Governor Christie claims that the previous ten-year energy master plan was unrealistic and that a more obtainable set of standards based on the current situation is needed. Christie is concerned about what the RPS, particularly the solar carve out is doing to electricity costs for the average New Jersey customer.  Therefore, in this Master Energy Plan, Christie wants a cost-benefit analysis of the Solar Renewable Energy Credit (SREC) market in New Jersey created by the solar carve out.  To this end, his EMP proposes reducing the SACP as discussed above. Governor Christie has maintained that the projected plan is not intended to lessen the role of wind and solar energy in New Jersey but rather to set a more realistic target for the next ten years.

Opponents of the plan claim that the previous RPS goal of 30 percent is realistic and contributed to the vast solar development in New Jersey.  The solar carve out and SACP created one of the more robust SREC markets in the country.  An SREC, or solar renewable energy credit, is a tradable credit that represents all the clean energy benefits of electricity generated from a solar electric system.  Energy suppliers must procure a certain amount of solar-generated electricity, either through building their own systems or purchasing these SRECs, and so these SRECs became valuable.  NJ system owners were able to sell SRECs and decrease their payback period on solar systems significantly.

With the increasing deployment of solar energy and continually decreasing costs in the solar industry, critics of Governor Christie‘s Energy Master Plan claim now is not the time to reduce solar goals. Although the EMP itself does not impact the current NJ RPS (actual legislation would be needed for that), the proposed EMP could undermine the state’s exceptional leadership in renewable energy development and may lead to doubts on the continuing success of New Jersey’s solar market. The New Jersey Board of Public Utilities (BPU), the lead implementing agency, will hold three public hearings in July and August before Christie issues his final plan.

Since the start of 2011, the New Jersey Clean Energy Program has:
• been receiving approximately 575 new applications per month
• been approving about 50 MW of SRP & REIP Applications per month
• seen an average of 16 MW of system completions per month.

The New Jersey Board of Public Utilities Board is proposing the re-adoption of some amendments to its Renewable Energy and Energy Efficiency rules at N.J.A.C. 14:8 (Chapter 8). These rules lay the groundwork for New Jersey’s SREC program.

Some of the tenants and requirements of the Chapter 8 Readoption Proposal are summarized below for the convenience of our readers.

SREC Lifespan
An SREC associated with energy generated on or after July 1, 2010 shall be used to comply with RPS requirements for any one of the following three energy years:
• The energy year in which the underlying energy was generated
• Either of the two energy years immediately following the energy year in which the underlying energy was generated

An SREC based on energy generated before July 1, 2010 shall be used only to comply with the requirements of this subchapter for the energy year during which the underlying energy was generated, and/or the subsequent
energy year.

Once an SREC has been submitted for compliance, the SREC shall be permanently retired.

SREC Generation
In order to measure SREC generation, the Board or its designee shall accept either of the following measurement methods:

• Periodic readings of a meter that records megawatt-hour production of electrical energy. The readings may be taken or submitted by any person, but shall be verified by the Board or its designee, or
• For a solar electricity system with a capacity of less than 10 kilowatts, annual engineering estimates and/or monitoring protocols

SREC Registration Process
In order to qualify to produce SRECs, systems need to go through the SREC Registration Program (SRP) and be issued a New Jersey State Certification Number.

The SRP process requires:
• The submittal of an initial registration package- generally 10 business days after execution of the contract for purchase or installation (whichever comes first) of the photovoltaic panels to be used in the solar facility.
• Construction of the solar facility to not begin until after Board staff has issued a conditional registration for the facility.
• Construction of the solar facility to be completed and local code approval granted prior to the expiration of the conditional registration.

If the applicable submittal deadline is met, SRECs shall be usable for compliance with this chapter immediately upon the issuance of a New Jersey State Certification Number for the facility. However, if the applicable deadline is not met, any SRECs based on electricity generated by the solar facility shall not be usable for compliance with this chapter until 12 months after the solar facility has received authorization to energize in accordance with the Board’s interconnection rules.

