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What is a solar carve-out?

#2 in our “Key Solar Concepts” series.

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A solar carve-out is the part of a state’s Renewable Portfolio Standard (RPS) that sets a specific goal for electricity generation from solar panels. Solar carve-outs in the United States call for between 0.2% and 4.1% of all energy generation in a state to come from solar, with target dates ranging from 2015 to 2027, and include incentives that reward solar owners for the energy their panels generate.

Those incentives usually come in the form of Solar Renewable Energy Credits, or SRECs, which system owners earn for each megawatt-hour (MWh) of electricity generated by their panels. Utility companies buy the SRECs as “proof of renewable generation,” which helps them meet their goals under the RPS and solar carve-out. If those goals aren’t met, the utilities are subject to huge fines, which is what gives SRECs their value—it’s cheaper to buy clean energy credits than it is to plan, gain approval for, and build large-scale solar installations.

Another kind of incentive under a solar carve-out is called a performance payment (aka feed-in tariff), which are payments for each kilowatt-hour (kWh) of energy generated, either instead of SRECs or in exchange for turning over all SRECs generated by the system. These more direct payments skip the middleman—in this case an SREC broker or bundler—and reward solar panel owners directly on an ongoing basis.

It’s worth noting that SRECs or performance payments are not necessarily the product of a solar carve-out. There are states without carve-outs (such as Tennessee) that have performance payments for solar even though the have no RPS.

It’s also worth noting that SRECs and performance payments are not the only incentives available in states with solar carve-outs. All 17 of the states with carve-outs offer either tax credits or rebates for solar, on top of SRECs and performance payments. 4 carve-out states have no performance payments or SRECs, instead offering rebates and tax credits for solar.

How important is a solar carve-out?

Solar carve-outs are highly correlated with solar development. Of the 17 states that have solar carve-outs, 13 can be found in the top 25 for solar per capita. 7 of those are in the top 10. The incentives go a long way toward making solar more affordable and attractive to people with money to invest.

Here’s a chart showing installed solar capacity in watts per person in all 50 states and Washington DC:

One very interesting thing about that graph is how well Delaware, Massachusetts, and New Jersey do compared to states like Arizona and California, which have a lot more sun. All three eastern states have solar carve-outs, with Delaware and New Jersey shooting for 3.5% and 4.1%, respectively, of all energy to come from solar by 2027. Massachusetts has a goal of 1600 MW by 2020, which is smaller as a percentage of total electric generation, but is backed up with big payments for SRECs.

Below is a table that shows all 17 current state solar carve-outs, organized in order of their aggressiveness and timeline. Goals that call for a certain number of MW have been adjusted to approximate percentages of total electricity generation they call for. In addition, we’ve included a column of the incentives the carve-outs have resulted in. All 33 other states have no solar carve-out.

STATE CARVE-OUT Incentive Type
New Mexico 4% by 2020 Performance Payments
New Jersey 4.1% by 2027-28 SRECs
Delaware 3.5% by 2027 Performance Payments
New York 2.5% by 2015 n/a
Washington DC 2.5% by 2023 SRECs
Arizona 2.3% by 2025 n/a
Maryland 2% by 2022 SRECs
Colorado 1.5% by 2020 Performance Payments
Minnesota 1.5% by 2020 Performance Payments
Illinois 1.5% by 2025 SRECs
Nevada 1.5% by 2025 SRECs (PECs)
Massachusetts 0.5% by 2020 SRECs
Pennsylvania 0.5% by 2021 SRECs
North Carolina 0.2% by 2019 Performance Payments
Missouri 0.3% by 2021 n/a
Ohio 0.5% by 2026 SRECs
New Hampshire 0.3% by 2025 n/a

Last modified: September 19, 2016

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