Rx for Solar Energy Sector: Hands Off

Tom Johnson | July 11, 2013 | Energy & Environment
Some worry that law to stabilize sector would actually increase market volatility

Perhaps New Jersey’s solar market doesn’t need fixing.

At least that is the sentiment of some in the solar sector who argue that the state should refrain from making further regulatory changes in a market that has experienced what a number of stakeholders and observers call a boom-and-bust cycle in recent years.

That trend led the Legislature and Christie administration to enact a law aimed at stabilizing the sector, once one of the faster-growing parts of the state’s economy. The law directed a state agency to determine how to reduce volatility in a market that has seen wild swings in the prices owners of solar systems earn for the electricity they produce. This volatility raised concerns that it would dry up investments.

Yet a proceeding being conducted by the state Board of Public Utilities to comply with the 2012 mandate is yielding mixed comments, some of which are echoed by the New Jersey Division of Rate Counsel. They argue that further regulatory changes may increase uncertainty among potential investors, leading to more, not less, volatility.

The issue is important not just to the solar sector — which helped propel New Jersey into the second spot for solar installations in the nation, behind only California — but to business and residential utility customers as well. They pay much of the cost to promote solar projects, and how robust the industry remains could determine whether their electric bills rise or drop.

New Jersey’s solar sector experienced phenomenal growth in recent years, a spurt resulting from lucrative state and federal incentives that awarded developers up to a 40 percent return within 10 years. But so much solar was built that it crashed prices because of an oversupply of so-called Solar Renewable Energy Certificates, which system owners receive for the power produced by their arrays.

Prices plunged from more than $600 to less than $100, although they have stabilized between $120 and $140 since the beginning of the year, according to testimony filed with the BPU. In part, some say it is due to the legislation approved the previous year ramping up how much electricity from solar systems utilities and power suppliers must purchase.

“By all measures, solar development is responding to the increased requirements of the act and the state continues to move forward in meeting its solar RPS [Renewable Portfolio Standards],’’ said Alexander Stern, an attorney for PSEG Services Corp., writing on behalf of PSEG Energy Resources & Trade LLC.

“At this point, maintaining a stable regulatory environment by limiting any near-term regulatory changes to the solar program would lower volatility and continue to improve confidence in the market,’’ the company said in its written comments.

The New Jersey Division of Rate Counsel agreed. “Now is not the time to effectively pull the rug out and change the rules of the game in solar energy development, [which] would raise the cost and actually increase the ‘volatility’ in solar energy markets.

In the division’s comments, it disputed the notion that New Jersey’s solar development market as well as the state’s SREC market is excessively volatile. Instead, it argued the solar sector in no more volatile than other energy markets, which tend to be inherently volatile.

Renu Energy, a solar developer, said in its written comments that several factors that contributed to the volatility in the SREC market may not longer exist in New Jersey.

Alpha Inception LLC disputed that view. “The adjustments made through the recent Solar Act are not sufficient to stabilize the boom-bust cycle of the current solar market,’’ the company said in written testimony submitted to the BPU. It recommended other approaches including a feed-in tariff, an approach repeatedly rejected by the agency. The tariffs typically award renewable energy producers a long-term contract to produce power.