State to Overhaul Current Financing Mechanism for Solar Systems

Tom Johnson | August 1, 2019 | Energy & Environment
As Board of Public Utilities prepares to shut down current financing system for solar projects, clean-energy developers argue move will jeopardize millions of dollars in investments

Credit: Creative Commons
The state’s plans to shut down the current approach to financing solar systems threatens to disrupt the market significantly, jeopardizing millions of dollars in investments in the clean-energy technology from school systems, municipalities and others, according to solar developers.

In a hearing before the state Board of Public Utilities, representatives from the solar sector said the closure of the market could leave some of the more than 100,000 solar projects undertaken in the past underwater, unable to generate the cash flow to remain viable.

The warning came as the state agency tries to determine exactly how and when the existing solar program should close, a contentious issue in the industry — and one with big implications for many solar projects now in the pipeline.

By most accounts, including that of BPU president Joseph Fiordaliso yesterday, the solar story in New Jersey has been one of tremendous success, with the state consistently ranking as one of the top five in solar penetration in the nation. But it has not been cheap, costing utility customers more than a half-billion dollars a year, and growing.

It led the Legislature a year ago this past May to order the closure of the current method of financing solar systems, dubbed Solar Renewable Energy Certificates (SRECs), which pays owners of solar arrays for the electricity produced by the panels. The trigger occurs when 5.1 percent of the state’s electricity comes from solar systems. When that happens, however, is a matter of huge dispute.

Under a proposed draft rule by the state, that trigger would be decided retroactively, a decision critics say would lead to an oversupply of SRECs and could potentially result in a crash in their prices. That collapse could dry up investment in new solar and lead to massive layoffs in the solar sector, which employs 7,000 people in New Jersey.

How solar investors will react

Some solar advocates questioned whether investors will abandon New Jersey and flock to markets where there is more certainty in their stability.

“These questions cannot be answered by anyone with any degree of certainty, because we have no basis nor history for understanding the dynamics of a closed market in New Jersey,’’ said Fred DeSanti, executive director of the New Jersey Solar Energy Coalition. At the point of market closure, these issues will be driven by people and their perceptions of the market, DeSanti said.

Others were more pessimistic. Larry Barth, director of corporate strategy for New Jersey Resources, argued the BPU’s proposed system of determining when to close the market could lead to an oversupply of 250,000 SRECs, which eventually could grow to more than 1 million.

The result would be a collapse in prices, eventually dropping to zero from the almost $200 they now sell for, according to solar developers. “The impact will be pretty devastating to those who have invested $11 billion in the sector,’’ Barth said, including school boards, municipal governments and others.

Many of those systems were built under the premise that SREC prices would remain high over the 15-year payback period of their investment. If prices collapse, those investments could end up in the red.

If the state does not protect those legacy projects, then solar developers will not be able to attract capital to invest in the renewable energy market in New Jersey, agreed Tom Lynch, executive vice president of KDC Solar, a company that has been highly active in the commercial and industrial space.

Despite the criticism, developers were encouraged by indications from the staff and Fiordaliso that the state is committed to maintaining a stable and growing solar sector.

A solar market-balancing mechanism

Many of those who testified urged the board to establish a new proceeding to develop a so-called “balancing mechanism’’ to give the agency flexibility in addressing problems of oversupply, or undersupply, of SRECs — a trend that could inflate costs for solar — after it closes the market.

“It looks like the threat of a crash is easing if they follow through with a market-balancing mechanism,’’ said Lyle Rawlings, founder of Advanced Solar Products and a major player in the solar field here.

To that end, the sector will be looking closely at what the new rule proposal says when it is published in early August.