Act 40 of 2017 contains amendments to Pennsylvania's Alternative Energy Portfolio Standards Act (AEPSA) requiring electric utilities and suppliers to use solar photovoltaic (solar PV) energy only from generators that directly connect to retail customers or transmission and distribution systems within Pennsylvania. The new legislation seeks to counter the effect of low-priced solar energy credits on the state's lagging solar energy generation industry.

The Alternative Energy Portfolio Standards mandate that by 2021 electric distribution companies (EDCs or electric utilities) and electric generation suppliers (EGSs or electric suppliers) derive at least 18 percent of the electricity they sell from alternative energy sources (73 P.S. §§ 1648.1 to 1648.8).

Qualifying alternative energy sources are divided into two tiers. Tier I sources include:

Tier II sources include:

By 2021, eight percent of the electricity that EDCs and EGSs sell to their retail customers must come from Tier I sources and ten percent from Tier II sources. Within the Tier I requirement, 0.5 percent must be from solar PV systems.

To promote compliance with the standards, the AEPSA established an alternative energy credit (AEC) program. Each AEC unit is equivalent to one megawatt hour of electricity from an alternative energy source. Utilities and suppliers can purchase and sell AECs to manage their alternative energy requirements.

The Pennsylvania Public Utility Commission (PUC) recently cited the low price of solar AECs as a primary reason it expects in-state solar installed capacity to fall dramatically short of anticipated need over the coming years. The PUC attributed the depressed market to:

Before the new amendments, the AEPSA permitted utilities and suppliers to trade AECs based on alternative energy generated anywhere within the Pennsylvania New Jersey Maryland (PJM) Interconnection, a regional transmission organization encompassing all or part of 13 states and the District of Columbia. However, effective October 30, 2017, AECs based on solar PV energy may be used in Pennsylvania only if the solar PV system directly:

These requirements do not apply to a solar PV generator if, before the effective date of the new legislation, the generator was certified either:

However, all contracts entered into or renewed after October 30, 2017 are subject to the new standards.

The revised alternative energy standards are intended to encourage investment in Pennsylvania's solar energy generation industry and to meet the solar PV requirements under the AEPSA. Developers and property owners may have extra incentive to incorporate solar PV generators into their projects when constructing green buildings or modifying existing properties to meet Leadership in Energy and Environmental Design (LEED) standards. Although it is yet uncertain whether utilities, suppliers, developers, or other interested stakeholders will challenge the new restrictions, such risk should be considered part of any project planning process.

Counsel should remind their clients of factors to consider in renewable energy development, such as:

For more information on solar energy projects, see Practice Notes:

For guidance on green buildings and sustainable development, see Practice Notes, Green Buildings: Laws and Practices and Owning and Leasing Green Real Estate.

For a general discussion of renewable energy, see Practice Note, Renewable Energy: Overview (US).