Posted on March 15, 2012 by David Wagner

Next Steps in New Jersey's Solar Transition

This post was written by Jim McGuire, Henry King, Ferd Convery and Marshall McLean

The New Jersey Board of Public Utilities (BPU) will hold a Public Hearing on March 22, 2012 starting at 9:30 am at its Trenton Office, 44 South Clinton Avenue. The purpose of the Public Hearing is to provide an opportunity for further public comment on a BPU Staff Straw Proposal on the next steps in the transition of NJ's Solar Program including: extension of the solar renewable energy credit (SREC) financing program administered by the four electric distribution companies (EDCs) located in the state; and related changes to the Solar Renewable Portfolio Standards (RPS). Initial Comments are due, in writing, by close of business on Friday, March 16 with final comments due at the close of the Public Hearing on March 22.

The BPU directed its staff to develop options and recommendations for next steps in response to rapid expansion of its Solar Program. The Solar Program expanded from an initial goal of 90 MW of installed solar during the five year period from 2003- 2008 to installation of more than 80 MWs in a single month during January 2012. As a result of this rapid expansion, New Jersey is projected to have an excess supply of installed solar capacity through at least energy year (EY) 2014 and perhaps through EY 2016. This excess supply has resulted in a dramatic drop in SREC prices from more than $600 per SREC in the spot market during the Summer of 2011, to about $200, and with the most recent EDC Auction in February 2012 yielding a price of $170. 
 

The Governor's 2011 Energy Master Plan for New Jersey, which was released in December 2011, set policy goals for BPU solar program including:

  • support for extension of the EDC SREC Financing Program and acceleration of the solar RPS in the near term;
  • promote solar on brown fields and landfills;
  • no subsidies for solar on productive/preserved farmland or open space;
  • lower the costs of the SREC program while maximizing the economic and environmental benefits of solar.

Within these policy goals, BPU Staff focused on extension of the EDC SREC Programs with a near term bump in the solar RPS schedule.

The Staff Straw Proposal for the EDC SREC Program would extend program for a three year period through a competitive loan and/or solicitation program. New projects selected for funding through the EDC SREC Program would be subject to the following proposed elements:

  • Program Size: 120 MWs allocated proportionately among the four EDCs.
  • Funding Time Frame: for year one of the EDC SREC program funding would be for 10 years. For years two and three of the program funding would be for shorter time frames.
  • No Floor Price for SRECs but rather would seek the lowest costs within each market segment.
  • Costs: incurred by the EDCs for administering the SREC Programs born by the solar developer or generation customer.
  • Eligibility: Net Metered projects with size limited by customer on-site usage pursuant to the Net Metering Rules set forth in N.J.A.C. 14:8-4 et. seq.
  • Set Asides: for residential and small commercial; grid connected landfill and brown field projects in areas that can be supported by the distribution system.
  • Sale of SRECs: via centralized auction in EY 2016 timed to minimize market impact.

The Staff Straw Proposal for the RPS, which requires a Rulemaking, proposes:

  • RPS Acceleration: the additional capacity of the extended EDC SREC Program to be reflected in the solar RPS Rule Amendment effective EY 2016.
  • SREC Life for New Projects: SREC qualification life for new projects to be reduced from 15 years to 10 years upon effective date set per rule and with a decreasing trend thereafter through EY 2027.
  • SACPs: develop a revised Solar Alternative Compliance Payment (SACP) schedule for EY 2017 to EY 2026 which reflects the lower cost of solar installation.

Reed Smith Attorneys from the Princeton, New Jersey Office will monitor the Solar Transition Action Steps under consideration by the NJ BPU. For further information please contact Jim McGuire, Henry King, Ferd Convery or Marshall McLean.
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Posted on March 6, 2012 by David Wagner

In New Jersey, Solar Renewable Energy Credit Auction Prices Fall Below $200

This post was written by Henry King, Ferd Convery, Jim McGuire, and Marshall McLean

The fundamental question for the future of the New Jersey solar market is the impact of the recent decline in solar renewable energy credit (SREC) prices on development of new projects to meet New Jersey’s ambitious renewable portfolio standard (RPS) targets. The $600+ per SREC prices in 2010 and 2011 attracted a tremendous amount of development activity. Now, the decline in SREC prices and the unavailability of long-term SREC contracts have caused developers to question whether to continue to invest in New Jersey. The legislature has contemplated (but not approved) adjustments to the RPS system, including restrictions on large projects and increasing the RPS targets to increase demand. From our perspective, however, these proposed adjustments would not calm the market and encourage new development because of the fundamental uncertainty of the market-based system.

The four New Jersey electric distribution companies hold quarterly auctions to sell SRECs that they have procured from their solar programs. The auction is open to all market participants, including basic generation service and third-party suppliers that must comply with the New Jersey renewable portfolio standard requirements. The February 2012 SREC auction conducted by the four New Jersey electric distribution companies resulted in an auction price of $171.63 per SREC. The SRECs sold were generated between June 1, 2011 and December 31, 2011, which is in the 2012 Energy Year. A total of 26,488 SRECs were sold at this auction.
 

 

The $171.63 per SREC price is a decrease from the prior auction for 2012 Energy Year SRECs ($227.03 at the October 2011 auction), and a dramatic fall-off from the auctions for 2011 Energy Year SRECs ($669.01 at the October 2011 auction; $479.75 at the August 2011 auction; $475.00 at the July 2011 auction; and $669.69 at the April 2011 auction). Keep in mind that the decline in SREC prices at the latest auction was not unexpected. The auction price is about 25% lower than prices in short-term bi-lateral SREC contracts.

There is a lot of speculation about how the future of SREC prices, and the supply of SRECs will fall now that the federal 1603 cash grant in lieu of investment tax credit program has expired and SREC prices are lower. The loss of the 1603 cash grant program will especially hurt smaller developers that may not have access to tax equity financing, and smaller projects that can’t bear the transaction costs.

The impact of the loss of the 1603 cash grant program and low SREC prices should eventually slow the supply of SRECs in the New Jersey market. In theory, this should cause a rise in SREC prices since the demand for SRECs under the RPS will continue to grow. Whether higher SREC prices will attract solar development is not clear, however, since many developers have now lived through the ongoing decline in prices and may only return once SREC prices are not subject to such dramatic swings.
 
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