Registration of a solar electric generating facility requires completion of the following process:

1. The registrant shall submit an initial registration package to the Board.

2. If the initial registration package is incomplete or deficient, Board staff shall notify the registrant in writing of the deficiencies.

3. Once the registration package is complete, Board staff shall review the package to determine whether the solar facility meets the SREC eligibility requirements of this subchapter. If the facility does not meet these requirements, Board staff shall notify the registrant. The registrant shall revise the package and resubmit it within one year of this notice. Failure to resubmit within this time will result in cancellation of the registration process, in which case a complete new registration process shall be required for the solar facility to obtain a New Jersey State Certification Number.

4. If the solar facility as described in the initial registration package meets SREC eligibility requirements, Board staff shall issue notice to the registrant of a conditional registration for the facility. The notice of the conditional registration shall:
• State that, if the solar facility is constructed as described in the initial registration package, Board staff will issue a New Jersey State certification Number for the solar facility upon construction completion and inspection; and
• Include an expiration date 12 months after the date of the notice

5. After issuance of the notice of conditional registration, construction of the solar facility as described in the initial registration package may begin. Construction of the solar electric generating facility shall be completed prior to expiration of the conditional registration.

The registrant may request one extension prior to the expiration of the conditional registration, and shall include an updated schedule for completion. Board staff may authorize one extension for the project on a case-by-case basis, based on the likelihood of timely and successful completion of the solar facility. If the conditional registration or extension expires before construction is complete, the registrant shall begin the entire registration process again by submitting an initial registration package and the Board staff shall treat the new registration package as if it were a first-time submittal.

The application will require the following:
• Information identifying and describing the owner, host location, builder/installer and operator of the solar electric generating facility
• Basic information describing the solar facility, including its capacity, manufacturer and expected output
• A technical worksheet detailing the technical specifications of the solar facility
• A construction schedule for completing the solar facility, including significant milestones;
• A signed contract or other binding legal document between the owner and installer of the solar facility
• Basic information regarding the cost of equipment and installation
• A site map of the land upon which the generating facility will be located
• Any other data or information necessary for Board staff to determine whether the solar electric generation will meet the requirements for SRECs.

When construction of the solar electric generating facility is complete, the facility owner (or installer) shall submit a post-construction certification and request an inspection or inspection waiver from the Board staff.

A post-construction certification package would include the following:
• A copy of the conditional registration notice issued by the Board
• A final “as built” technical worksheet, detailing the technical specifications of the completed solar electric generating facility, including any changes from the technical worksheet submitted as part of the initial registration package
• Digital photographs of the site and the completed solar facility
• A shading analysis
• An estimate of the electricity production of the solar facility
• Documentation of compliance with all applicable Federal, State and local law, including eligibility for any tax incentives or other government benefits, where applicable.

The facility owner (or installer) should supply a copy of the initial application to interconnect the facility to the distribution and transmission system, as well as the EDC or PJM approval to interconnect and energize the facility; and a statement that an inspection of the solar facility, or an inspection waiver, has been requested through the Board’s NJCEP website, and the date of the request.

After receiving the inspection request and complete final documentation required, Board staff will conduct an inspection or notify the registrant that no inspection is required (waiver).

If no inspection is required, or if the inspection indicates that the solar electric generating facility has been constructed in accordance with the conditional registration, and/or any Board-authorized changes, Board staff shall assign a New Jersey State Certification Number to the solar facility for use in obtaining SRECs from PJM-EIS GATS.

If, after submittal of an initial registration package, an increase or decrease of more than 10 percent in the solar electric generating facility’s generating capacity is planned, the registrant shall notify Board staff by e-mail

Interconnection Review (for systems under 10 KW)
Once a customer-generator has met the level 1 interconnection, the EDC shall notify the customer-generator in writing that the customer-generator is authorized to energize the customer-generator facility, as follows:
• The EDC shall send the authorization to the e-mail address, and to the U.S. Postal Service mailing address that is listed on the customer generator’s submitted interconnection application form; and
• The EDC shall not condition the authorization to energize on the EDC’s replacement of the customer-generator’s meter.

