The Hanover Theatre in Worcester could be receiving the bulk of its electricity from solar energy by early next year.
Under the arrangement, the nonprofit theater would pay nothing up front and could save as much as $400,000 over 20 years, according to Troy Siebels, its executive director.
But there won't be solar panels visible on the historic downtown theater, which consumes about 136 times more electricity than the average Massachusetts home.
In fact, the deal depends on what happens just a few miles away in Leicester, where a Boston-based firm has asked town officials to approve construction of a one-megawatt solar farm in a five-acre field.
Changes to state energy regulations over the past several years have allowed developers to allocate power from solar installations to other locations in the same utility's jurisdiction (in this case, National Grid). And state and federal incentives – like renewable energy credits, tax credits and cash grants – have made it possible to offer such deals to all customers with no up-front costs.
Such arrangements, which are governed by power purchase agreements, are expected to become increasingly common in the next few years as developers, investors and contractors focus their attention on the Massachusetts solar energy market.
The theater stands to benefit, as do the investors paying for construction of the solar farm.
Siebels said the theater's board of directors has come to a preliminary agreement with Hanover Off Site Solar Power LLC to purchase electricity generated by the solar farm for 20 years. The company represents a group of private investors. Its, principal, Craig Tateronis, is a partner at the Boston law firm Prince Lobel, which is the project applicant.
Adam Braillard, an attorney at Prince Lobel, said he could not disclose who the investors are. He said the firm is looking for at least one other end user to buy the rest of the electricity from the site.
Siebels said the arrangement would shave an estimated $20,000, or 15 to 20 percent, off the theater's annual electric bill.
The venue consumes approximately 1 million kilowatt hours of electricity per year while the average Massachusetts household uses about 7,300, according to the U.S. Energy Information Administration.
The theater is a valuable customer for a solar investor, said Ted Hudson, the Hanover's facilities manager, because it's a large user that will consume more than half the electricity the solar farm generates.
In exchange for their approximately $4 million investment, investors would have the stability of a 20-year cash flow and a federal incentive worth 30 percent of the project cost.
They would also profit from selling the solar renewable energy credits (SRECs) generated from the production of renewable power. Credit prices in the fledgling Massachusetts SREC market, which launched in early 2010, are the highest in the country.
The Leicester project would generate approximately 1.2 million kilowatt hours per year, Braillard said.
An SREC (see related story below) is generated for every 1,000 kilowatt hours of power produced. Since the Leicester project could generate 1,200 credits, it would mean an annual payout of $642,000 for investors based on the latest price of $535 per credit.
Prince Lobel managing partner Craig Tateronis is principal of Hanover Off Site Solar Power LLC, which would own the solar panels and sell the power to the theater.
Leicester voters are expected to vote Nov. 8 on modifying the town's zoning laws to include a section for solar farms, Town Planner Michelle Buck said. If it passes, the developers should have an easy road to approval since the project wouldn't require a public hearing and there are few reasons officials could deny an application.
Contractors, brokers and aggregators have flocked to Massachusetts as SREC prices have dropped in more mature solar credit markets.
There are now more than 200 Massachusetts companies in the solar energy industry, compared with approximately 30 in 2007, according to a recent report from the state.
"We follow where the work is," said Gary Lakritz, president of New Jersey-based Knollwood Energy, an SREC aggregator that has increased its focus on Massachusetts.
Lakritz's wife and business partner, Alane Lakritz, said the SREC market creates space for middlemen like Knollwood, which aggregates credits from multiple solar sites and sells them in bulk.
"The large utilities need thousands of credits," she said. "They're not staffed to deal with hundreds of people calling them and saying 'Buy my credits.'"
The health of the SREC market is a key component for solar speculators. For as long as prices remain north of $500 per credit, investors are assured a quicker payback. If supply catches up with demand, as it has in New Jersey, Pennsylvania and other states, payback will take longer.
"I think we're in a sweet spot right now," said Edward Whitaker, president of Hopedale-based Second Generation Energy.
Mike Smith, a senior vice president with Maryland-based Constellation Energy Services, which plans to install 2.5 megawatts in Uxbridge this winter, said the flurry of activity in the solar market is good, but he predicted not all companies will survive.
"To be perfectly frank about it, in the markets where solar is hot and sexy, everyone with a pickup truck and a ladder is a solar integrator," Smith said.
An expiring federal cash grant for solar projects could hurt smaller companies. But the 30 percent tax credit set to replace it will likely benefit more established companies that have larger tax liabilities, Smith said.
Industry watchers fear that political fallout from the Chapter 11 bankruptcy protection filing of Solyndra, the California-based panel maker that received $545 million in federal grants before filing, will dampen lawmakers' willingness to offer new incentives.
Just how long SREC values will be sustained in Massachusetts is anyone's guess. Lakritz, of Knollwood Energy, thinks it will be only several years before the 400-megawatt cap on the SREC program is reached. State officials expect 90 megawatts will be installed by the end of this year, but only about 50 are expected to be eligible for SRECs by that time. Many of the installations that don't qualify were installed prior to the creation of the SREC market with the help of a state incentive program, or received funds from the American Reinvestment and Recovery Act of 2009.
"I believe you're going to get a flood of installations in Massachusetts over the next 12 months," Lakritz said. "I think you're going to be surprised how quickly the 400 megawatts goes away."
Others, like Whitaker, think it could take longer.
Whitaker predicted that not all solar projects in the pipeline will be completed. Developers can hit unexpected pitfalls in permitting, securing financing and upgrading transmission lines.
Whitaker's company, which designs and builds residential and commercial solar systems, and aggregates SRECs, has grown from just one employee to 15 in the past three years.
He thinks there will be fluctuations in the SREC market over the next few years. "The market could go long next year but then I think we have the potential to go short the following year," he said. "Here's the good news: If the market goes long, people will go someplace else."
All About SRECs
What is a solar renewable energy credit (SREC)? SRECs are certificates generated under Massachusetts state law for every 1,000 kilowatt hours of energy produced by solar panels. Verified by a state tracking system, the credits belong to the owners of the solar panels.
Why are SRECs worth money? Under state law, utility companies must generate a certain portion of their electricity from renewable sources. Utilities can build their own solar installations, or they can purchase SRECs from people who generate them. Since there are not yet enough SRECs available for utilities to meet their state-mandated obligation, the utilities have paid what's called an alternative compliance payment (ACP) to meet much of their obligations. The ACP is currently $550 and acts as a ceiling price for the market.
How are ratepayers impacted? Massachusetts ratepayers, who spent $8.4 billion on electricity in 2009, are ultimately footing the bill for utility companies that are forced to buy SRECs. Through charges on monthly electric bills, ratepayers are expected to incur $1.1 billion in additional costs through 2015, according to the Massachusetts Department of Energy Resources. The DOER says the payback for ratepayers, achieved largely from reductions in electricity and non-electric heating fuel consumption, will be $2.5 billion.