Is the Solar Market Too Hot?

Tom Johnson | September 16, 2011 | Energy & Environment
Does the current volatility reflect an overheated market, or is it simply the ups and downs of supply and demand?

Hot Sun
What kind of fix, if any, does New Jersey’s solar market need?

That question was debated at length by an overflow crowd that poured into the state Department of Environmental Protection’s meeting room in Trenton yesterday to argue over how broken the solar market in New Jersey is — a remarkable discussion given how successful the state’s solar program has been over the past eight years.

The crisis at hand is falling prices for solar renewable energy certificates (SRECs), the primary financing mechanism for installing solar systems for most of the past decade. With the price of the certificates, which system owners earn for the electricity they produce, falling from the mid-$600 range to as low as $150 last week, many industry executives are asking how to stabilize a red-hot market that is producing more supply than demand.

If the state’s Office of Clean Energy was hoping to forge a consensus, it fell short of its goal, as industry officials offered varying views on how well the market is working. That probably was not too surprising, given the successes of the program: more than 10,000 solar systems installed in the past eight years; more than 400 megawatts of solar systems built; the state achieving highly aggressive Renewable Portfolio Standard (RPS) goals for the amount of solar electricity to be consumed by residents and businesses.

Setting a Floor Price

The stakeholder session was aimed at discussing two key questions: whether a floor price should be established for SRECs and whether utility-sponsored solar programs that involve long-term contracts should be continued. There was a lot of disagreement about both, but surprisingly much of the focus revolved around how to translate the falling certificate prices to lower costs for ratepayers, who ultimately pay the cost of the program through surcharges on their utility bills.

“There are people in Camden who are paying for people in Short Hills to pay to put solar on their homes,” said Paul Flanagan, an attorney with the state Division of Rate Counsel, referring to the subsidies virtually everyone pays to fund the certificates and other clean energy programs.

Before extending utility-sponsored programs that help develop solar initiatives, Flanagan argued the state needs to carefully examine how much money is being earned by the utilities and others profiting from the industry.

“The bottom line and one of the unfortunate things about this is who pays for it. Well the ratepayer pays for it,” he said.

That view was disputed by Jim Bryan, director of project finance for Ray Angelini Inc., an electrical contracting and engineering firm. “Who cares who is making the money?” he asked, especially since the industry is creating jobs in a difficult economic environment.

Flanagan disagreed. “It’s not like we’re giving an annuity to the solar industry,” he said. “Frankly, the ratepayer is having a lot of trouble paying their bills.”

Michael Winka, director of the Office of Clean Energy in the state Board of Public Utilities, also issued a cautionary note. “We’ve never said we’re going to stay in this market forever,” he said, referring to the ratepayer subsidies that have energized the solar program. “Right now, it’s got training wheels. When can they come off?”

Utility-Sponsored Solar

If there were any consensus among the solar executives — with some exceptions — it was that the state should extend and expand utility-sponsored solar programs. These offer contractors and residents an opportunity to enter into long-term contracts that offer SRECs, at least until recently, at lower prices than they were being sold on the spot market.

“Given the results it’s both needed and working,” said Mark Warner, chief executive officer of SunFarm Networks, which just yesterday broke ground for a new solar facility at St. Peter’s Health Care System in New Brunswick, a 2.1 megawatt solar system that will be the largest such system at a hospital in New Jersey.

But Michael Flett,, chief executive of the Flett Exhange, which trades SRECs, argued the utility-sponsored program in an inefficient way to develop a long-term contracts, often locking in prices for the certificates far above what they are trading for on the open market.

While some solar executives suggested a floor price for certificates might offer a way to stabilize the marketplace, the idea did not win much sympathy from Winka, who asked who would end up paying the cost of supporting a floor price, suggesting the state’s dire budget problems would probably preclude that option.

“What’s the size of the obligation if we are supporting a floor price?” asked Winka. There is no ability to support that kind of reserve, he added.

While some solar executives argued for aggressive action, others suggested the current volatility is simply a reflection of a market going through the normal ups and downs of supply and demand.

“Are these sustainable prices?” asked Jim Torpey of SunPower, one of the largest solar companies in New Jersey. “There is going to be a rough period because there is going to be an oversupply. Let’s remember, we have a market that is working. Let’s not destroy it.”