An applicant shall submit an application Interconnection Application/Agreement Form for level 1 interconnection review.

If a customer-generator facility meets all of the applicable criteria above, the EDC notifies the customer-generator under that the facility will be approved, the EDC shall, within three business days after sending the notice of approval do both of the following:

• Notify the applicant by e-mail or other writing of whether an EDC inspection of the customer-generator facility for compliance with this subchapter is required prior to energizing the facility or that the EDC waives inspection; and

• Return to the applicant a level 1 interconnection agreement, unless: Part 1 of the original application, signed by the appropriate EDC representative.

The EDC does not require an interconnection agreement for customer generator facilities that qualify for level 1 interconnection review; or

The applicant has already submitted such an agreement with its application for interconnection.

An applicant that receives an interconnection agreement shall execute the agreement and return it to the EDC. If the EDC requires an inspection of the customer-generator facility, the EDC shall promptly complete the inspection and the applicant shall not begin operating the facility until completion of the inspection.

Upon receipt of the executed interconnection agreement from the customer generator and satisfactory completion of an inspection, if required, the EDC shall notify the customer-generator in writing that the interconnection is approved, conditioned on approval by the electrical code officials with jurisdiction over the interconnection.

If an EDC does not notify a level 1 applicant in writing or by e-mail whether the interconnection is approved or denied within 20 business days after the receipt of an application, the interconnection shall be deemed approved. The 20 days shall begin on the date that the EDC sends the written or e-mail notice or application receipt required.

A customer-generator shall notify the EDC of the anticipated start date for operation of the customer-generator facility at least five days prior to starting operation, either through the submittal of the interconnection agreement or in a separate notice.

Once an applicant receives Part 1 of the application with the EDC signature, and has installed and interconnected the customer generator facility, the applicant shall obtain approval of the facility by the appropriate construction official.

The customer-generator shall submit documentation of the construction official’s approval to the EDC, along with a copy of Part 2 of the application, signed by the customer-generator.

If inspection of the customer-generator facility was waived, the EDC shall, within five business days after receiving the submittal required under above, notify the customer-generator of authorization to energize the facility. The notice to the customer-generator shall be provided in the format required.

If inspection of the customer-generator facility was not waived, the following process shall apply:

• The customer-generator shall submit the construction official’s approval and signed Part 2, and inform the EDC that the customer-generator facility is ready for EDC inspection
• Within three business days after the customer-generator notifies the EDC that the facility is ready for inspection, the EDC shall offer the customer-generator two or more available four-hour inspection appointments.
• The appointments offered shall be no later than 10 business days after the EDC offers the appointments (that is, within 13 business days after the customer-generator submittal.
• The customer-generator shall notify the EDC which of the offered inspection times the customer-generator prefers, or shall arrange another time by mutual agreement with the EDC.
• Within five business days after successful completion of the EDC inspection, the EDC shall notify the customer-generator that it is authorized to energize the facility.

The official version of the Chapter 8 rules was published in the New Jersey Register on May 2, 2011.

About Sol Systems:
Sol Systems is a solar energy finance and development firm that was built on the principle that solar energy should be an economically viable energy solution. With thousands of customers and hundreds of partners throughout the United States, Sol Systems is the largest and oldest SREC aggregator. We provide homeowners, businesses, solar installers, and developers with sophisticated financing solutions that help make solar energy more affordable. Sol Systems also helps energy suppliers and utilities manage and meet their solar RPS requirements efficiently by providing them with access to diverse portfolios of SRECs. For more information, please visit www.solsystemscompany.com.

1. When does SREC creation begin?
2. What are New Jersey’s solar meter requirements?
3. When will NJ SREC prices fall?

When does SREC creation begin?
SREC creation does not begin as soon as the system is installed or when the system is capable of producing solar electricity. Rather, SRECs are awarded after New Jersey has awarded the system a certification number and the utility has signed off on the interconnection agreement. Thereafter, one SREC is awarded for every megawatt hour of solar energy that is generated.

