In recent months, the price of electricity on the Cape and Islands has taken a steep decline and then normalized to a steady rate. This past winter, however, was not kind to ratepayers in the Southeastern regions of Massachusetts. In certain towns, electricity prices rose to above $0.27 per kilowatt-hour (kWh), an increase of almost 40 percent. The main reason for this jump in electricity pricing was largely a shortage of natural gas and other commodities that are shipped into Massachusetts. Residents and commercial business owners of the Cape and Islands are now on the search for solutions that will help minimize the future possibility of another hike in their utility bills.
The jump in pricing of electricity on the Cape and Islands is almost unavoidable. During the winter and summer high-demand periods, the supply of electricity is driven through the roof due to high levels of heating, and electrical HVAC units for cooling. This winter has been one of the coldest in New England, and coupled with severe weathers, the demand for electricity outpaced the available supply imported from other states. Market forces such as this cannot be predicted, but it does create a worrisome scenario that could detrimentally affect local businesses and homeowners.
A prominent and proven solution that is starting to catch popularity is solar photovoltaic. A solar system installed on a residential or commercial property owner’s property allows for a fixed price hedge for the electricity generated by the solar system. There are two commonly accepted models: a direct ownership of the solar system, or a power purchase lease. Although the two differ in terms of capital costs and financial benefits, their core value of providing discounted electricity at a fixed price is a common ground that is very attractive for the near future.
The direct ownership model allows property owners to acquire the solar systems outright with the benefits of not only receiving their electricity for free, but also getting additional incentives from local and federal governments. The downside is the tremendous amount of capital required for the purchase. The power purchase lease allows property owners to lease the equipment and purchase the power generated at a drastically discounted price. Since the power purchased from the solar system directly offsets consumption usages, this allows for a perfect hedge against any possible future price fluctuations with the utilities.
Since Massachusetts imports almost all of its electricity from other states or countries, it cannot control the pricing of electricity. The demand on the other hand is ever-growing, so this issue must be addressed in expedience. The governor and the Department of Energy Resources implemented lucrative incentives to help spur the development of renewable energy that would help make Massachusetts a generator of electricity rather than a pure consumer. These incentives have been passed through to investment entities, and the benefits can be seen in very attractive solar power purchase leases. A typical power purchase arrangement on the Cape and Islands is around $0.09/kWh, which will allow property owners to reduce their electricity pricing by more tahn 50 percent during the low demand months, and cut their bills by a factor of two-thirds in the winter months.
The opportunity for self-reliance on solar power is not permanent. The incentive that was created in the past was wildly successful, and has helped spur a second round from the state. Although these incentives are lucrative, the state will cut them back once a significant portion of their mandate for renewables is met. Given past market data, the capacity allowed by the state can be filled in just under two years. Additionally, since power purchase rates are locked in at the time of the signing of the contracts, delaying the agreement would mean that the locked-in rate would be higher at any future point. The local incentives were created to help bring Massachusetts to a new level of energy independence, and this opportunity should not be passed up by the local residents.
There has never been a better or more urgent time to begin the revolution in Massachusetts for renewable energy. Residents of the Cape and Islands should look for proven and environmentally conscious ways of providing their own energy, and control the costs of their business or everyday life. Rather than let market forces outside of Massachusetts dictate how energy should be used and sold, there should be an acceptance of solar as a must-have.
Tom Wu is CEO of Invaleon Technologies Corp. of North Andover, which develops utility scale solar projects in the U.S. for commercial and government entities.
