DEFINITION OF KEY TERMS
The following terms are defined in the context of community shared solar.
Renewable Energy Certificates (RECs, carbon offsets, or green tags):
A renewable energy facility produces two distinct products. The first
is electricity. The second is the package of environmental benefits resulting from not generating the same electricity —and emissions—from a conventional gas or coal-fired power plant. These environmental benefits can be packaged into a REC and sold separately from the electrical power. A REC represents the collective environmental benefits, such as avoided mercury, carbon dioxide (CO2), and other environmentally harmful pollutants, as a result of generating one megawatt-hour (MWh) of renewable energy.
In most cases, RECs are sold on a per MWh basis. However, some project organizers choose to sell all future rights to RECs up front, on a per -installed -watt basis, effectively capturing an installation rebate and forgoing any future revenue from REC sales.
Most on-site renewable energy systems use net metering to account for the value of the electricity produced when production is greater than demand. Net metering allows customers to bank this
excess electric generation on the grid, usually in the form of kilowatt
-hour (kWh) credits during a given period. Whenever the customer’s system is producing more energy than the customer is consuming, the excess energy flows to the grid and the customer’s meter “
runs backwards.” This results in the customer purchasing fewer
kilowatt-hours from the utility, so the electricity produced from the renewable energy system can be valued at the retail price of power. Most utilities have a size limit for net metering.
Community shared solar project organizers should be sure to check before assuming participants in a community shared
solar system can net meter. It may be that some alternative arrangement, such as group billing or joint ownership, is used to account for the value of the electricity produced by a community
shared solar project.
Individuals and businesses can reduce the amount of taxes owed by using tax credits. For a tax credit to have any value, though, the individual or business must actually owe taxes. If the individual
or business is tax exempt or does not have sufficient income to need tax relief, the tax credits have no value. Individuals or businesses that can use tax credits to reduce the amount they owe in taxes are said to have a “tax appetite.” For example, public and nonprofit organizations are tax exempt, and therefore, do not have a tax appetite. In addition, tax paying entities might be eligible to use tax
-based incentives, but have insufficient tax appetite to make full use of them.
Investment Tax Credit (ITC):
Section 48 of the Internal Revenue Code defines the federal ITC. The ITC allows commercial, industrial, and utility owners of PV
systems to take a one-time tax credit
equivalent to 30% of qualified installed costs. There is also a federal residential renewable energy tax credit (Internal Revenue Code Section 25D), but the residential tax credit requires that the PV system be installed on a home the taxpayer owns and uses as a residence, thus it would rarely, if ever, be applicable to community shared solar projects.
Power purchase agreement (PPA):
A PPA is an agreement between a wholesale energy producer and a
utility under which the utility agrees to purchase power. The PPA includes details such as the rates paid for
electricity and the time period during which it will be purchased. Sometimes, the term PPA or “third-party PPA” is used to describe the agreement between the system owner and the on-site system host, under which the host purchases power from the system. This arrangement is not explicitly allowed in all states; in some states,
it may subject the system owner to regulation as a utility. To avoid confusion, in this guide, a PPA refers only to an agreement by a utility to purchase power from the solar system owner.
Solar services agreement (SSA):
A solar services agreement is an agreement between the system owner and the system site host, for the provision of solar power and associated services. The system owner designs, installs, and maintains the system (a set of solar services) and signs an agreement with the host to continue to provide maintenance and solar power. The agreement is sometimes referred to as a PPA, but in the VT DPS guide, They use the term SSA to indicate that the agreement between the system owner and the system site host is more than a power purchase: it is an agreement that the system owner will provide specific services to ensure continued solar power.
A security is an investment instrument issued by a corporation, government, or other organization that offers evidence of debt or equity. Any transaction that involves an investment of money
in an enterprise, with an expectation of profits to be earned through the efforts of someone other than the investor, is a transaction involving a security. Community shared solar organizers must be sure to comply with both state and federal securities regulations, and avoid inadvertently offering a security. For more
information on securities, see Section 4, Tax Policies and Incentives.