The SRECs can be sold after the system has been listed on PJM’s Generation Attributes Tracking System (GATS). PJM GATS is responsible for tracking SREC production for systems located in New Jersey and throughout the PJM region (so that SRECs aren’t double-counted).

When it comes to selling SRECs and collecting money for SRECs, system owners have a variety of options. They can sell on the spot market through an aggregator or broker, they can sell through a fixed price contract with a utility or aggregator, or they can pre-sell their SRECs through an upfront agreement. In all of these arrangements, there will be a slight delay in when the system owner actually receives a payment for their SRECs. One reason for the delay is that GATs does not award a credit for an SREC until one month after the SREC is generated.

What are New Jersey’s solar meter requirements?
The most recent rules from the New Jersey Clean Energy Program require systems to have an ANSI certified solar meter with a 5% accuracy rating for systems 10 KW or less and a 1% accuracy rating for systems larger than 10 KW. (Systems that have received REIP funds and that are 10 KW or smaller in size do not need to meet this requirement.)

A solar meter (often called a “utility-grade meter”) is different than the utility meter, the solar meter is installed with the solar energy system and it is ultimately what measures SREC production. To get credit for each SREC that is generated, system owners who have systems larger than 10 KW must provide a monthly meter reading. This reading can be taken manually, or through a remote monitoring system.

When will SREC prices fall?
Unlike some other SREC markets, New Jersey has historically enjoyed high and stable SREC prices. In fact, SREC spot prices actually rose from September 2008 to March 2009, which led some people to regard SRECs as an appreciating asset. The history of high and stable prices has led many system owners and solar developers to believe that spot market SREC prices are guaranteed to remain stable in New Jersey, but unfortunately, this is not true.

To understand why SREC prices will fall eventually, one must understand why NJ SREC prices are currently high. In today’s world, New Jersey energy suppliers have the choice to:
a. Develop their own solar energy facilities
b. Purchase SRECs from solar energy system owners via the spot market or through long-term fixed price contracts
c. Pay an “Alternative Compliance Penalty” (ACP)

Thus far, most energy suppliers have elected to (b) purchase SRECs from solar energy system owners through the spot market and long term contracts. They have done so because they do not currently have enough of their own solar capacity to meet their obligations and they would rather purchase SRECs (at an amount slightly less than the ACP) than they would pay a penalty fee for non-compliance. However, energy suppliers have plans to develop their own plants, and they know that the ACP declines slightly every year (by approximately $15 every year) which means that, no matter what happens, they will be paying less for SRECs in the future.

In addition, the supply of SRECs in New Jersey is increasing as more solar farms, residential and commercial solar energy systems are built (“SREC supply”). Luckily, New Jersey’s RPS legislation calls for an increasing number of SRECs to be bought and/or created by energy suppliers (“SREC demand”). In fact the SREC demand will increase in June 2011, but the supply of SRECs is edging closer and closer to SREC demand.

As of March 2011, there was an SREC undersupply of approximately 10,000 SRECs (equivalent to what 8 MW generates annually). This gap is smaller than it has ever been – but the gap is what helps keep New Jersey’s solar REC prices high. Moreover, new projects are coming online every day (11 MW were installed in February 2011), and there is a pipeline of small residential projects and more than 200 megawatts of large-scale projects that have already been announced. (Here at Sol Systems, it seems we talk to at least one developer each day who is planning a 1+ MW project in New Jersey.)

If just a portion of this pipeline comes to fruition, there may be an oversupply of SRECs which will flood the SREC market and cause SREC spot market prices to fall. On the other hand, history has shown that multi-megawatt solar projects are often delayed or never come to pass – so it’s hard to know exactly when supply will catch up with demand. If an oversupply occurs, SREC spot market prices will begin to fall, and system owners who do not have a fixed-price, multi-year contract like Sol Annuity with an SREC aggregator or an energy supplier could see decreases in their SREC income and their solar energy system ROI.

