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Opinion: 80% Renewables by 2050 Demands Lower Solar Prices

Nearby neighbors New York state, Connecticut, and Delaware can teach New Jersey more than a thing or two about reducing prices for solar energy

Credit: Amanda Brown
R. William Potter

For the second time in six months the state Senate has voted overwhelmingly to enact the Renewable Energy Transition Act (RETA), which dramatically increases the pace of development of solar electric-generation facilities. It now goes to the Assembly and its Public Utilities Committee, chaired by Assemblyman Wayne P. DeAngelo (D-Hamilton), who has not yet scheduled a public hearing.

By year 2050, RETA requires that 80 percent of all electricity “sold in the state … shall be from Class I renewable energy sources,” meaning solar photovoltaic (PV) plus wind and methane gas from landfills.

The bill sets up a schedule of progressive percentage increases in five-year milestones, starting with 20 percent renewables by 2020, followed by 30 percent by 2025, and so forth until achieving the full 80 percent level by 2050. Currently, less than 10 percent of electricity sold in the state is from renewable sources but this is a quantum jump from near zero just 10 years ago.

These milestones are not mere feel-good goals to put on a shelf They specify percentages of the Renewable Portfolio Standards (RPS) that control the makeup of power-generation sources -- such as nuclear, coal, or natural gas -- for each utility or non-utility “electric power supplier” to satisfy in order for it to sell power to New Jersey consumers.

While the environmental activists and solar advocates who testified in favor of the bill were pleased by the outcome, they voiced concern for what was not in S-1707, starting with the financing mechanism. How much will it cost consumers to pay for the thousands of megawatts of renewable projects needed to meet the 80 percent by 2050 mandates? If it will take too big a chunk out of ratepayers’ pockets, supporters fear a backlash. So, many solar proponents are in the unusual position of arguing for lower solar prices.

Second, there is the vexing question of how can we assure consumers that much, if not all, of the increased solar capacity will be provided by in-state projects, unlike the present system in which most of the renewables selling into the state are from out-of-state sources?

As to the first, Lyle Rawlings, president of Mid Atlantic Solar Energy Industries Association (MSEIA), a solar trade group, and the owner of Advanced Solar Products, had a quick answer to Sen. Bob Smith’s question about how to pay for this expansion: “Anything, but what we have now,” was Rawlings’ cryptic response.

As he pointed out, New Jersey’s system for paying for solar must be fundamentally reformed if we are to achieve RETA’s targets at affordable rates. Garden State consumers now pay four to five times as much for solar than what may be needed to promote RETA’s ambitious targets, Rawlings reported.

That’s because New Jersey is one of a few states relying primarily on a “commodity market model” for incentives through the sale of SRECs (solar renewable energy credits) generated by solar power to utilities who need to buy the SRECs to meet their RPS obligations. As a government-created commodity market, the high risk factor of unpredictably fluctuating SREC prices requires higher prices and a higher return on investment to attract adequate risk capital into funding solar projects.

Other nearby states are showing us other and better ways. New York uses “administratively determined” prices: the price is set by state regulators and inserted into long-term contracts for solar. These “set prices” are a quarter to a fifth of this state’s free-market system. Delaware and Connecticut use a bidding system for inclusion in long-term contracts, with some solar companies bidding zero charges for the first three to four years to gain the security of the longer term.

As for promoting in-state projects, such as offshore wind, Rawlings also has an answer. He advocates a rational market approach in which the benefits of solar and wind are recognized and valued as a suite of public services. Renewable-energy resources that deliver more of these benefits would be paid more. This is called the “monetizing” of solar services. Monetizing is a fancy term for paying a solar developer for the value of societal benefits provided by the solar installation, also called “positive externalities” by economists.

These off-the-books services benefit New Jersey in many ways. They include increased employment, more economic growth, and reduced air pollution -- including cutting greenhouse-gas emissions -- while also making substantial reductions in the wholesale cost of power, as they have done in Europe

Yet currently, none of these societal benefits are recognized in the SREC/commodity pricing model. But if they were, the results would strongly incentivize a solar or wind developer to locate projects here, where these societal benefits are rewarded, rather than in another state that does not.

And what about the Interstate Commerce Clause, which typically forbids a state from favoring local businesses over out-of-state sources? A valid issue but not a big problem. In 1974 the Supreme Court held that if a state creates or maintains a market that might not otherwise exist -- as New Jersey did for SRECS -- the constitution allows the state to favor in-state providers, so long as it doesn’t impose “discriminatory burdens” on non-state sources.

Smith, the prime sponsor of the RETA legislation, has stated that if important implementation issues cannot be added to the RETA bill in its current form prior to enactment, then he would sponsor a separate “implementation bill” to ensure that RETA’s requirements are actually fulfilled

Bottom line: DeAngelo should promptly schedule hearings on RETA and send it to the Assembly floor for a vote, where it is expected to pass handily. This is historic legislation that takes us a big step forward in the march toward a sustainable economy, while also combating global climate change. Granted, more work needs to be done, but innovative ideas from experts and renewable advocates, such as Rawlings, will help get us there with the least cost and greatest net benefit.

R. William Potter is a partner in the Princeton-based law firm Potter and Dickson. The views expressed are his own and do not necessarily reflect the views of the firm or any client.

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