Plummeting costs for solar and onshore wind power are changing America’s energy landscape and accelerating the shift away from dirty fossil fuels.
In states as diverse as Iowa, Texas, Minnesota and Arizona, competitive bids show that renewables can beat the costs of new natural gas plants in many places, even with today’s low gas prices. As the costs of renewables continue to decline, market forces will drive replacement of coal and natural gas with safe, clean, affordable energy across much of the country.
These underlying cost trends explain why New Jersey will benefit from the clean energy law Gov. Phil Murphy signed last year, which requires quickly ramping up our renewable requirement to reach 50 percent in 2030.
Two factors are needed to achieve New Jersey’s low-cost clean energy future: a new planning framework that identifies the right mix of energy resources to dramatically reduce emissions at the lowest cost for New Jersey; and cost-effective programs to attract those resources.
Regulators are already taking a critical step to improve New Jersey’s approach to solar incentives for new solar projects. The state Board of Public Utilities has undertaken a year-long process to determine how to close the existing incentive program to new projects and replace it with a new, more cost-effective set of incentives, as is required under the Clean Energy Law. Soon, consumers will get much more solar built in New Jersey for every dollar spent.
Though New Jersey ranks fifth in the nation for installed solar capacity, the state’s existing solar program — based on tradeable credits called SRECs — has several major flaws.
First, it provides a single price for all projects. Solar installations built years ago, when costs were much higher, get the same price as projects built today at substantially lower costs. Under the current program, all projects receive SRECs that sell today for $220 each — whether they need to be that high or not.
Second, SREC market prices have been highly volatile, so investors and lenders have required a significant risk premium to finance projects. New Jersey consumers have been paying that premium, buried in their utility bills.
Even after the current SREC program closes, consumers will continue to pay for SRECs generated from each project for up to 15 years. These SRECs will continue to trade at volatile market prices which can range from a legislated maximum price (set at $268 for 2019) to a low of perhaps $10. This price risk can only become more extreme, for both customers and existing solar projects, once the SREC program is closed to new solar projects. Imagine a competitive market that bans new entrants no matter how high the price gets.
To treat electricity customers and existing solar projects fairly, the board should consider offering existing SREC holders a fixed price payment for the remaining years of their SREC project. This would provide budget certainty for consumers, with no risk of runaway solar costs from price spikes in a closed market.
A fixed price offer could also be attractive to SREC holders, as it would remove significant price risk in the near term and for years to come. Regulators should also consider a floor price that would prevent SREC prices from collapsing as this program comes to an end.
Most important, regulators can ensure that the flaws of the SREC program are not repeated in the new incentives required by the Clean Energy Law, which mandates that the new solar program “continually reduce costs” and “utilize competitive procurement processes.”
If regulators address the transition challenges and deliver a lower-cost program, the future for solar in New Jersey will be bright, as in-state solar development can and should remain an important part of New Jersey’s push to reduce greenhouse gas emissions.
The implication of dramatically lower costs is sinking in with both policymakers and the public. New analysis shows that the right combination of low-cost large-scale renewables, distributed solar and complementary clean energy resources like storage and load management can actually reduce energy costs compared to the status quo. With proper planning and effective policies to identify and incentivize such a combination of resources, we can have lower energy costs and rapidly reduce greenhouse gas emissions that are warming our planet and harming our communities.
The Murphy administration and the Board of Public Utilities are moving quickly to remove obstacles to this low-cost clean energy future. Speed is important because climate change is not waiting.