Alas, even the SREC experts can’t tell you if or when spot market SREC prices will fall in New Jersey. The truth is that SRECs are commodities and system owners need to evaluate their own tolerance for risk when determining their strategy for selling them.

About Sol Systems
Sol Systems is a solar energy finance and development firm that was built on the principle that solar energy should be an economically viable energy solution. With thousands of customers and hundreds of partners throughout the United States, Sol Systems is the largest and oldest SREC aggregator. We provide homeowners, businesses, solar installers, and developers with sophisticated financing solutions that help make solar energy more affordable. Sol Systems also helps energy suppliers and utilities manage and meet their solar RPS requirements efficiently by providing them with access to diverse portfolios of SRECs. For more information, please visit www.solsystemscompany.com.

As Michael noted this evening, “Education is family for so many. With education people do not need to fight wars.”

Rebuild Sudan is currently working on a multipurpose school in Jalle Payam. Construction is slated to begin in November 2010. “We had many motivations and principles in mind during the development of this project. First and foremost was to build a safe place for the children of Jalle, especially girls and orphans, to receive a primary education,” said Michael. The school will include a public library, a computer center and meeting/performance space and the building is designed to be environmentally friendly, with walls constructed of stabilized earthen plaster using soil excavated for the latrines.

Michael Kuany is one of the Lost Boys of Sudan, more than 27,000 boys of the Dinka ethnic group who were displaced and/or orphaned during the Second Sudanese Civil War (1983-2005). Approximately 2 million people were killed during this war; 4 million people lost their homes and became refugees. Most of the boys were orphaned or separated from their families when government troops from the north systematically attacked villages in southern Sudan, killing many of the inhabitants, most of whom were civilians.

“Michael has walked a long path and his journey has not been easy. It is clear that his life is guided by his principals and his passion to bring good back to his country and build a future for children through education. This is exactly the type of organization that Sol Systems is proud to sponsor,” noted Yuri Horwitz, CEO and President of Sol Systems.

About Sol Systems
Sol Systems is a Washington D.C. based solar energy finance and development firm that was built on the principle that solar energy should be an economically viable energy solution. Sol Systems enables solar developers, homeowners, and businesses to fully realize the value of their solar energy systems by providing them with a range of options for selling their SRECs. To date, Sol Systems has helped over 1,100 customers with projects ranging from 1 kW to over 1 MW realize the value of their SRECs. Sol Systems currently operates in Delaware, Indiana, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Virginia, Washington, D.C., and West Virginia and has partnerships in place with over 100 solar installers and developers. For more information, please visit www.solsystemscompany.com.

The current and future value of Solar Renewable Energy Credits (SRECs), and SREC markets, is largely determined by a state’s Solar Alternative Compliance Penalty (SACP). Although the SACP schedule is not harmonized amongst states with SREC compliance markets, a common theme between many markets is a declining SACP that will likely lead to lower SREC values.

The Solar Alternative Compliance Penalty (SACP) is the fee a regulated entity must surrender in the event they do not procure a sufficient amount of solar electricity to meet their compliance obligation for their state’s Renewable Portfolio Standard (RPS) . An easy way to think of an SACP is as a price cap. If the SREC market functions properly, an SREC will not be traded at a price above the SACP, but can be traded at a price below the SACP. The SACP is defined on a state-by-state basis within the state’s RPS (or Alternative Energy Portfolio Standard for states like Pennsylvania and Ohio).

An SACP schedule is a schedule that defines the price penalties that a regulated energy supplier must pay if they do not generate or purchase enough SRECs to meet their compliance obligation. For example, in Ohio, the SACP schedule is as follows: the penalty per SREC in 2011 is $400.00, in 2013 the SACP is $350.00, in 2015 the SACP is $300.00, and by 2020 the SACP per SREC is $150.00. As indicated in this SACP schedule, the Ohio SACP declines quite precipitously over time.

