State May Speed Solar Production to Slow Falling Prices

Tom Johnson | October 13, 2011 | Energy & Environment
Working group fails to achieve consensus on solutions, reflecting an increasingly fractured solar sector

If the state jumps in and intervenes in the falling market for solar power—and that’s a big if — then it should accelerate for one year how much electricity comes from solar arrays, according to a special panel appointed to help draft changes in New Jersey’s energy policy.

This action would be expected to stabilize the market in the near term, the report argued, while the board deals with whether long-term solutions are necessary.

Such an action could provide a short-term solution to a problem that has worried clean energy advocates in recent months, a steep drop in the price of solar renewable energy certificates (SRECs). The decline could bring to a halt the rapid growth of a sector that has created thousands of jobs in the past decade, according to some solar executives.

The recommendation comes from the Clean Energy Fund Working Group, a panel put together by the Christie administration. The group could not reach a consensus whether the drop in value of the certificates is a short-term problem the market will eventually correct or will require regulatory intervention.

That division reflects the fractures within the solar sector, too, over what should be done to halt the slide in prices. The drop, which has seen prices on the spot market decline from more than $600 earlier this summer to less than $200, has been blamed on an oversupply of solar systems as developers rushed to cash in on lucrative incentives offered by the federal and state government to promote the technology.

Division of Rate Counsel Director Stefanie Brand, a member of the working group, said the panel did not have enough information to recommend the state definitely intervene to slow the slide in prices of the certificates. The issue is important to consumers because ultimately electric and gas customers bear the cost of buying the certificates.

“I don’t just know yet whether this decline in SREC prices is going to last,” Brand said. “The thinking was the market is going to correct itself.”

Indeed, the Christie administration and others have been hoping to drive down the price of solar certificates by encouraging owners of solar systems to enter into more long-term contracts in which prices are much more modest than what SRECs sold for on the spot market. Three of the state’s four electric utilities have loan programs or long-term contracts with owner of solar systems, all of which have strong support from many solar firms.

What the panel recommended, a one-time acceleration of a state mandate for electricity suppliers to ramp up how much of the power they sell customers comes from solar systems, is somewhat similar to a legislative initiative aimed at solving the slide in prices. The legislation, however, would accelerate solar requirements over a longer than one year, stretching out until 2026.

Under current law, the state has established a solar renewable energy portfolio, laying out how much electricity power suppliers must purchase from solar systems each year from now until 2026.

The panel also rejected another option offered by some solar lobbyists: establishing a floor for the price of the certificates. That option was rejected because it would guarantee a return for all solar developers, a strategy the state has previously rejected, according to Brand.

The recommendations fall short of what solar developers have been seeking from the state.

“Under the current process, you cannot finance a project,” said Fred DeSanti, a lobbyist for the New Jersey Solar Energy Coalition. “A lot of deals, if not all deals, will be at a standstill.”

The panel’s report noted there was disagreement among members of the working group over that issue, but it did agree there was an oversupply of the certificates.

“The combination of the 30 percent federal tax grant, high SREC prices fostered by an undersupply in 2010 and rapidly falling photovoltaic panel prices encouraged a surge of solar installations, principally commercial rooftop projects.”

Solar advocates agree with that assessment, but argue some controls need to be put in place to slow down the pace of solar installations.

“Too many incentives overlapping one another and the market got too big, too quickly,” DeSanti said, who argued unless the price of certificates creep upward to the $350 level, only a handful of solar projects will move forward.

Others argued that the one year acceleration of how much solar power needs to be supplied will not solve the sliding prices.

Lyle Rawlings, vice president of the Mid-Atlantic Solar Energy Industries Association, contended that a simple one-year acceleration of how much electricity will be supplied by solar will only delay a reckoning with the problems in the industry. “With that, we will be right back where we are now, early next year dealing with an oversupply issue,” he said.

If the state is going to build a sustainable solar industry, Rawlings said some controls are needed to slow down the pace of development of new installations.

DeSanti predicted the panel’s recommendations will likely lead the legislature to act on a bill to deal with the crisis. Assemblyman Upendra Chivukula (D-Middlesex), the chairman of the Assembly Telecommunications and Utilities Committee is expected to hold a hearing on the issue later this month.