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What's Ahead for New Jersey's Solar Sector?

The plummeting price of solar credits has scared off investors, but will that help stabilize the market or stymie its growth?

solar eclipse

New Jersey’s solar industry is at a crossroads, a somewhat surprising development given its wildly successful record in the past decade.

Although it was once one of the fastest-growing segments of New Jersey’s economy, the industry's future is now uncertain -- largely because it is a victim of its own success, according to many of the players in the sector.

Second only to California in the number of solar installations, New Jersey has deployed more than 17,000 systems with a total capacity of 832 megawatts, chiefly as a result of lucrative state incentives, including grants and subsidies, complemented by valuable federal inducements.

But so many solar systems were installed over the past few years, that it created an oversupply of the credits that homeowners and businesses earn for the arrays they've put in place. That trends is slowing investment and raising questions as to whether past successes can be maintained.

The upshot of this glut of credits is that the price that system owners are paid for the electricity they produce has dropped precipitously, from well above $600 to as low as under $80 in recent weeks. The decline has led some towns to cancel solar projects they once thought could cut municipal energy prices, such as Moorestown in Burlington County.

The decline is causing a great deal of consternation among all segments involved in solar: from local governments like Moorestown; to developers who had expected to earn bigger profits from building systems at homes and businesses; to larger developers interested in creating grid-supply projects on farms, brownfields, and former garbage dumps.

Lyle Rawlings, president of Advanced Solar Products, one of the more vocal advocates for solar in New Jersey, told his staff more than a year ago to stop selling projects in the state because of the declining prices. “Lots of people are losing money,’’ including my company,’’ he said.

The plunge in price of solar credits could also affect municipalities and school districts that relied on bonding to fund solar projects, according to Rawlings. “Any school that issued bonds to pay for solar is almost certainly underwater at this point,’’ he said.

Legislating the Solar Market

This past summer, the Legislature and Christie administration sought to deal with the problem by passing a much-debated bill to fix the solar market, a measure that sought to rectify the issue by requiring electricity suppliers to buy more power from solar systems over a shorter time.

The rationale behind the bill was to provide a way to soak up the oversupply of credits, formally as Solar Renewable Energy Credits (SRECs). The bill proposes to double the amount of solar installations deployed in New Jersey over the next few years. Whether it does that remains to be seen. Boosting the number of installations, the thinking went, would eventually stabilize the price of the credits and spur more investment in the solar sector.

Has it succeeded? That question is subject to much dispute, largely because of widely divergent trends in the sector.

The good news: The number of solar systems being installed in New Jersey over the past few months has dropped from about 40 megawatts to a bit more than 20 megawatts. This is a sign that the drop in prices for solar credits is discouraging investment, a factor that may help reduce the oversupply of SRECs.

“There’s been a significant slowdown [in the market],’’ said Fred DeSanti, a lobbyist with several solar clients. If the state can maintain a pace of approximately 20 megawatts of new solar installations a month, there is a good chance the price of the credits could rebound to as much as $300 or more by 2015, he predicted.

The bad news: The pace of new applications to install solar systems is extremely high, according to industry observers. That, too, may be viewed as good news, a sign that solar developers believe the bipartisan legislation signed by Gov. Chris Christie is stabilizing the market. Still, that optimism may be tempered by a flood new of credits entering the marketplace, further driving down prices of SRECs, Rawlings said.

“It’s clear from the pipeline that a lot of bigger solar farms are putting in their applications,’’ he said. If only a fraction of those projects are built, New Jersey will have much more solar power than projected under the legislation signed into law this past summer, Rawlings said.

Moving Ahead

But Assemblyman Upendra Chivukula (D-Somerset), a sponsor of the bill, said it is unlikely those larger projects will move forward with the price of credits under $100. Also, the bill included a provision requiring new projects bigger than 10 megawatts to first obtain approval from the New Jersey Board of Public Utilities prior to moving forward.

Beyond those issues, however, there continues to be a debate over where new solar systems should be installed, a dispute raging through many municipalities around the state. Others, like New Jersey Division of Rate Counsel Director Stefanie Brand, are questioning when should ratepayers stop subsidizing the solar sector. Brand has said cost of achieving New Jersey’s ambitious goals to promote solar and offshore wind could cost ratepayers as much as $5 billion over the next two decades.

The state’s new Energy Master Plan recommends larger grid-supply projects should be targeted to brownfields and landfills. But it shies away from suggesting that solar projects ought to be on rooftop facilities or mounted on the ground, although it clearly wants to avoid agricultural land. The plan also calls for the state’s four electric utilities to provide loans so that homeowners and small businesses can install solar systems, a strategy proponents say is the cheapest way to promote the technology at the lowest cost to utility ratepayers, who end up paying for it.

But some towns are fighting back. A group of West Windsor residents strongly objected to building a massive 45-acre solar project at Mercer Community College, on land once designated as farmland. They also questioned whether falling prices for the credits the project would generate would make it economically viable. A Superior Court judge, however, ruled the project could move forward earlier this month.

“We have some municipalities with have problems with some of the projects,’’ noted Michael Cerra, senior legislative analyst for the New Jersey State League of Municipalities, particularly in rural areas where some proposals have been suggested. Some towns are particularly galled by a previous law enacted by the state that defines solar projects as a “beneficial use,’’ a designation that makes it difficult for a local community to halt a project on land it had set aside for other purposes.

“If you make a decision to subsidize projects, then don’t do it in areas that undermine local zoning and the state’s energy master plan,’’ Cerra said. The league is pushing a bill that would amend the beneficial use designation, but it has yet to make much headway in the Legislature. “It’s going to be a tough sell because the energy industry is so strong,’’ he said.

Oversupply and Demand

The legislation (A2966) passed this past summer also has its critics. To deal with the oversupply situation, the bill would essentially double the amount of solar to be installed in New Jersey in the next few years, a prospect an industry trade group claims could spike electric bills by up to $300 million a year.

The Christie administration argues it will eventually lower bills for customers, who end up paying for the cost of solar programs through a surcharge on their gas and electric bills, by scaling back payments made by power suppliers if they cannot buy solar credits need to comply with New Jersey’s solar mandates.

Both lawmakers and most solar industry advocates say it is still too early to tell if the law to stabilize the industry is working.

“It is going to take time,’’ said Chivikula, who is chairman of the Assembly Utilities and Telecommunications Committee. It’s too early to tell whether it is not working,’’

“We’re on the right track to slow down the market to get it where the state wants it,’’ said Michael Flett, president of the Flett Exchange, which buys and sells solar credits. “The prices are really low right now so the buyers are holding off to see if the markets get to where the state wants it to go.’’

If the prices of the credits climbs again to more than $200, Flett said, the number of installations will go right up, particularly because of the dramatically lower costs of solar installations, which have fallen in the past few months.

Sen. Bob Smith (D-Middlesex), the chairman of the Senate Environment and Energy Committee, also viewed the sector in a positive light. “It’s not a surprise,’’ Smith said, when asked about the drop in price of solar credits and a slowdown in installations. “It’s showing maturity.’’

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