The two main policy reasons for a declining SACP schedule are:

(1) To incentivize solar installers and developers to lower their installation costs. A decreasing SACP means solar developers must develop and install projects at lower costs to ensure profitability.
(2) To limit ratepayers’ exposure to electricity rate increases as RPS requirements escalate. The costs of meeting the Renewable Portfolio Standard can result in slightly higher electricity prices, which are sometimes passed onto ratepayers through rate increases. The declining SACP schedule ensures that rate increases are contained.

Although SACP schedules are not harmonized between states, pretty much all states with compliance markets have declining SACP schedules. For example: Ohio’s SACP declines by $50.00 biannually, starting in 2015, Maryland’s ACP declines by $50.00 biannually, and even New Jersey’s ACP is expected to decline by $35.00 between 2010 and 2012 and an additional $64.00 between 2012 and 2016. The one state without a declining SACP schedule, Pennsylvania, is now considering legislation in the state Senate that would dramatically reduce the state’s SACP beginning in 2011.

Although SACP schedules alone do not determine current and future SREC values, it is very clear that declining SACP schedules lead to declining SREC prices . As this occurs, long-term fixed priced SREC contracts , competitive with current spot market prices, become increasingly more valuable to the homeowner interested in investing in solar.

So what does it mean for solar energy? In sum, it doesn’t hurt solar, but its immediate effects may not help much either. The proposed alternative compliance payment (ACP), which is the penalty energy suppliers must pay if they do not comply with their requirements is set low, especially when compared to current state RES programs such as New Jersey or D.C that have developed a foundation for a strong solar market. In addition, the portfolio of qualifying technologies may be too inclusive (by including numerous technologies the impact on any one technology is limited.

However, the legislation provides the framework, a seed of sorts, for the continued implementation and development of RES legislation nationwide. As RES markets develop nationwide, the solar industry can begin the task of adjusting to a more sustainable regulatory mechanism that is likely to help accelerate the implementation of solar technology (and others) well into the next decade. Our analysis is below.

BACKGROUND

What Does a Federal RES Do?

The federal Renewable Electricity Standard requires that a certain percentage of the electricity purchased in the country come from renewable energy resources. The purpose of an RES is to set up a competitive market in which utilities either (1) directly produce a specific amount of renewable energy based on their total load or (2) effectively purchase this renewable energy from others producing it or (3) pay a penalty. Most utilities will choose some combination of all three. In some state markets, an RES is called a renewable portfolio standard (RPS) or alternative energy portfolio standard (AEPS).

If utilities opt to go with the second strategy listed above, they usually do not purchase the energy from renewable energy resources, they simply purchase title to the “credit” associated with the renewable energy, termed a renewable energy credit (REC). Since energy can be measured in megawatt-hours (MWh), one REC represents the green attributes associated with one MWh of production from a renewable energy resource. Each time a homeowner or business produces one MWh from its solar system, it can sell the REC associated with this MWh in a competitive market. Technologies compete to produce RECs and sell them, and as these technologies scale, the supply of RECs increases, and the costs of these RECs decreases. The market is designed to drive down the costs of compliance and catalyze alternative energy technologies to scale.

CURRENT RES OVERVIEW

Volumes

The RES targets are less than the twenty to twenty-five percent recommended by most industry groups and President Obama himself this last year. The current RES requirements are below:

2012-13: 3%
2014-16: 6%
2017-18: 9%
2019-20: 12%
2021-39: 15%

The Alternative Compliance Payment

The Alternative Compliance Payment, which is the fee that electric utilities must pay in lieu of actually purchasing or producing the renewable energy credits required by the RES, is $21, adjusted for inflation. This means that for every MWH of electricity that the utility fails to supply from renewable energy, it must pay a fine of $21. The ACP effectively sets the ceiling on the value of renewable energy credits, with the caveat that there are multipliers (described below) that make some RECs more valuable than others.

