Developer Typifies Success and Uncertainty of Solar Sector

Tom Johnson | January 25, 2012 | Energy & Environment
KDC Solar looks to Trenton to stabilize NJ's volatile solar market

KDC Solar's deployment at White Rose, the second-largest rooftop facility in NJ.
By some measures, KDC Solar LLC, a solar developer based in Bedminster, embodies the tremendous success and uncertainty enveloping New Jersey’s efforts to promote greater reliance on the sun to generate electricity.

Last year, KDC Solar invested more than $100 million in the state in only its second year of operation. It has built more than 11 megawatts of solar systems in New Jersey and has another 56 megawatts of capacity in the pipeline in either construction or permitting phase. It offers customers cheaper electricity and cleaner energy — all without laying out any capital investment.

Yet despite that promising start, Alan Epstein, the president of KDC, isn’t sure what the immediate future holds for the firm, a subsidiary of Kamine Development Corp.

“We’re prepared to finish what we started, but what we do depends on whether Trenton can stabilize the program,” said Epstein, referring to the volatility in the price owners of solar systems receive for the electricity they produce.

Since last summer, the price of solar renewable energy certificates have dropped by more than two-thirds, falling from the mid-$600 range to less than $200. It is a trend that has state officials, lawmakers, and industry executives working feverishly to hammer out a way to reverse the slide, but so far without any consensus.

The steep drop in prices has been primarily blamed on a rush to take advantage of lucrative state and federal incentives to promote solar energy, the particularly steep prices the solar certificates were earning, and a federal tax cash grant which helped developers earn a return on their investment in as little as three years.

If Epstein could offer any suggestions to those trying to right the market, his advice would be to not change the rules. “Over the long term, the market will settle itself out,” he predicted.

If it does, KDC will be ready to step in and start developing new projects. “We have a lot of financial powder to deploy,” said Epstein, a lawyer who worked with Hal Kamine, chief executive officer of Kamine for 25 years in energy and telecom businesses.

Diamond Castle, a New York-based private equity firm, acquired KDC in June 2010, allocating up to $225 million in equity capital to fund the company going forward.

In some ways, KDC seems poised for rapid growth, but only if the solar market stabilizes. Thomas Lynch, executive vice president, said the company’s business model works if prices of the solar certificates stay in the $300-$400 range.

“Can we do it at $150? No, we can’t,” he said.

KDC is focused on supplying 100 percent of the electric needs of large commercial and institutional customers, typically building solar systems 2 megawatts or higher. It finances the entire project while offering energy savings of between 35 percent and 50 percent to its customer who opt in for power purchaser agreements ranging from 15 to 20 years, according to the company.

Its customers include the White Rose food distributor in Carteret, the second largest rooftop facility in New Jersey; United Stationers in Cranbury; and Williams Sonoma in Jamesburg. It also is building a solar facility at the North Jersey Media Group printing facility in Rockaway and a 6 megawatt facility at the Lawrenceville School.

By significantly reducing electric costs, Epstein said he believes his company offers businesses a way to lower one of the biggest drains on revenue: the high cost of energy in New Jersey.

“We’re all about jobs, jobs and jobs,” he said. “If you’ve got a significant electricity load, we can help you.”

By focusing on projects that meter a customer’s electricity production and what they use from the grid, the company also reflects a recommendation in the Christie administration’s newly revised energy master plan, favoring those projects over those that supply electricity directly to the grid.

“It’s like they copied our business model,” Epstein said.