New Jersey Legislation Update: A2966

Posted June 7th, 2012 by SRECTrade.

***UPDATE: As of the close of June 7, 2012, the NJ legislature noted A2966 passed out of the Assembly Telecommunications and Utilities Committee. The bill will now move on to its second reading.***

On Thursday, June 7, 2012 at 10 a.m. ET the New Jersey Assembly’s Telecommunications and Utilities committee will review Assembly Bill 2966. A2966, sponsored by Assemblyman Chivukula, is the assembly’s version of S1925, which passed out of the Senate on 5/31/12; 23 (Yes), 9 (No), 8 (Not voting). While both bills propose to revise NJ’s Solar Renewable Portfolio Standards (RPS), A2966, proposes slightly different revisions as compared to S1925. For a detailed review of S1925, see our prior note here. Should A2966 pass out of committee, the bill will be voted on in the Assembly. If it passes out of the Assembly, A2966 and S1925 would have to be reconciled prior to its review by the Governor’s office before ultimately being signed into law.

Summary of A2966

Similar to S1925, A2966 proposes a few substantial changes that would influence New Jersey’s RPS requirements beginning in the 2014 compliance year (June 1, 2013 – May 31, 2014). The chart below demonstrates the proposed % based Solar requirement outlined in A2966 vs. S1925. Under A2966, the Solar RPS requirements would change beginning in the 2014 compliance year, with a requirement of 1.99% increasing to 4.63% by the 2028 energy year. Additionally, the second chart below shows the proposed Solar Alternative Compliance Payment (SACP) schedule in A2966 vs. S1925.

How Does A2966 Impact New Jersey’s Future SREC Requirements?

The table below shows the SREC quantities required under the current RPS versus the estimates required under the A2966.

Similar to S1925, A2966 takes the steps needed to prop up the NJ SREC market, but a closer look suggests that even if this bill is signed into law the market could continue to be oversupplied. The table below shows the current RPS and estimated requirements under A2966 through 2017. Both scenarios demonstrate what the markets look like given installed capacity through April 30, 2012, and assume that excess, eligible SRECs from prior periods are used to meet the compliance obligations in the current period. Under the current RPS requirements, assuming no new build, the market is oversupplied through energy year 2016. Applying these same figures to the estimated SRECs required if A2966 is implemented, the market is short approximately 198,000 SRECs in 2014 (the equivalent of approximately 165.0 MW operational all year long).

Although the requirements under the current installed capacity and proposed changes under A2966 put the EY2014 market at under supply with no new build, the likelihood of that is minimal. Over the last twelve months (LTM), through April 2012, the average MW installed per month has been 36.8 MW. That figure over the last 6 months has reached 46.6 MW/month. Given the recent historic build rates, we have analyzed 3 different scenarios in which the following cases are assumed:

1) Case 1 – shows half of the LTM average MW added per month throughout the course of the annual forecast periods;

2) Case 2 – shows the LTM average MW added per month remains the same throughout the annual forecast periods;

3) Case 3 – shows 1.5x the LTM average MW added per month throughout the annual forecast periods.

Note, for the purpose of obtaining an ending balance of MW capacity as of May 31, 2012, the table below assumes another 36.8 MW is added in the month of May 2012.

Under A2966, the market is less oversupplied or under supplied depending on the case displayed above. One of the main differences between the table above and our estimates under S1925, is that if installations slow down to half of the LTM monthly average rate, Case 1, the market would be oversupplied though 2015; whereas Case 1 under S1925 would see under supply in 2015. It is important to note that each case assumes all excess, eligible SRECs from the prior period are utilized to meet the current year RPS requirements.

As demonstrated in the scenario analysis, the market would need to substantially slow down current monthly build rates to allow supply to come in line with demand in the future RPS compliance periods. A2966 attempts to lessen the impact of oversupply, but even under the scenarios above, all three cases show oversupply through at least 2015. Additionally, the trade-off of an increased Solar RPS % comes at the cost of reducing the SACP. Thus, although the NJ solar industry can continue to build projects at a reduced rate, new installs will have to be underwritten with the understanding that less value will be derived from SRECs.

Note: Percentage based SREC requirements have been forecast based on EIA Report updated 11/15/11 “By End-Use Sector, by State, by Provider”. Projected SRECs required utilizes the most recent EIA electricity data applying an average 1.5% growth rate per forecast year. The state’s RPS Solar requirement is then multiplied by forecast total electricity sales to arrive at projected SRECs required. Projected capacity required is based on a factor of 1,200 MWh per MW in New Jersey.

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