Ice hockey star Wayne Gretzky famously said, "I skate to where the puck is going, not where it has been." That same principle applies to how Leyline Renewable Capital leverages its capital for clean energy deployment. The Solar Energy Industries Association notes that the top states for installed solar capacity as of Q3 2021 were California, Texas, Florida, North Carolina, and Arizona. But these states may not be the best to target for clean energy investment in the future, because the markets are mature, clean energy policy has been at the state's forefront for years, and developers all flocked to build projects. These states are and will still be clean energy leaders, but many others are moving forward.
Tracking energy market intelligence is important for making investment decisions. To better understand the upcoming markets for solar, we developed a model that included variables, such as planned coal retirements; incentives for solar developers; presence/strength of a renewable energy portfolio standard; presence/absence of a net metering policy; the average size of projects; the retail electricity rate; and the presence/absence of property or sales tax exemption for solar energy. We also considered our state project experience and the size of our average project.
Based on all this information, we determined the top five states for investment in solar projects are: Virginia, Illinois, Maryland, Ohio, and Colorado. But what does that mean? Simply put, these states do not currently have an abundance of solar projects, but they have the right policy mix for the market to open. And, back to the hockey analogy, Leyline wants to invest where solar projects will be developed.
Below we briefly explain what each of these states is doing with respect to solar and why we believe they are the ones to watch in the future.
Under Governor Ralph Northam, Virginia passed the Clean Economy Act, a sweeping law that solidified the commonwealth's goal of 100 percent clean energy by 2045. Despite partisan changes in the state government, 2020's Virginia Clean Economy Act is likely not in danger. The plan is intended to eliminate carbon emissions and should bolster renewable energy investment, create jobs, and reduce consumers' energy rates.
There are several provisions that make the Commonwealth of Virginia an important one for clean energy investment. First, the law aggressively targets the closure of all the commonwealth's coal plants by the end of 2024. Second, the act establishes that 16,100 megawatts of solar is "in the public interest" (to be constructed by independent power producers). The commonwealth's two largest utilities, Dominion Energy and Appalachian Power, will add 16,000 MW of solar by 2035 and 3,542 MW of solar through 2050 respectively. Finally, Dominion Energy's net metering cap will increase to 5 percent.
One of the market drivers for Virginia is the fact that many big technology companies with offices in the commonwealth, such as Amazon and Facebook, are procuring renewable energy to minimize emissions from data centers. This means there are viable offtakers for projects in the commonwealth.
Like the Commonwealth of Virginia, Illinois passed a sweeping law in 2021 mandating carbon-free energy by 2045. The Climate and Equitable Jobs Act made Illinois the first state in the Midwest to completely phase out of fossil fuels. The act allocated more than $350 million to support the expansion of clean energy in the state through incentive programs for solar development, green job training programs, and more. The law grows renewable energy generation and closes all remaining coal plants.
Illinois has a strong renewable portfolio standard with 40 percent of energy from renewable sources by 2030 and 50 percent by 2040. Solar capacity in the state is expected to grow more than 1,700 percent over the next five years.
Maryland increased its Renewable Portfolio Standard target of 25 percent renewable energy by 2020 to 50 percent by 2030. In 2019, Governor Larry Hogan proposed the Clean and Renewable Energy Standard that sets the state on a path to 100 percent clean electricity by 2040 with zero carbon emissions. Maryland also has a community solar pilot that is running from 2017 to 2024. Approximately 414 MW of total installed solar capacity will be allocated across participating utility territories.
Ohio has a renewable portfolio standard with a solar carve out, which requires utilities to obtain 12.5 percent of electricity sold to be derived from renewable energy sources by 2027. The state also has several proposed bills, including a community solar one, that will likely be enacted. If the community solar legislation passes, the Public Utilities Commission of Ohio will be able to certify up to 2,000 MW of community solar capacity in the state.
Colorado was one of the first states in the United States to have a Renewable Energy Standard and pass a Community Solar program. For utilities serving 500,000 or more customers, the Renewable Energy Standard requires that they transition to 100 percent clean energy by 2050.
Solar energy is primed to grow in these five states for many reasons: (1) The states laid out the fundamental policy incentives and programs for its growth; (2) these states have many planned coal retirements, and those retirements bode well for solar replacement; and finally, (3) these states have higher retail electricity prices than the U.S. average. With higher electricity rates, solar energy and distributed energy resources are more attractive.
Leyline will be targeting these five states, along with many others for clean energy investment. California, Texas, and New England all have mature markets, and we are excited to see these other geographies opening for solar energy.
If any of our readers are developing or plan to develop projects in these states, contact us for your renewable energy capital needs.