Despite Fears of a Crash, Solar Sector Remains White Hot
State fields 700 installation applications a month, even as solar certificates lose half their value.
New Jersey's solar market is continuing its rapid pace of growth—even amid warnings by some the sector could be headed for a crash.
In October, more than 44 megawatts of new solar systems were installed in the state, bringing the total to more than 447 megawatts of installed capacity, according to information compiled by a state contractor who helps administer the solar program. That amount could be more than doubled (1,017 megawatts) if all of the projects in the pipeline are built.
In fact, so much solar is being built that New Jersey is more than a year ahead of meeting a state-mandated requirement that specifies how much of the its electricity comes from solar energy. For most, that would be viewed as good news, but some say the explosive growth has created an oversupply of solar renewable energy certificates (SRECs), the primary means of financing solar projects.
The result has been prices for the certificates have dropped by more than half since this past June, creating widespread uncertainty among investors as to whether to pump new money into building additional systems in New Jersey. It also has led the state and industry executives to begin looking for ways to stabilize the sector, an issue that was the subject of a four-and-a-half hour meeting yesterday in Iselin, which settled little.
It also led to some to question if the sector is crashing when the state is still getting 700 applications a month to install solar systems.
But Lyle Rawlings, a vice president of the Mid-Atlantic Solar Energy Industries Association and the owner of a solar firm in Flemington, said he's seen a slowing in the pace of projects going forward, but conceded the number of project entering the pipeline is still greater than the requirement set by the state under its solar energy renewable portfolio standard.
"The momentum in market is very stubborn, even irrational," he said. "The numbers don't add up. There has to be a reckoning."
He and others argue that without bringing more stability to the marketplace, investors will either stop pumping money into new projects or, failing that, will simply wait for prices of solar certificates on the spot market to spike again, which will inflate the cost to electric customers, who ultimately pay off the certificates.
The Office of Clean Energy, which oversees the program, has been directed by the Board of Public Utilities (BPU) to determine ways to stabilize the market as well as to decide whether to extend utility-run programs that promote solar projects, mostly through long-term contracts. Many industry officials say that is the best way to stabilize the marketplace and lower the costs of solar energy to ratepayers.
"We need some structure so we don't have wild swings in the market," said Michael Winka, director of the clean energy office. "I don't know what it is at this time."
While industry executives are pushing to extend the utility-run programs, the state Division of Rate Counsel, which represents the interests of ratepayers, remains unconvinced it is the best way to go. "I still want to see why it is beneficial to ratepayers to extend this program," said Paul Flanagan, an attorney with the division.
Under New Jersey's system, power suppliers have to buy a certain amount of their electricity from solar systems. The primary means of meeting that requirement, known as the renewable portfolio standard (RPS), is by purchasing the certificates, which are factored into electricity costs.
Those costs have not been cheap. According to data compiled by Honeywell, a contractor for the state to run the program, the cost to ratepayers is approaching $1 billion, with the current spending at about $872 million. Of that, $267 million was spent in meeting the RPS requirements, $272 million on the utility loan programs, and $342 million through rebates.
With the state incentives, combined with a federal tax cash grant of 30 percent, the solar sector has been so inviting to investors that New Jersey ranks second nationwide in the number of solar installations with more than 11,000, behind only California.
By the end of the year, the clean energy office is supposed to make recommendations to the board for changes in the program and whether to continue the utility arrangement. At the same time, the legislature is expected to move forward with its own plan for stabilizing the sector, most likely by ramping up the requirement of power suppliers to purchase SRECs, a step some say would soak up the oversupply of certificates that has caused the steep drop in prices.