Opinion: Helping Steer the BPU Back on Track

R. William Potter | July 25, 2011 | Opinion
NJ's recent solar surge owes more to federal tax policies than to subsidies offered by the Board of Public Utilities

“That argument is garbage. It’s clear we’re on the right track.”

So said Lee Solomon, president of the Board of Public Utilities (BPU), in a recent NJ Spotlight article. He was answering critics of the administration’s revised draft Energy Master Plan (EMP), which calls for cutting back solar subsidies, citing its recent growth and high cost. (See Growth in Solar Still Strong in New Jersey.)

I’ve already shown the fallacy that solar development is imposing an “undue economic burden,” saddling consumers with a “financial albatross,” as the BPU planners assert in the draft EMP. (See Opinion: Gov. Chris Christie and the Myth of Solar Subsidies.)

In my column, I quoted BPU data that shows that so-called solar subsidies amount to about 52 hundredths of one percent of the total power bill of a residential customer. That’s less than 63 cents per month, based on an average monthly bill of $78.81.

And for that 63 cents a month, New Jersey gets some 330 megawatts of zero-emission, solar-generated electricity, located on 9,000 sites around the state. This makes the Garden State second only to California in solar growth. Indeed, this is about equal to what sunny Nevada, Arizona and Colorado, the next three solar states, have together produced over the same timeframe.

So if it’s unfair to cite consumer costs as a reason for reducing support for solar, what of Solomon’s view that the recent surge in projects shows that incentives can be reduced without harming the renewable energy’s future prospects? The writers of the master plan say “the goal of incubating solar technology has been met…. [It’s] no longer a fledging — it has grown by leaps and bounds….”

Time to stand on its own? Let’s see.

Federal Policies

This solar surge — New Jersey added 40 megawatts of solar electric systems last month — owes far more to the federal government’s tax policies than to anything offered by the BPU by way of subsidies.

So says Dennis Wilson, president of the Mid-Atlantic Solar Energy Industries Association (MSEIA): “The larger drivers behind the high pace of solar installation capacity in New Jersey in 2011 are the solar federal tax incentives that are slated to expire at the end of 2011.” (Disclosure: The writer is a member of MSEIA, has represented MSEIA in litigation and assisted numerous solar developers active in New Jersey.)

These tax write-offs of 30 percent of system costs have spurred solar’s recent growth, not just in New Jersey, in spite of major problems in the state’s solar support system. That system needs fixing if the sustainable energy sector is to be sustained after federal tax benefits dry up.

Here’s how the state’s program works:

Between 1999 and 2001, New Jersey abandoned nearly a century of cost-based regulation of electric power. This deregulation involved two key elements: First, the break up (divestiture) of the electric utility monopoly that combined three separate functions: power generation, long-distance power transmission and local distribution. Second, the start of retail choice, allowing consumers to choose their own electricity suppliers.

But because reliability remained a paramount concern at the BPU (as it should), utilities — Electric Distribution Companies (EDCs) — were required to serve as the default supplier for anyone who did not choose from a competitive electricity seller. This default service is called Basic Generation Service (BGS) and is the energy source for more than 90 percent of Garden State consumers.

Every year, the BPU runs a BGS auction of competitive energy suppliers for each EDC to buy at wholesale and then sell at retail to you and me. The winners get three-year contracts.

Now comes the solar tie-in to the BGS auction. The same deregulation law requires every electricity supplier to include in its mix or “portfolio” of power sources (nuclear, coal, gas, etc.), a certain percentage of renewable energy. This is called the Renewable Portfolio Standards (RPS).

The BGS has a choice. Either it can install the solar power itself to meet the RPS rule or it can buy what are called Solar Renewable Energy Credits (SRECs) from dozens of solar companies that use these future SREC sales to finance their projects.

Here is where it gets really interesting: Solar developers typically need 10 to 15 year contracts for SREC sales to finance their projects. But BGS providers, which buy these SRECS, are limited to three-year contracts.

The Contract Gap

This means there’s a big 7-to-12 year “contract gap” between the short-term BGS contracts for selling electricity to consumers versus the long-term contracts needed to finance solar projects.

What BGS provider wants to sign a long-term contract to buy SRECS when it can’t be sure that next several BGS auctions will enable it to sell power and recoup its SREC purchasing costs?

As a result, MSEIA’s Wilson explains, “long-term SREC contracts are few and far between and [power] suppliers resist legislation mandating long-term SREC contracts,” since it doesn’t make much sense for a BGS supplier to incur a long-term obligation when the best it can expect is a short term (three-year) sales contract.

What’s needed, then, to sustain this solar success story is a way to resolve the conflict between the two time frames: short-term BGS and long-term SRECs.

Or, as Wilson concludes, “New Jersey needs leadership in creating a process to procure solar electricity under long-term contracts. This will generate thousands of new ‘green’ jobs, deliver long-term electric price stability, and wean the state off dirty imported electricity.”

Here’s hoping Solomon and his BPU staff are working to solve this problem, and are not fixated on the myth that solar costs are too high or the illusion that solar is so successful it needs no more support.