Investor to Spend $15M on Established Solar Projects in NJ, MD

Tom Johnson | October 22, 2013 | Energy & Environment
Energy services company to hedge investments with solar-credit futures, offsetting recent plunge in price

small solar array
Apparently, not everyone is down on New Jersey’s solar sector.

GP Renewables & Trading, a New York-based energy services company, announced yesterday it expects to spend up to $15 million to buy operating, commercial solar projects in Maryland and New Jersey by the end of the year.

Its entry into the state’s solar market comes at a time when many owners of solar systems are struggling to recoup their investments, a problem caused by the steep drop in prices paid for the electricity their arrays produce. In energy jargon, those payments are known as solar renewable energy certificates (SRECs).

“There are thousands of system owners in New Jersey and Maryland who have been negatively impacted by the sharp SREC price declines and are now caught up managing complex activities to maintain the value of their investment,’’ said Gabriel Phillips, chief executive officer of GP Renewables & Trading.

New Jersey once was second behind only California in the number of solar installations deployed, but has slipped to fourth in the nation as the sector became a victim of its own success. So many new installations were installed that SREC prices plummeted from a high in the mid-$600 range to about $130-$140 in recent days.

That decline has slowed installation of new systems in New Jersey to a crawl. Only 8 megawatts of solar systems were installed in the state in August, a far cry from the 84 megawatts built back in its peak in January 2012. The drop also has wreaked havoc on the economics of solar systems installed during the boom.

“Faulty assumptions led many installers and investors to ignore the need for hedging their investments with SREC futures contracts,’’ Phillips said. “Projects were built predicated on three-year to four-year payoffs, but the new reality is a 10- to 20-year horizon.’’

Phillips said the company expects to spend most of its money in New Jersey because that is where the largest number of solar systems have been installed. The company’s strategy is to acquire the investors’ equipment and sell the power back to the investor at discounted rate through a power-purchase agreement. That would allow owners to recover an upfront payment on their solar investments along with locking in discounted power prices over 10 to 20 years. Its offer only applies to existing solar systems, not new arrays, Phillips said.

In New Jersey, many solar developers also say the best way to promote solar is through long-term contracts, a policy that reduces the cost of the systems, while reducing volatility in the sector. Ultimately, customers end up paying the cost of promoting solar, a big bone of contention for large energy users that absorb most of the expense of developing the units.