Jake Schnur, AVP Commercial Relationship Manager, Renewable Energy Finance
The Adjustable Block Program is a new incentive program that sets the stage for more solar power growth in Illinois. The program provides incentives for developing new solar projects for both Distributed Generation (DG) (those systems located on-site, primarily used to offset that customer’s load, and connected to the customer side of the meter) and Community Solar projects* (those who own part of or subscribe to a solar project and receive bill credits in exchange for their participation).
The program offers a set price for purchase of Renewable Energy Credits (RECs) through 15-year contracts between a utility and an approved vendor. It provides incentives through payments made for RECs for participating projects in the following categories of new solar projects:
- Small Distributed Generation (DG): 1-10 kWAC
- Large Distributed Generation (DG): above 10 kW to 2 MWAC
- Community Solar: 1 kW to 2 MWAC or 4 MWAC co-located
How Was the Illinois Adjustable Block Program Created?
In response to the Future Energy Jobs Act (FEJA), the Illinois Power Agency developed its first Long-Term Renewable Resources Procurement Plan (LTRRPP), which launched programs to incent solar development and added specific new build requirements for wind and solar that previously did not exist. The centerpiece of the plan is the Adjustable Block Program, which will be a key driver behind new solar installations in Illinois.
How RECs Work Under the Adjustable Block Program
Participation in the Adjustable Block Program takes place through approved vendors1 who represent the solar project owner(s) and are responsible for submitting compliance paperwork, maintaining collateral requirements (equivalent to 5% of the total contract value), and providing ongoing information and reporting.
Approved vendors submit projects that are bundled into batches of at least 100 kW (or 50 kW in certain cases) but no more than 2 MW. Once approved, each batch results in a contract with one utility. Under the contract, the approved vendor agrees to provide a predetermined number of RECs over the next 15 years that the utility must purchase at a predetermined price per REC.
While extensions are allowed in certain circumstances, once a contract is awarded, DG projects have 12 months and Community Solar projects have 18 months to be developed and energized.
Quicker Repayment for Solar Investments
Although the contract is for 15 years, payment of the RECs is front-loaded, providing a quicker payback period:
Small DGs—All RECs are paid 100% up front, upon interconnection and registration.
Large DGs and Community Solar—20% is paid at interconnection and registration, with the remaining price paid quarterly over the following 16 quarters.
REC delivery performance will be measured on a three-year rolling average basis, although any overproduction may be carried forward into future contract years without expiration. If a system produces more RECs than expected, then no adjustment is made. However, if the system produces fewer than the expected number of RECs, the approved vendor would have to prove that an unforeseeable situation, such as a fire or tornado, prevented them from fulfilling the contract and that reasonable measures are being taken to restore production.
In a worst-case scenario, the approved vendor may request to have its delivery obligation reduced in exchange for returning payment to the utility for all undelivered RECs. There is some risk to businesses if RECs are not produced, but as outlined, remedies are in place for approved vendors to petition for reducing their obligations through returned payments.
Once a solar project reaches operation, the system owner is also eligible for a onetime $250-per-kilowatt lump sum rebate from the utility for a smart inverter, one which not only converts direct current (DC) power to alternating current (AC), but also shares granular data with the owner, utility and other stakeholders. However, the amount of this rebate will be adjusted once the load of net metering enrollment for that utility reaches 5% of the utility’s total peak demand.
2019 Pricing and Estimated Quantities
The program’s block structure was designed to fill three blocks per project category (Small DG, Large DG and Community Solar) in order to meet the program goal of 1 million RECs per year by the end of 2020 – 2021. Prices per REC decrease as the number of kilowatts increases, and volume is available in both Group A (Ameren Illinois, MidAmerican, Mt. Carmel, rural electric cooperatives, and municipal utilities located in the Midcontinent ISO [MISO]) and Group B (ComEd, and rural electric cooperatives and municipal utilities located in the PJM Interconnection [PJM] service territories).
How Does the Block System Work?
The block structure is open-ended and depends on demand. For example, when a category’s block capacity is filled, the next block for that category will open. If demand in any given category is stronger than anticipated (and funding is available), additional blocks may open. Similarly, if demand in a category is lower, a block may remain open longer. Once a block’s capacity is filled, the next block for the category opens at a price expected to be 4% lower than the previous block.
How RECs are Awarded
REC contracts are awarded on a first-come first-serve basis unless demand is strong and any category in Block 1 is oversubscribed by more than 200%, in which case REC recipients will be chosen on a lottery basis. Projects that are not selected in the lottery would be held for approval consideration in the next block. If a block’s capacity is 100% – 200%, then all of those projects will receive Block 1 pricing and Block 2 capacity will be reduced by the capacity percentage above 100%.
While the lottery system doesn’t guarantee funding for RECs, as of this writing, both Large and Small DGs in Block 1 are undersubscribed, while Community Solar is oversubscribed. Because of this, all DG contracts that have been submitted to the program in Block 1 should receive RECs. Additionally, should there be a lottery for the Community Solar categories, projects with 50% or more small subscribers will be given priority.
Each category’s block will be open until the later of 45 days, or when it reaches capacity plus an additional 14 days. Additional applications can be submitted at any time after the lottery until the final block is closed. However, they would be prioritized behind projects not chosen in the previous lottery (if applicable).
Block 2 is currently open for submitting applications. For the latest information on how applications are progressing, see the Illinois Power Agency dashboard. This dashboard, which is updated daily, provides a snapshot of applications. Business owners should act quickly to take advantage of all that the Illinois Adjustable Block Program has to offer.
The Illinois Adjustable Block Program will help move Illinois toward its goal of producing 25% of its electricity from renewable energy by 2025 by providing incentives for businesses and communities to go solar.
* Please note Community Solar no longer has capacity.