What is a solar carve-out?
A solar carve-out is the part of a state’s Renewable Portfolio Standard (RPS) that sets a specific goal for electricity generation from solar panels. Solar carve-outs vary by state; they call for between 0.2 and 4.1 of all energy generation in a state to come from solar, with target dates ranging from 2015 to 2027. They all include some form of incentive that reward solar owners for the energy their panels generate.
Those incentives usually come in the form of Solar Renewable Energy Credits, or SRECs, which system owners earn for each megawatt-hour (MWh) of electricity generated by their panels. Utility companies buy the SRECs as “proof of renewable generation,” which helps them meet their goals under the RPS and solar carve-outs. If those goals aren’t met, the utilities are subject to huge fines. This is what gives SRECs their value—it’s cheaper to buy clean energy credits than it is to plan, gain approval for, and build large-scale solar installations.
Another kind of incentive under a solar carve-out is called a performance payment (aka feed-in tariff), which are payments for each kilowatt-hour (kWh) of energy generated, either instead of SRECs or in exchange for turning over all SRECs generated by the system. These more direct payments skip the middleman—in this case an SREC broker or bundler—and reward solar panel owners directly on an ongoing basis.
It’s worth noting that SRECs or performance payments are not necessarily the product of a solar carve-out. There are states without carve-outs (such as Tennessee) that have performance payments for solar even though they have no RPS.
It’s also worth noting that SRECs and performance payments are not the only incentives available in states with solar carve-outs. All 17 states with carve-outs, on top of SRECs and performance payments, offer either tax credits or rebates for solar. There are 4 states with carve-outs that have no performance payments or SRECs, instead offering rebates and tax credits for solar.
How important is a solar carve-out?
Solar carve-outs are highly correlated with solar development. Of the 17 states that have solar carve-outs, 13 can be found in the top 25 for solar per capita. 7 of those are in the top 10. The incentives go a long way toward making solar more affordable and attractive to people with money to invest.
One very interesting thing about that graph is how well Delaware, Massachusetts, and New Jersey do compared to states like Arizona and California, who see a lot more sun. All three eastern states have solar carve-outs, with Delaware and New Jersey shooting for 3.5 and 4.1, respectively, of all energy to come from solar by 2027. Massachusetts has a goal of 1600 MWh by 2020, which is smaller as a percentage of total electric generation, but is backed up with big payments for SRECs. Below is a table that shows all 17 current state solar carve-outs, organized in order of their aggressiveness and timeline.