A Break In The Clouds? – NJ Legislature Passes S1925/A2966

Posted June 26th, 2012 by SRECTrade.


On June 25, 2012, S1925/A2966, now aligned with each other, passed the New Jersey Senate and House. Next, the bill needs to be signed into law by the Governor, which given his recent public support is expected to be completed within the next couple weeks. The bill, which attempts to address the state’s SREC oversupply, adjusts the Renewable Portfolio Standard (RPS) Solar requirements by amending the following:

1) Solar RPS Requirements Increased beginning in Reporting Year 2014: Beginning June 1, 2013 the market will see an increase in SREC requirements, shifting the state’s solar goals from a fixed megawatt hour requirement to a percentage based requirement. Although the requirements increase in the near term, later dated requirements decline over the current solar goals.

2) New Solar Alternative Compliance Payment (SACP) Schedule: Beginning in the 2014 energy year, the SACP will be reduced to $339 declining to $239 by 2028.

3) Grid Supply Projects Capped at 80 MW Per Year in 2014-2016: In 2014, 2015, and 2016 only 80 MW of aggregated grid supply solar can be installed. Certain exemptions for landfills and parking lots have been made. The capacity of a single project shall not be greater than 10 MW.

4) SREC Life Extended to 5 Years: SRECs will be eligible to meet compliance obligations the year in which they are generated and the following four compliance periods.

5) Rules Set for Public Entity Net Metering Aggregation: The bill implements regulations for aggregate net metering for public entities such as schools, counties, or other municipal agencies.

Summary of the Legislation’s Solar % Requirements and SACP

The charts below demonstrate the % Solar Requirements set under the new bill as well as the proposed SACP schedule.

More Solar Now, Less Solar Later – How Does This Compare to the Current RPS Solar Requirements?

While S1925/A2966 increases the RPS requirements in the near term, by 900,000 or more SRECs each year in the 2014-2020 reporting years, beginning in 2024 the bill reduces the SREC requirements. The table below shows the current RPS requirements vs. the number of SRECs estimated to be required under the new legislation.

Oversupply Likely Through at Least 2014, Possibly Longer – What Does This Mean For the Market Moving Forward?

While increasing the RPS requirements is needed to address NJ’s current solar oversupply, the requirements implemented under S1925/A2966 do not necessarily put the market back into under supply. The days of SRECs trading up against the SACP at levels of $600+/SREC are long behind us for 2 reasons: 1) The SACP will naturally push pricing down to levels below $339 when it comes into effect in 2014 and 2) current installed capacity points to oversupply should the market continue at recent rates. This means that if the market is to see an under supplied scenario (i.e. a seller’s market), the amount of solar installed needs to slow down. We would naturally expect to see this take place given the removal of certain federal incentives and a decline in SREC prices, but this decline has been taking somewhat longer than expected in the first half of 2012 (i.e. likely a result of projects being wrapped up from the end of calendar year 2011).

The table below demonstrates the current RPS requirements vs. the estimated requirements under S1925/A2966 assuming no new additional capacity is installed after the NJ Office of Clean Energy’s May 31, 2012 capacity estimates.

It is important to note that the table above shows that regardless of the impact of the new legislation, the 2013 compliance period is oversupplied by approximately 575,000 at a minimum (i.e. the unlikely case of no build throughout the period).

Below, similar to our prior posts, 3 scenarios are analyzed. The first assumes future build continues at half of the last twelve month (LTM) average rate, 38.6 MW/month through May 31, 2012. The second assumes the market continues to build at its LTM average rate and the third case assumes install rates grow adding 1.5x the LTM average rate.

The table below shows the impact of the three scenarios presented above as compared to the estimated SREC requirements under S1925/A2966. If installation rates are able to decrease to half of the LTM average rate, the market will see a slight under supply beginning in 2014. Cases in which the market continues at current rates or increases above current monthly capacity installed show substantial oversupply in each of the periods forecast.

In conclusion, it is important that the solar industry recognizes that if this legislation is signed into law, it does not allow for the rate of installs to see continued growth. The bill merely helps address the oversupply by increasing the near term requirements and putting some limitations on larger scale solar projects. It will be necessary that all industry stakeholders track the market’s progress closely to clearly understand how supply is pacing relative to the SRECs required during that compliance period.

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