Qualifying Technologies

Under the current RES, those resources include solar, wind, geothermal, biomass, landfill gas, qualified hydropower, marine and hydrokinetic renewable energy, incremental geothermal, coal-mined methane, qualified waste-to-energy, and potentially other technologies.

Multipliers

In order to incentivize certain technologies, states (and in this case the federal government) often provide multipliers for RECs from specific technologies or locations. Under the federal RES, utilities will receive double credit for RECs produced by renewable energy systems located on Indian land (to incentivize the development of renewable energy on Indian land) and triple credit for small renewable distributed generation less than 1 MW. Although not stated, it is likely that the maximum ceiling on energy efficiency credits will conversely reduce the value of RECs produced from energy efficiency upgrades.

No Preemption

The national RES will not preempt current state RES or RPS standards. Instead, the RES is meant to set a floor for states without current RES or RPS legislation to set up trading regimes and complement preexisting state legislation. The RES is a bit like the federal Clean Air Act or Clean Water Act in this respect, both of which provide states with a blueprint which they can either accept in whole, or mimic with state-specific standards that are as strict or less strict. This is incredibly important for those states that have more favorable solar requirements than the federal RES.

National Market

It is unclear at this point whether a national market will develop because of the legislation. Currently, the legislation provides for the delegation of responsibilities to either a national trading mechanism or a more regional mechanism. States will have to figure out whether they want their REC markets to be regional, like the Regional Greenhouse Gas Initiative (RGGI), or isolated, like Delaware, New Jersey, Massachusetts and others.

SREC Values

The value of solar renewable energy credits (SRECs) is typically a function of supply and demand . It is therefore unclear what the values of SRECs will be since this supply and demand will differ from state to state. Taken by itself, the legislation will not push SREC prices very high since the ACP is $21, with a potential multiplier of three ($63). However, current RPS states will likely retain their markets, and states without an RPS may develop more aggressive RPS legislation in light of the national RES.

ANALYSIS

Potential Negatives

1. The effective solar alternative compliance payment (SACP) is $63 per MWH for distributed solar energy systems (those below 1 MW in nameplate capacity). This is low enough that it is not likely to create a significant market for solar renewable energy credits (since the ACP provides a ceiling on the value of SRECs). This legislation is therefore unlikely to single-handedly develop robust markets for solar. However, as discussed below, the RES may provide the necessary legislative framework for the creation of such a market.

2. The list of qualifying “renewable energy resources” includes technologies that will be much less expensive to implement initially, and will likely flood REC markets. Solar energy, for example, is not likely to be able to compete with biomass or methane from mining.

3. Utilities can purchase energy efficiency credits. These credits are also likely to be much less valuable than SRECs, and may also flood the market – although they are limited to 26.67 percent of their overall required needs.

Potential Positives

Setting up a national RES begins to set minimum requirements, build the framework for the introduction of renewable energy legislation that many states currently do not have in an organized fashion, and develop a sustainable means by which to incentivize renewable energy. RES legislation is especially important for new technologies that may have higher up-front costs (like solar) because requirements can be structured around these costs. Although the standards may not be perfectly structured to assist solar energy at this time, most RES legislation is tweaked over time to better suite solar energy.

OUR CONCLUSION

The proposed federal RES is a good beginning, and provides a decent foundation for future legislation. Although it may not be perfect for solar initially, it forces legislators to address the important issue of alternative energy development, and provides them with a blueprint with which to do so. Our guess is that the requirements, and the ACP, will likely increase on a state-by-state basis. In the meantime, renewable energy is able to put itself on the map, and we’ve taken the first step of many in diversifying our energy infrastructure and moving towards a more sustainable future.

What do the dot-com bust, the home mortgage crisis, and the NJ solar market have in common?

Lots of people started believing that their investment was certain to make them rich. Perhaps we should learn from history: when the masses start believing they are certain to get rich easily, they are likely to be wrong.

