS) compliance. The analysis models the effect of a 10% ITC on power 

purchase agreement (PPA) prices for non-residential systems in the eight 

states with solar carve-outs and solar ACPs (see Figure 1). 

Figure 3. Additional capacity required to meet peak carve-out target 

by state.

Figure 4. Projections of installed capacity (cumulative MW) plotted with 

capacity required to meet solar carve-out targets. Scales are not 

constant.

THE EFFECTS OF AN ITC REVERSION ON RPS COMPLIANCE

PROJECTING CARVE-OUT COMPLIANCE Solar carve-outs for states with ACPs require about 3,700 MW of new capacity by 2030 (as of January 1, 2015) to provide sufficient capacity for long-term 

compliance in the eight states we examine (Figure 3). Our projections of required capacity represent the minimum new capacity required for compliance 

entities to meet carve-out targets through in-state SRECs. The actual amount required will vary as some states allow the use of out-of-state SRECs and not all 

SRECs generated will be available for compliance purposes. 

We projected two scenarios based on market forecasts: a base case assuming a 57% reduction (GTM, 2015) in annual installed capacity post-ITC reversion, 

and a low projection assuming the annual install rate would be half of market forecasts beyond the 57% reduction post-ITC reversion. Most of these states 

are projected to install sufficient capacity to meet long-term targets (Figure 4). The scheduled ITC reversion could affect carve-out compliance in several 

states. Carve-outs require more than a threefold increase in installed capacity in DC, DE, MD, and OH. The ITC reversion could also affect compliance in 

Massachusetts where the carve-out explicitly requires new installed capacity.

Figure 5.Modeled PPA prices for New Jersey

$0.087

$0.127

$0.096

$0.0131

$0.0092

$0.00

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

30% ITC 1 10% ITC 2 6% Reduction in 3 4 5

Installed Cost

100 Basis Point 

Reduction in 

Cost of Capital

$0.10 per Watt 

Reduction in 

Installer Margin

27% discount on 

electricity price

2017 Electricity Price

Figure 6. Modeled PPA prices for Maryland

$0.103

$0.142

$0.105

$0.0107

$0.0105

$0.0089

$0.00

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

30% ITC 1 10% ITC2 6% Reduction in 3 4 5 6

Installed Cost

100 Basis Point 

Reduction in 

Cost of Capital

$0.10 per

 Watt Reduction 

in Installer 

Margin

$210 SRECs

10% discount 

on electricity 

price

2017 Electricity Price

In assessing initial results, we assume that for solar to remain economic in a 

given market in 2017, year-one PPAs will need to be executed at a ≥10% 

discount to the local commercial electricity rate. This will allow for the PPA 

price to escalate by up to 1.3% for 20 years and still remain below the 

prevailing electricity rate (given a 20-year CAGR in commercial electricity 

rates of 0.79%). We also use the following assumptions in SAM: 

We identified three areas of project cost reduction that could potentially 

keep PPA prices competitive with commercial electricity rates in a 10% ITC 

environment: installed cost (reductions in module prices and balance of 

system costs, as well as developer efficiencies, and other factors); cost of 

capital (a 1% reduction through continued investor comfort with the solar 

asset class, among other factors); and developer margin. ** For states where 

even aggressive reductions in these cost components could not yield a 

competitive PPA price, we estimated the SREC price necessary to achieve a 

10% discount off of the 2015 electricity rate.

Figures 5 and 6 present the results of the analysis for two illustrative states: 

New Jersey and Maryland. In New Jersey, a 10% ITC results in a year-one PPA 

price below the prevailing electricity rate, though only at a 3% discount. With 

the above-mentioned reductions in installed cost and cost of capital , solar 

developers in New Jersey may remain competitive with utility electricity 

even without reducing their margins.

In Maryland, however, lower commercial electricity and SREC prices drive 

tighter economics, even with a 30% ITC. With the 10% ITC, PPA prices appear 

roughly $0.02 above the commercial electricity rate. The above reductions in 

installed cost and cost of capital yield a year-one PPA price just 3% below 

the prevailing electricity rate with a 10% ITC in 2017. This discount is notably 

less than the 10% discount margin assumed in this analysis as a minimum 

threshold for project viability. To reach a 10% discount to commercial 

electricity rates, an SREC price of $210 per megawatt-hour (MWh) was 

required (assuming a three year contract), which exceeds the 2017 solar ACP 

in Maryland (set at $200/MWh). With such a ceiling on incentive levels, and 

a relatively low commercial electricity rate, it is possible that compliance 

entities in Maryland may make more ACP payments in a post-ITC market, 

which could result in reduced solar deployment in the state. 

System Size 1 MW

Offtaker Commercial entity

Installed Cost $2.30/W - $2.50/W

Cost of Capital (IRR) 8%

Developer Margin $0.40/W

This poster displays draft research from a forthcoming NREL analysis report.

Source: Based on data from Database of State Incentives for Renewables and Efficiency (DSIRE 2015)

Figure 1. State solar and distributed generation (DG) carve-out 

programs.

Source: Based on data from a BNEF 2015 analysis Source: Based on data from a BNEF 2015 and a GTM 2015 analysis

**These reductions were applied uniformly across all states, regardless of market context. 

Reductions were based on numbers compiled from several published sources, NREL interviews, nd

NREL internal data.

OBSERVATIONS 

Based on forecasts from Greentech Media Research and Bloomberg New 

Energy Finance, most states with carve-outs and ACPs are projected to install 

sufficient capacity to meet long-term solar carve-out targets, even after the 

ITC reversion in 2017. However, our PPA analysis suggests that some states 

with relatively low commercial electricity rates and SREC prices will see 

further stress on solar project economics in a 10% ITC environment. If SREC 

prices in excess of the ACP are required to support project economics in a 

given state, then development could contract. According to a PPA sensitivity 

analysis performed in SAM, such conditions may lead to heightened use of 

solar ACPs in MD, OH, and PA (Figure 2). 

The ITC reversion is not the only factor which could influence carve-out 

compliance. Other considerations such as carve-out size, net metering, and 

rate redesign can all significantly impact the economic viability of solar 

energy in a given state. The interplay of these factors will be critical in 

determining which states will remain supportive of distributed solar 

deployment. 

Figure 2. State potential to use solar ACPs to meet solar 

carve-out compliance

*EIA state electricity rates include demand charges and other charges that solar energy does not fully offset. 

EIA rates were chosen as a high-level indicator of solar competitiveness in a given state, as a detailed 

construction of volumetric charges for individual utilities was beyond the scope of this analysis. The margins

between modeled PPA rates and the EIA electricity rates illustrated in Figures 5 and 6 partly account for the 

gap between volumetric and capacity-based charges implied in the aggregated EIA rates. 

Solar Power International, 14-17 

September 14-17, 2015 

Anaheim, California