State Faces Triple Energy Challenge in New Year

Difficult decisions about solar, offshore wind, and new power plants must be made -- some in short order

Even with a revamped Energy Master Plan in place, the Christie administration faces tough challenges and tougher decisions in the New Year, ones that could affect the future of solar energy in the state and determine if offshore wind farms get built along the Jersey coast.

The state also faces an uphill battle in its efforts to develop new power plants here, a strategy that has suffered setbacks in the federal courts, as well as from a federal regulatory agency and the PJM Interconnection, the regional operator of the nation’s largest power grid.

In all three areas, the choices the administration makes, largely guided by a new president of the Board of Public Utilities, could either undermine or further the primary goal of the new master plan: driving down electricity prices and making New Jersey more competitive with neighboring states.

In some cases, the decisions will have to be made quickly. The Democratic-controlled legislature is poised to act on a few bills on the last day of the lame duck session next week that are aimed at stabilizing New Jersey’s once fast-growing solar sector.

Fixing the Solar Sector

With mounting pressure from New Jersey’s deeply fractured solar sector, lawmakers appear ready to act on a pair of bills supporters believe may stop a slide in the price of solar renewable energy certificates (SRECs), which has dropped by more than half in the past year. The certificates are one of the primary means solar companies have built the more than 11,000 solar systems installed in New Jersey, a total second only to California. The certificates are earned from the electricity produced by solar panels.

With the drop in prices for the certificates, however, solar advocates worry investment in the sector will dry up unless some action is taken. Lawmakers are poised to act on a bill (A-4426/S-2371) that would accelerate the schedule that requires power suppliers to buy more of their electricity from solar systems. Proponents say that would soak up the excess supply of SRECs and boost prices modestly for the certificates, increasing investment in the sector.

The other measure would approve a conditional veto of a bill (A-2529) that aims to limit which solar projects are eligible to receive SRECs. The rationale is to prevent utility-scale projects from swallowing up all of the certificates, squeezing out smaller firms that put systems on homes and small businesses.

Despite a consensus that something needs to be done, there is still a lot of debate about some provisions in the bills, particularly over how much oversight should the BPU exercise over large solar projects and how many existing projects should be grandfathered and avoid the review.

Assemblyman Upendra Chivukula (D-Somerset), the sponsor of the two bills, remains optimistic. “It has to be done. It will be done,” he said in an interview late last year. “The question is how do you do it?”

Building an Offshore Wind Industry

The Christie administration and legislature have agreed on one issue: New Jersey should become the center of an offshore wind sector, a step they say would lead to the creation of thousands of well-paying green jobs to manufacture the parts and equipment the industry needs.

To that end, they passed a bill offering lucrative tax credits to any offshore wind manufacturer that locates in a few ports in the state. The legislation also sets up a mechanism to help pay for the development of offshore wind farms using ratepayer subsidies similar to those utility customers pay to support the promotion of solar systems.

A number of offshore wind farm developers have been working closely with the BPU to come up with rules that would allow the former to receive such payments, but the process has been slow.

Under an offshore wind law, developers would name the price they would receive for the power their wind turbines produce. It would be up to the state agency to determine whether the cost is justified when weighed against other factors, such as generating cleaner power, create new green jobs, and increasing the reliability of the power grid. The price would remain unchanged for 20 years.

The offshore wind developers are hoping the state will make a decision on which projects move forward by the end of 2012, a timeframe yet to be accepted by the state agency.

Against that backdrop, one of the leading firms looking to develop offshore wind farms late last year said it was pulling out of the project, along with another one in Delaware, because of uncertainty about federal tax incentives and loans.

Driving Down Power Prices

For the past two years, the Christie administration has overhauled New Jersey’s energy policies, looking to find ways to reduce electric bills, which are among the highest in the nation. By the end of May, residents and businesses may have a pretty good inkling of whether the changes will achieve that goal.

That is when developers of three power projects given much-contested ratepayer subsidies will bid in an annual energy auction, seeking the right to begin providing electricity in the region three years hence.

Whether those projects “clear” the auction — energy jargon for submitting a price low enough to be approved to run by the operator of the regional power grid — will be closely scrutinized by state officials, incumbent power generators, and Wall Street, among others.

“That May auction will be the key,” said former BPU President Lee Solomon in mid-December, several weeks before he left the agency to return to the bench as a judge in the Superior Court of New Jersey.

It also may be disappointing to the state. According to an analysis done by BPU staff in a recent report, two of the three projects that have received state support would have failed to clear the auction last May, based on the complicated formula used by new entrants bidding into the capacity auction.

The auction ensures there is enough power in reserve to keep the lights on when electricity demand peaks, typically in the middle of a heat wave.

The same report suggested that if the three projects fail to clear the auction, the pilot program initiated by state ”may be incapable of developing” new generation capacity. If the plants fail to clear an auction in 2013, the staff urged the commission to consider the possibility of creating a New Jersey Power Authority to build new capacity.