Illinois is going through its first solar growing pains.
Inside the ‘Chaos’ Enveloping Illinois’ Distributed Solar Market
At work on a fix, the state faces threats of “not only market confusion, but potentially market failure.”
Looking back on the evolution of state solar markets, Will Kenworthy — now Vote Solar’s Midwest regulatory director — remembers companies camping out overnight to turn in applications for incentives in New Jersey.
He recalls Xcel Energy representatives in a 2014 meeting hoping for 25 megawatts of applications in the first part of the utility’s community solar program. And he also remembers Xcel raking in applications for more than 400 megawatts in the program’s first week.
That cycle of state solar markets opening and quickly being flooded with interest are “just sort of the history of the industry,” according to Kenworthy.
So when Illinois passed its Future Energy Jobs Act in late 2016 and launched its Adjustable Block Program (ABP) in June 2017, a rush on projects was to be expected. “Everyone knew there was a lot of pent-up demand,” said Kenworthy. But, he added, “the degree of it has been pretty surprising.”
Austin Perea, a senior solar analyst at Wood Mackenzie Power & Renewables, said the ABP “has opened up the entire Illinois market” and quickly morphed it into a state to watch, especially in the budding community solar space. WoodMac projects non-residential installations will jump from 21 megawatts at the end of this year to 63 megawatts at the end of 2019, growing to 129 megawatts at the end of 2020. Analysts also forecast a compound annual growth rate of 46 percent in residential installations between 2019 and 2023.
At the same time, finalization of the program is several months behind schedule*, with a final plan published in August and applications for approved solar vendors opening in January. That has pushed project timelines into 2019 and beyond, even as more and more companies line up early-stage plans to take advantage of incentives once "blocks" open. And developers and solar advocates argue the structure of the ABP — in addition to drawing excitement — has also fostered “chaos,” a “waterfall of problems,” and the risk of a “terribly inefficient” market.
“If there’s a lot of interest in a program, there’s challenges with any approach you take,” said Laurel Passera, a member of the policy team at the Coalition for Community Solar Access. “This one has by far the most unintended consequences and complexities that I’ve seen.”
Borrego Solar, which set up an Illinois office in 2017 to take advantage of the widening market, said that without changes the state is “headed for not only market confusion, but potentially market failure.”
Now, the Illinois Power Agency is working to tie up any issues before the program is further delayed. The agency slated the first APB lottery for January and asked for two rounds of comments on the program, with the second request due Wednesday. The agency’s final fixes could decide the state market’s future, at least in the short-term.
“The concern is that this program has become so complex that it’s just going to result in program failure,” said one solar developer involved in the process. “To some degree their program needs to be badmouthed.”
The lottery
Illinois’ block program includes carve-outs for small- and large-scale distributed generation and 166 megawatts for community solar, with an additional 166.5 megawatts currently unallocated to any category.
To determine the projects that move forward first, the program relies on a lottery triggered when demand reaches 200 percent of capacity. Several developers told Greentech Media that the program’s greatest challenges stem from that system.
“It’s all centered on the lottery,” said Passera. “In short, lotteries are just very risky. They don’t incentivize or create efficient markets.”
Perea said community and commercial developers have already dropped over 1.5 gigawatts into the state’s interconnection queue, jamming the program with many more projects than it will approve. That’s partially because requirements to enter the lottery, according to many watching the process, remain low. That’s caused many developers to worry about companies gumming up the lottery with as many projects as possible to have a better chance of securing a win.
“We want to incentivize people to do the right thing — the right thing being entering legit projects, as opposed to stuffing the program and the process with kind of fake projects in order to get an extra shot at getting a lottery ticket,” said Sarah Wochos, Borrego’s director of policy and business development for the Midwest.
The IPA has also said it will allow switching — meaning that developers of lottery-selected projects can swap them for another they deem more promising. Wochos said Borrego prefers to keep switching part of the program so developers can preference their best projects, but she cautions that it also “does make it easier for people to throw these zombie projects in just as an extra ball in the lottery turner.”
“We’re going to get a lot of community solar.”
It’s unlikely that the IPA will do away with the lottery system altogether, since the state's utility commission approved the plan including it. Instead, many developers that submitted comments suggested the IPA raise requirements for entering the lottery, such as including a pre-bid collateral approach. CCSA suggested a bidding collateral fee to be refunded when a project is built or kept if a project is not. Borrego, too, wants a pre-bid deposit.
Others, such as Vote Solar’s Kenworthy, say the lottery requirements are reasonable already. He also suggested that allegations of sub-standard projects jamming the lottery may be “far-fetched.” In comments submitted to the IPA in conjunction with the Environmental Law & Policy Center, Vote Solar said the lottery incented oversubscription to a market already experiencing it. The two groups called for a reassessment of the lottery process.
The IPA’s follow-up request for comment focused on several areas of concern raised by developers, including speculative projects and project substitution, and hinted at areas of the program the agency may consider revamping. The agency’s director, Anthony Star, said the IPA appreciates the need to resolve issues as soon as possible, but also wants to take its time to make sure it gets the process right.
“We’re acutely aware of the importance of the situation,” said Star. “One thing we’re trying to be very careful about is that we don’t inadvertently introduce unintended consequences.”
Aside from concerns about the lottery, developers also said they face high interconnection costs from utilities Ameren and ComEd, especially for a market that has room for a lot of projects. Wochos at Borrego and Passera at CCSA both said they’re working with the utilities to make the cost-assessment process more transparent.
But because demand is so high, the problems likely represent hiccups rather than roadblocks for many developers.
“Despite all the current issues with the lottery and the program as it’s structured, and interconnection, we’re going to get a lot of community solar in Illinois,” said Wochos. “It’s probably going to be more difficult and maybe more costly than it needs to be because of these problems. But we’ll learn from that.”
That jibes with what has happened in other challenged state markets, like New York. A new market opens, its drowned with demand, and, over several years, states disentangle the issues that crop up. But Perea said the general state of the market has possibly heightened the stakes in Illinois.
“There’s also this national-level storyline that we’re seeing two consecutive down years of non-residential solar,” said Perea. “People are just searching for growth wherever they can, which is in part why you see all these national developers flooding the market in Illinois in search of some viable projects.”
Though the challenges so far have triggered a wide array of frustrations, Kenworthy notes that “the interest and the enthusiasm and the willingness to make investment is not a bad thing; It’s a good thing.”
“Managing it,” he added, “is the hard thing.”
*This sentence has been corrected. Illinois is a few months, not over a year behind schedule on the program.