If commercial solar project finance was high school, hot markets such as New York, California, Hawaii, and North Carolina would be the “it” girls: everyone is talking about them, and everyone wants to finance their projects. Still, there are wallflower markets out there that may be less flashy, but nevertheless deserve some attention. Here’s why we think Maryland, New Jersey, and even some Massachusetts market sectors have been ignored, but really should be asked to the dance.

1. New Jersey

After California, New Jersey was arguably the solar industry’s second “it” girl. In 2009 when SRECs peaked at $700/MWh, developers rushed to flood the market, skyrocketing New Jersey to #2 (it is now #3) in the country in terms of installed capacity, a big feat for its small size. This oversupply of projects led to the SREC market’s collapse, and developers flocked to other states looking for opportunities.

The New Jersey market rebounded almost a year ago, but still, development remains quiet. We’ve got a couple theories. Can it be that financeable hosts in New Jersey have been picked over? Are hosts and local developers jaded by SREC prices that are only a fraction of their former price? Is host concentration on a few distribution feeders driving insurmountable chicken-and-egg upgrade cost issues? Regardless, with our current 10-year SREC contracts valued at $140/SREC, this market should once again be buzzing

2. Maryland

Despite its lack of attention, Maryland is consistently ranked as a top 15 solar market due to a stable SREC market that flies under the radar and a small but helpful production tax credit (PTC) that provides a boost that gets projects over the finish line. Moreover, labor is relatively affordable compared to states like Massachusetts, which helps keep build costs down.

Nonetheless, we have seen less activity in Maryland than one would expect. Those that we have seen sometimes have high build costs that make the deals non-financeable. Much of this seems to be because developers are choosing to contract with familiar, but more expensive, out-of-state labor for their installs. We’re not saying that developers shouldn’t be their own EPC contractor; our only suggestion is that if you are your own EPC, hiring local labor can keep down costs – and increase the likelihood that a given project will receive financing. Margins are too thin here to choose an expensive EPC.Overall, we are bullish on what 2015 will hold for the Maryland solar market. Are you?

3. Massachusetts

Again, if we are thinking of solar project finance as high school, Massachusetts would be one of the most gossip-inducing markets. This summer’s net metering bill generated high drama at the state house, and Massachusetts market’s growth from the SREC I market catapulted it to the #4 solar state in the country.

With SREC II now alive and kicking, managed growth (650kW) and residential projects (25kW) are attracting the most attention. The middle child, virtually net metered projects (VNM) less than (650kW) (SREC factor .8), have been few and far between. With the SREC II program putting more emphasis on rooftop DG, Massachusetts developers accustomed to the state’s previous emphasis on multi-megawatt greenfield projects are flocking to other states in search of opportunity.

For those that remain in the state, Sol Systems also expects to see innovative and extremely organized developers come forward with community solar projects, circumventing SREC and VNM limitations by contracting with multiple electricity offtakers — a setup that will reward customer acquisition and service expertise far more than the current focus on land acquisition skills.

Conclusion

When looking at these wallflower markets side-by-side, it is important to know what they have in common: each used to have much higher incentives that have since declined in value. Evolving market conditions will need to lead to a change in development expectations and strategies; however, that doesn’t make developing projects within these geographies any less attractive to investors.

Our advice to those participating in wallflower markets? Your markets aren’t half bad. On the contrary, they are extremely promising and deserve more attention. Stick to these markets, find a strong distributed generation (DG) financing partner, and you will prosper.

This is an excerpt from our Solar Project Finance Journal, a monthly electronic newsletter analyzing the solar industry’s latest trends based on our unique position in the solar financing space. To view the full Journal or subscribe, please e-mail pr@solsystemscompany.com.