Burgeoning Solar Sector Helps Push Down Clean Energy Costs

Record number of participants sign on for utility-sponsored solar installation program

Credit: PSE&G
Work is under way on the 1.3-megawatt solar farm in Trenton.
There are encouraging signs that New Jersey’s solar sector may be growing so rapidly that it is beginning to drive down the cost of clean energy.

For the first time in six tries, a utility-sponsored program to promote installation of solar systems attracted enormous interest, with more applicants seeking to participate than ever before in a proceeding overseen by the New Jersey Board of Public Utilities (BPU).

The trend is significant because the program relies on long-term contracts to make the economics work. Many businesses and homeowners in the past have been reluctant to enter into such deals because the price they can get on the spot market for the electricity the solar systems generate is far higher than what they earn under long-range contract, officials said.

That seems to be changing, based on the results of the latest solicitation by three electric utilities. Officials are attributing the reversal to changes made in the program, including expanding it to include projects of up to 2 megawatts in capacity, according to Scott Hunter, renewable energy program administrator in the Office of Clean Energy.

“It allows larger projects,” Hunter said. “It broadens the scope of the projects which can participate in the program.”

The state, which has set very aggressive goals for increasing its reliance on solar energy, has long debated how to push more people into long-term contracts, which typically earn far less than what they can earn selling the electricity they generate on the spot market. Most industry experts say if the state is successful in doing so, it could drive down the price of solar renewable energy certificates (SRECs), which systems earn for each megawatt of electricity they produce.

BPU President Lee Solomon has repeatedly made reducing the cost of solar electricity a top priority of the agency, which has seen funding for its clean energy programs slashed due to budgetary constraints. If the state can lower the cost of the certificates, it can make solar energy more competitive with traditional ways of producing power.

The advantage of long-term contracts is that they reduce the risk to both the developer and the owner, by locking in steady payments over a period of time, such as ten years. That helps drive down the cost of the solar certificates, which is ultimately borne by electric ratepayers. The state’s four utilities purchase the certificates to meet renewable energy portfolio standards and those costs are passed on to customers.

The certificates typically sell on the spot market at well over $600, significantly more than they earn under long-term contracts. For instance, in the latest solicitation, the average price of certificates entered in the long-range contracts was $447.66 for smaller projects (50 kilowatts and below) and $418.83 for the larger projects, Hunter said.

“You don’t need as much support with the long-term contracts,” Solomon said. “There’s less risk.”

Hunter said there was increased participation because of the program changes, which also included streamlining the registration system for solar certificates and establishing a financing mechanism for smaller projects. “We are seeing a downward trajectory of prices in the program,” he said.

The success of the latest solicitation was welcomed by commissioners, who have received some complaints from business lobbyists over the high costs of the state’s aggressive renewable energy goals, particularly those involving solar. By 2026, the state’s utilities are required to provide 5,316 gigawatts of electricity from solar systems, enough to power about 600,000 households, or roughly equivalent to the output of five nuclear plants.

“This is certainly excellent not only for the amount of participation, but we’re starting to see the SREC prices go down,” said Commissioner Joseph Fiordaliso. “Hopefully, we’re on the right track and moving in the right direction.”

BPU staff also tied the unprecedented participation in the program to a better balance of supply and demand in the solar sector.

“It’s a supply and demand market,” said Michael Winka, director of the Office of Clean Energy. “Because there was more demand than supply of SRECs, the prices rose. Now projects can live with less SREC value, and without rebates,” he said.

That might bode well for the solar sector at a time when industry executives have expressed fears that the state would scale back its aggressive solar goals because of the cost. In the next month, the Christie administration is expected to unveil its overhaul of the state Energy Master Plan (EMP), a document anxiously awaited by many clean energy advocates.