Premium on Credits Poses Problems for NJ Solar Program

Tom Johnson | May 5, 2010
Capacity isn’t keeping pace with demand for renewable energy credits, imperiling efforts to promote solar projects

New Jersey’s solar program is falling victim to its own success.

For the third time in three tries, efforts by utilities to promote new solar-powered projects within their franchise territories have fallen short of expectations, leading the state Board of Public Utilities to ponder dramatic changes in what has been, for the most part, a hugely successful program.

The blame rests largely with the aggressive targets New Jersey has established to promote solar projects, goals that have set a premium on solar energy renewable credits (SRECS), which owners of solar panels receive for the electricity they generate. With capacity failing to keep pace with demand for the credits, they have soared to as much $600 in the spot market.

That apparently has served as a disincentive for homeowners and businesses to participate in programs run by Jersey Central Power & Electric, Atlantic City Electric and Rockland Electric. The three electric utilities solicit bids from solar developers three times a year, seeking to build new solar capacity through long-term contracts under which credits are locked in at a price of $450 over 10 years.

In essence, the state has a marketing problem: How to convince homeowners and businesses to accept a couple hundred dollars less for each credit when the spot market prices them at $600. In the long run, as more capacity is added — especially with about a dozen huge solar projects pending — the state expects spot prices to fall more into line with the target set by the utilities. But it is still a tough sell now, said Michael Winka, director of the Office of Clean Energy.

“People are jaded by the $600 they can get now in the spot market,” he said. “But it isn’t going to last forever.”

Still, the solar programs run by the three electric utilities are undersubscribed. The Office of Clean Energy had hoped to solicit enough interest to build 26 megawatts of new solar capacity in the latest round; it ended up with bids equal to about 9 megawatts, Winka said.

The aggressive solar targets were set by legislation passed in the lame-duck legislature late last year. By 2026, the state’s utilities are required to provide 5,316 gigawatts of electricity from solar facilities, or the equivalent to power about 600,000 households.

New Jersey is second behind only California in the number of solar installations. A couple of years ago, it revamped its clean energy program to shift to a market-based approach in which solar credits are one of the main components in making solar projects economically viable.

With a new administration in place, BPU commissioners are questioning some of the basic assumptions of the program and how best to meet its targets. The questions arise at a time when the Christie administration has come under fire for tapping into the state’s Clean Energy Fund to plug a hole in the state budget.

“It’s not creating the interest,” BPU President Lee Solomon said. “We are falling short. Are there adjustments that can be made?” Solomon said the state might need to require larger projects to meet its aggressive goals, but those, in turn, would require large infrastructure improvements to the power grid, a prospect few are talking about.

Fellow Commissioner Jeanne Fox agreed but questioned who would end up paying for such infrastructure improvements. “Maybe our goals are too high?” she asked.

Commissioner Nicholas Asselta suggested tapping into the state’s Clean Energy Fund, which is paid for by a surcharge on utility customer bills. “There are resource and funding mechanisms that can be creatively used,” he said.

Solomon said the agency needs to determine how it can best spend its money to meet reasonable goals. “I don’t know what the right answer is,” he added.