Is the Solar Sector Headed for a Fall?

Tom Johnson | August 4, 2011 | Energy & Environment
The plummeting price of the certificates used to finance solar projects and a precipitous drop in the price of solar power has some developers, advocates and lawmakers worried

New Jersey’s solar industry is thriving, so much so that it may undermine the business model designed to ensure its success.

In fact, industry executives yesterday called on the state to take steps to deal with an oversupply of solar renewable energy certificates (SRECs), the primary means of financing projects large and small.

The glut of solar projects — there now are more than 10,000 statewide, although not all earning credits—has led to a precipitous drop in the price of SRECs, a trend worrisome to industry lobbyists. They argue that the drop, if it continues, poses a risk of undermining New Jersey’s aggressive efforts to promote the clean energy technology.

Generous Subsidies

Until now, the industry has flourished in New Jersey with the help of generous ratepayer subsidies, lucrative federal tax incentives and ambitious requirements that power suppliers buy an increased amount of solar certificates each year. The result has been a flood of investment that has led, for the first time, to an oversupply of certificates and a corresponding steep decline in prices for the power produced by the systems.

Certificates that once sold for more than $600 on the spot market have dropped by more than half, with prices yesterday morning on the Flett Exchange, which sells and trades the certificates, at $276. In a hearing in the Statehouse on a draft Energy Master Plan, solar companies urged the state to consider ramping up its solar targets to soak up the oversupply of solar certificates.

That goal would be achieved by a bill (S-2361) that already has won approval in the state Senate and is pending in the Assembly. Others, however, argued for even more proactive steps, such as setting a floor and ceiling price for the certificates and capping the number of solar projects approved each year.

“The solar that has been put into the ground by the Mercks, the towns, the schools — what happens to them?” said Lyle Rawlings, a vice president of the Mid-Atlantic Solar Energy Industries Association, a trade group representing solar installers and others in the industry. Rawlings noted Lawrence Township issued bonds to pay off the solar system it installed. “What happens if they cannot pay off their bonds?”

How big is the problem? Michael Flett, chief executive officer of the Flett Exchange, said under law, the state’s power suppliers are required to purchase 442,000 solar certificates from this past June to next May. The problem is that there is currently almost enough installed solar to produce that amount. At the rate solar systems are being installed, there may be an oversupply of 100,000 certificates by the end of May 2012.

Slowing Down Solar

Some solar advocates argued the state needs to step in and begin slowing down the investment in solar by limiting mega-solar farms that could gobble up most of the solar certificates available in any given year. That could be done by preventing huge solar farms on agricultural lands, according to some, a provision the draft energy plan endorses.

The debate during the more than five-hour hearing touched on many issues raised by the draft plan, a proposal that solar industry advocates fear reflects a decision to retreat from the state’s aggressive solar goals. Those targets project solar power would provide more than 5,000 megawatts of electricity by 2025, or roughly the equivalent of five nuclear power plants.

New Jersey Board of Public Utilities (BPU) President Lee Solomon took exception to that argument. When Assemblyman Upendra Chivukula (D-Middlesex) suggested, “Why turn away from success?” Solomon replied “Where is there anything in the master plan about lowering the solar target?”

Chivukula, the chairman of the Assembly Utilities and Telecommunications Committee, which reviews most energy bills, argued the plan talks about the high costs of solar, an argument repeated by other industry advocates, who agreed such comments send the “wrong signal” to financial markets looking for certainty in a still emerging sector.

Solomon argued that it is lawmakers who set state policy, not the BPU. “If the legislature thinks what we said in the master plan is too low, you should change it,” he said, referring to a dispute over whether the state’s renewable energy goals should be set at 30 percent by 2020, instead of the 22.5 percent goal retained by the administration in the plan. The 30 percent goal was cited in the 2008 Energy Master Plan established by the Corzine administration.

Still, most solar advocates agreed that the aggressive solar goals were achievable, but sought changes in policies to ensure the state has a long-term plan for sustaining the solar industry over 15 years and more, rather than one that rewards a few for huge gains by taking advantage of lucrative state and federal incentives to make oversize profits in the short-term. In the Energy Master Plan, that prospect was described as an “unreasonable wealth transference from ratepayers” to solar developers.

Much of the rest of the debate at the hearing focused on specific recommendations made by the plan, including a section that argued solar systems were much too expensive and put too much of a burden on ratepayers, whose subsidies have driven the program to being only second in the nation behind California.

Several speakers argued assumptions in the plan exaggerate the cost of solar, projecting the price of the solar certificates will remain high, a conjecture that has been punctured by the steep decline in certificate prices since June. Instead of costing consumers $525 million by 2015, Flett argued the real costs would range between $168 million and $289 million a year.

Other solar advocates questioned the administration’s recommendation that future solar projects be located on brownfields or landfills, suggesting the environmental costs of dealing with problems at both sites would probably wreak havoc on the economics of such projects.

By and large, however, business lobbyists described the plan as a realistic way to reduce energy costs to consumers, one of the overarching goals cited in the plan. Unlike environmentalists, they suggested the plan’s recommendation to increase New Jersey’s reliance on fossil fuels represents one of the best ways to reduce energy costs in the state, which ranks sixth in the nation for the highest energy bills for businesses and industries.