While it is true that New Jersey solar renewable energy credits (SRECs) are fetching high prices on the spot market today, they will not always get such high prices. Let’s recall the major goal of solar legislation and performance-based solar renewable energy credit (SREC) markets is to help the nascent solar industry grow and reach economies of scale in both manufacturing and installation so that solar energy becomes cost competitive with polluting fossil fuels. Legislation can do this by:

1) Making solar an attractive investment to early-adopters
2) Creating a financial penalty for energy suppliers and utilities who do not employ clean technologies

Inherent in this logic is that one day the solar industry won’t need legislation-based financial incentives to succeed.

California provides a great example of how a production based incentive is supposed to increase solar capacity while driving solar incentive costs down. The program was set up in steps so that every time a certain capacity of solar applications were queued, the incentive would drop to the next level. The idea is that the solar incentive would drive scale and help cause the costs of panels to drop, while installers learn to be more efficient at installations and drive their costs down. The starting production based incentive for Step 1 for residential systems was $390/MWh; today two of the three investor-owned utility programs have incentive levels at Step 7 ($90/MWh). As of September 1, 2010, there are 690 MWs of installed solar capacity in California, and the state is perceived to have the most successful solar market in the country.

Certainly, the legislation and market dynamics that support the New Jersey market are different than those of California, but the intent of the legislation and the driving forces will ultimately lead to the same results: more solar capacity and a decrease in the level of solar incentives.

So why do so many people in New Jersey believe that solar is a surefire investment?

There are two main reasons.

REASON 1: The Alternative Compliance Payment (ACP) for not creating or purchasing SRECs is high (currently $675/SREC with scheduled decreases annually) and the current supply of solar capacity does not generate enough SRECs to meet the legislation-driven demand.

REASON 2: Installers who want to sell more solar have an inherent incentive to lead prospective solar energy system owners to believe that SREC values will remain high because it shows a higher ROI.

Buyer beware.

The first half of reason 1 is true today, but solar capacity will not always be undersupplied. Each and every energy supplier who is subject to the ACP is trying to figure out how to avoid paying the expensive penalties. Energy suppliers can avoid these fees by developing their own solar plants or purchasing solar-generated energy from large solar farms through Power Purchase Agreements (PPAs).

The development of small and large solar plants will continue as long as the investment returns are good, but the more solar plants there are, the lower the returns will be. Ultimately, solar will succeed, energy suppliers won’t have to pay alternative compliance penalties and the value of SRECs will diminish.

There is no question of whether this will happen, the only question is when this will happen.

What about the installers that lead their customers to believe that SREC prices will be high? Unfortunately, we expect that some customers will get burned when they expect their surefire investment to perform and they’re left with minimal SREC payments.

Luckily, some citizens of New Jersey are starting to talk about the risks of assuming spot market rates will stay high. We expect that, over time, more and more people will recognize the importance of long term SREC contracts. There are also forthright installers who educate their customers about the risks of the spot market and offer them the option to lock their rates with long-term contracts that ensure the SREC value over time.

The current cycle of funding will offer $0.75 per watt in incentives limited to the first 7.5 kW of solar installations. Excluded from funding eligibility are commercially owned systems as well as all systems over 10kW. The current rates mark the lowest incentive offerings by the REIP since its inception.

Overall the REIP program has been very successful in making solar energy more affordable. However, as REIP incentives are scaled down and applications for incentives are backlogged, homeowners interested in installing solar energy are relying more heavily on SREC income to finance their solar energy systems. New Jersey SRECs remain the most valuable in the country and as state incentives decrease, SRECs will play an even larger role in making solar energy affordable to homeowners across the state.

Currently,  NJ homeowners and businesses interested in SREC financing have three different options to monetize their SRECs, each of which are available through Sol Systems: multi-year fixed-price contracts (Sol Annuity), upfront payment for SRECs (Sol Upfront), and a short-term market-based option which allows owners to sell SRECs at their current spot-market value (Sol Brokerage).

For more information on Sol Systems products, please click here. For more information on solar energy rebates and incentives in the state of New Jersey, please visit the Database of  State Incentives for Energy and Efficiency.