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Can the State Save New Jersey's Solar Sector?

New bill aims to prop up prices in badly battered solar market -- but even some advocates wonder if it can succeed.

Hoping to avert a crash in the solar industry in New Jersey, a key legislative panel yesterday passed a bill that aims to stabilize the sector, once hailed as one of the fastest-growing parts of the state economy.

Whether the legislation (S-1925) will succeed, however, remains an unanswered and much disputed question among its advocates and critics.

"Right now, we have a crisis," said Sen. Bob Smith (D-Middlesex), the chairman of the Senate Environment and Energy Committee and a sponsor of the bill, along with Senate President Stephen Sweeney (D-Gloucester). "If the market stays where it is, there will be no more solar in New Jersey," Smith said.

In the past year the market has been in free fall.

The prices for the electricity solar systems produce for their owners fell from more than $600 last summer to the $100 range in recent weeks. Unless prices are propped up, according to Smith and clean energy advocates, investment in new solar projects will completely dry up in the state -- and soon.

By most accounts, the collapse of those prices, dubbed solar renewable energy certificates, occurred because both state and federal incentives spurred so much investment in the sector that there is now a huge oversupply of the certificates, also known as credits.

By and large, most segments of the very diverse solar industry described the Smith-Sweeney bill as a good first step, but they suggested more aggressive changes need to be adopted to avert what some predicted would be a virtual shutdown of the sector over the next few years.

If that occurs, it would be quite a reversal for a state that has climbed behind only California in the number of solar installations, a feat accomplished by those lucrative state and federal subsidies and strong backing from state regulators and lawmakers.

Too much so, according to some business interests. They say the subsidies designed to promote solar -- the bulk of which are paid by industry and others businesses, but also fall on residential customers -- are inflating the cost of electricity in New Jersey, a state already burdened with some of the highest energy costs in the nation.

"At some point, the state has to say, 'Solar, we are cutting you off,' " said Hal Bozarth, executive director of the Chemistry Industry Council of New Jersey. "Like all bubbles, they overbuilt. Now they are back. What's to say they won't be back again and say you didn't give us enough money."

In part, the debate revolves around when, and perhaps if, the solar sector, an industry that has created more than 5,000 jobs and has more than 200 firms with offices in New Jersey, has to be weaned off those subsidies.

"We need to remember that at some point, the industry will have to survive without ratepayer subsidies," said Stefanie Brand, director of the Division of Rate Counsel, which represents the interests of ratepayers, in written testimony to the committee. "The idea was that ratepayers would help jump-start the market, not sustain it forever."

Just how rapidly that growth occurred was underscored by the hundreds of people who showed up at the Statehouse Annex for the hearing. Dozens, including lobbyists who had shown up to testify, were escorted out of the fourth floor hearing room by state troopers because there were not enough seats for them, an unusual occurrence at a legislative hearing.

The bill voted out by the committee also reflects changes made in agreement with the Christie administration in the previous 24 hours. Lobbyists for the solar sector saw the latest version of the bill only minutes before the three-hour long hearing on it commenced.

The bill aims to address the overriding problem with the sector by accelerating over the next three to four years, the amount of electricity power suppliers must buy from solar systems. It also aims to soak up some of the oversupply of certificates by allowing up to 80 megawatts of huge solar projects, which supply electricity directly to the grid, over each of the next three years. It gives priority to projects built on closed garbage dumps and brownfields -- contaminated industrial sites that have long lain idle.

Some solar developers oppose that provision, particularly those seeking to build huge grid-supply projects on agricultural land and other locations. The bill also aims to prevent large grid-supply projects by capping their size at 10 megawatts, a proposal designed to prevent big projects from capturing most of the solar credits available in any year.

That provision would make losers of some grid developers. Lawrence Neuman, president of EffiSolar Development LLC, noted 14 of the 17 solar projects in development by his company involve solar systems larger than 10 megawatts.

Lyle Rawlings, president of Advanced Solar Products, had little sympathy. "The industry needs to go on a diet," he said, backing efforts to limit big solar projects and even accepting closer scrutiny on projects as small as two megawatts. Ninety-seventy percent of the projects his company built in the last two years involved projects bigger than a megawatt, he said.

"It's live with that or the whole thing crashes," he told the committee, appearing on a panel of solar developers with widely diverse interests. He said he did so to deal with Smith's concerns that the widely fractured solar industry was not speaking with one voice.

Finally, the bill aims to try to protect ratepayers, who ultimately bear the cost of the solar program, by reducing penalties paid by power suppliers who comply with the requirement to buy increased electricity from solar systems. Those penalties serve as a ceiling on the cost of solar, but also influence the price of solar renewable energy certificates.

The issue will probably be among the more contentious as the bill moves, if it does, through the legislature. Several solar developers and advocates argue the threshold is too low to encourage investment in the sector and needs to adjusted upward. Brand argued that if the threshold is pushed too high, ratepayers will again be paying more for the solar program.

To provide a jump-start the solar industry, the state initially imposed surcharges on electric and gas customers to provide grants and loans to solar developers. When that program proved so successful that it could not finance all the requests, the program switched to a market-based approach, relying on so-called solar credits to primarily finance the systems, again paid for by electric and gas customers.

With the collapse in those prices, however, solar advocates say many homeowners, schools, and businesses may not be able to pay the debt payments on the systems they installed. They suggested a variety of approaches to help stabilize the market, including limiting the size of new solar projects, creating a carve-out of projects strictly aimed at residential installations.

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