NJ Solar Sector Could Be in for Overhaul, with Solar Credits on Way out

Another attempt to smooth out industry’s boom-and-bust cycles, this one by ultimately phasing out solar subsidies paid to array owners

The state’s solar program could be in for a major makeover.

In amending a bill (S-2276), the Legislature last week adopted significant changes to how the state promotes installation of solar systems, eventually phasing out existing financial incentives given to owners of the arrays.

The legislation is viewed as crucial to the state’s thriving solar sector, a market that has experienced boom-and-bust cycles in the past. It could be heading for the latter again unless the states ramps up mandates to rely on the technology to power homes and businesses, according to some solar developers.

The bill does that, and much more. The legislation proposes to phase out SRECs (solar renewable energy credits) and replace them with a new or modified way of encouraging increased reliance on the technology. What that system will be, however, remains to be determined.

Solar surcharge

The solar credits — payments for the electricity generated by the panels — have helped drive the market in New Jersey, which at one time was the second largest in the nation. As prices for solar panels dropped and the systems became more efficient, however, critics questioned why subsidies continued. Utility customers pay for the solar credits by a surcharge on their bill.

Even some solar advocates concede New Jersey is far more expensive than other states, but they have made little headway convincing policymakers to change the model here. This bill may give them a new opportunity, though some of its backers say the state may retain SRECs in one way or another.

“We still think an SREC market with some changes may be viable,’’ said Larry Barth, director of corporate strategy for New Jersey Resources, a company that has invested a half billion dollars in solar in the state.

“It’s a step in the right direction,’’ Barth said of the bill, a consensual product of several developers active in the sector. “It will bring the market to an orderly conclusion and set the table to make the market more efficient.’’

Phasing out SRECs

The bill would phase out the SREC system over several years, directing the state Board of Public Utilities to stop accepting applications for the credits by June 2021. Significantly, the bill also would allow owners of new systems to collect SRECs for only 10 years, instead of 15 years, a change that would benefit what ratepayers would end up subsidizing. Existing SRECs would be grandfathered in.

“Basically, it is a transitional piece until we figure out what the next administration wants to do,’’ said Fred DeSanti, a lobbyist who represents the New Jersey Solar Energy Coalition and Alliance for Solar Choice.

The revamped bill, amended early in the morning of July 4 as the Legislature adopted a new state budget, will accelerate the deployment of solar systems for the next several years. It also would increase the mandate for electricity suppliers to increase how much power comes from solar energy to 5.3 percent of all sales — up from 4.1 percent — by 2022 before dropping.

Avoiding a collapse

That provision is intended to avert a collapse in prices for the solar credits, a problem that occurred five years ago, drying up investment in the sector and leading to massive layoffs in the industry in New Jersey. “Let’s not have the market tank,’’ DeSanti said.

Thomas Lynch, executive vice president and COO of KDC Solar in Bedminster, said the changes in the bill should allow a transition and enough time to figure out a new framework for the sector. “We are trying to get a new program running by 2021,’’ he said.

Proponents would like to see the bill taken up in the lame-duck session after the fall election. Whether the Christie administration would sign it is uncertain, given the Division of Rate Counsel’s concern about continued subsidies for solar when it is nearing parity with conventional ways of producing electricity.