The final version of the New Jersey Energy Master Plan was released yesterday. It recommends solutions to stabilize the solar industry in NJ while at the same time reduce ratepayer impacts. It contains language that recognizes the unexpected influx of solar investing in the last year which has led to a collapse in SREC prices. It states that an increase in the RPS (Renewable Portfolio Standard: amount of SRECs required to be purchased by power companies) would provide an opportunity for the solar industry to adjust. At the same time it suggests to reduce the SACP (Solar Alternative Compliance Payment: fine that power companies pay for not producing solar or purchasing SRECs from others who invested in solar infrastructure) in order to minimize the rate impact of an RPS acceleration. It is widely recognized in the solar industry that the SACP needs to be adjusted to account for the reduced cost of installing solar. Here are the most significant segments of the Energy Master Plan and how it relates to SREC prices:
Accelerate the RPS
A temporary acceleration of the RPS would provide some interim relief for the current market in SRECs and an opportunity for the industry to adjust. This acceleration would require increasing the RPS over the next three years and reducing the outlier years of the RPS schedule to minimize the impact to ratepayers129. This should provide the foundation for the solar industry to continue to develop and receive SREC payments trading within a reasonable range and would facilitate a reduced SACP schedule.
Reduce the SACP
In order to minimize the rate impact of RPS acceleration and reduce the cost burden borne by non-participants in New Jersey’s solar market, the State has initiated action to materially reduce the SACP. The efficacy of lower cost C&I programs coupled with the anticipated continued cost decline in installing solar PV support a step-down in the SACP levels through 2025.According to the CEEEP analysis, with SREC prices starting at $500/MWh and declining 2.5%every year, the cost of a new solar installation can be recouped in about five years for a C&Iproject of 10-1,000 kW, and in ten years for a residential or small commercial project of less than 10 kW.130There have been a number of proposals to modify the SACP schedule; within the industry, there’s general agreement that a reduction in the overall schedule is warranted to reflect the
Continuing downward trend in installed costs. The BPU will propose a new schedule following the release of the EMP.”
Keep in mind that the EMP is JUST A PLAN! It takes legislation to implement the increase in the RPS and decrease the SACP. If, and when, a bill is passed in the New Jersey Legislature it still has to be signed into law by Governor Christie. This bill will have to be sensitive to ratepayer impact and if it overreaches there is a high probability that it will not be singed into law.
Beware of the Fine Print
Solar industry insiders will most likely try to insert special perks in a bill like requirements for ratepayers to enter into long term SREC contracts. Long term SREC contracts have shifted all risk on ratepayers in the past while locking in profits for developers. ($475 10 year fixed rate contracts were prevalent). Mandated long term contracts will create risk free investing for new solar investors while the ratepayer and most current solar owners will suffer any future losses in an oversupply and if solar becomes cheaper during the next 10 years. Long term contracting decisions should be flexible and the decision as to how much of the market should benefit should rest with the Board of Public Utilities like it has in the past. This BPU decision making is best and can be used to promote land use issues and satisfy net benefits tests when siting solar.
Job Retention and Stable SREC Prices
Adjustments like these advocated by the Christie Administration will sustain the investment in solar in New Jersey thus retain thousands of jobs associated with the installation of solar. In the absence of an adjustment it is estimated that the solar industry in New Jersey will have to contract for years (Job losses) before the current state mandates catch up. It makes sense to speed up development due to the significant drop in the installed cost of solar. This drop was not modeled to happen for at least another decade when the current solar legislation was passed in January of 2010. Business’s, homeowners, schools and municipalities that invested in solar in the last few years can expect supported SREC prices if a bill is introduced and signed by the Governor. Hopefully this will happen within the next month!
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