New Jersey Energy Master Plan Myths

Posted June 14th, 2011 by SRECTrade.

Governor Christie’s Energy Master Plan (EMP), released last week, is a document published every 3 years that lays out the energy agenda for the Christie administration. The plan itself has no impact on the existing Renewable Portfolio Standard (RPS) in New Jersey. Any changes to the RPS would need to come from the legislative branch since the SREC program has been written into law. That said, the EMP could begin to influence the general thinking in the state, which could be cause for concern given that some of the conclusions are inaccurate. Here are some ideas that have been suggested in the EMP that need to be challenged:

Myth 1. Solar may be too costly and needs to be reigned in by a cost-benefit test

The general theme of Christie’s view on solar is concern over the impact on electricity costs of the SREC program. To that point, the EMP suggests that the SREC program be subjected to a cost-benefit test. Prior to 2010, the program had a cap on the cost to ratepayers that was removed by the legislature in the NJ Solar Energy Advancement and Fair Competition Act. The removal of the cap was likely intended to bring more stability to the SREC market which would face a collapse if the cost threshold were reached, making it very difficult to finance projects with such a wildcard in play. Since the 2010 Act, solar installation in New Jersey has soared and the state is on target to reach its aggressive solar goals in 2012. One of the more concerning assertions in the EMP is the cost that solar has had on the ratepayer. A recent Op Ed on by R. William Potter, reaches different conclusions based on the information provided in the EMP. According to Potter, the data shows that the solar program has been a bargain for the state of New Jersey.

Myth 2. The SACP in New Jersey is higher than other states and should be lowered

Figure 38 compares the New Jersey SACP (Solar Alternative Compliance Payment), effectively the ceiling price for SRECs in New Jersey, to those in other states. What it fails to mention is that other states also offer additional upfront rebates and incentives that New Jersey has intentionally moved away from in favor of a greater dependence on SRECs. The elimination of upfront incentives was coupled with an increase in the SACP in 2009 so that SRECs could carry solar projects in New Jersey. This is a key reason why the SREC market in New Jersey has been stable, while other markets, like Pennsylvania, have faltered. Unlike other SREC markets, New Jersey relies entirely on SRECs. There’s no rebate + SREC combination in New Jersey. This means that a project is highly sensitive to SREC financing in the state, whereas in other states, with lower SREC values, the economics aren’t as dependent on the SREC values, and the markets have become unstable due to an influx of projects built with little regard for what the SREC market is doing.

Myth 3. SREC prices are trending upwards, while the cost of solar comes down

Another entirely inaccurate assessment of the data provided in the EMP plan comes in Figures 39 and 40 on page 91 of the document. Historical SREC prices quoted by the New Jersey Office of Clean Energy are displayed, demonstrating an increase in SREC prices over time, while Figure 40 shows that the cost of solar has come down over time, drawing the conclusion that the SREC markets aren’t tracking with the economics of solar. For starters, the data they point to from the Office of Clean Energy is flawed, leading to these incorrect conclusions. The data is pulled from the prices self-reported in GATS each time an SREC is transferred. The problem is that many SREC transfers represent contracts that were signed years ago. If you installed a solar system in 2008 and entered into a 3-year contract, the price was likely around $100-$150 per SREC at that time, when the SACP was $300 (and there was a generous upfront rebate). 3 years, later, you are still transferring your SRECs over at $100-$150 per SREC in an SREC-only market where prices are now trading at $650 per SREC. These legacy contracts have weighed down the average SREC prices over the past 3 years, but as they expire, new contracts will be signed with the post-2009 SACP schedule in place. The average prices published by the New Jersey Office of Clean Energy will naturally rise until the final legacy contract expires. Until then, any conclusions drawn based on the increase in the average price will be terribly flawed.

The EMP’s understanding of SRECs would likely have been more informed if it were published in 2012. Now that New Jersey is finally catching up to its solar goals (and most legacy contracts are expiring), average SREC prices will begin dropping soon. If you were to review historical NJ SREC prices on, you will see a step down each year as the SACP is lowered. Prices remained in alignment with the SACP because of a significant shortage of solar and SRECs. In 2012, we will likely see the market transform into a competitive market, based on the cost of solar, and not on the SACP. This is because, for the first time in a few years, there is an end in sight to the shortage and the market will soon begin acting as a market.

Establishing the new SACP:

In 2010, the solar Act called for an extension of the SACP through 2026. It is currently scheduled through the 2016 Energy Year, and cannot be lowered without legislative action. In addition, the law currently states that the BPU must extend the schedule through 2026. The EMP softly suggests a 20% reduction in 2016 followed by a 2.54% reduction moving forward. Ultimately the BPU will decide what the schedule should be, but it shouldn’t make a decision based on the analysis put forth in the EMP. There is limited downside to keeping the SACP high, since it will only factor into SREC prices when utilities fail to meet their goals (the case in 2009-2011). If the SREC market acts as it should, when supply is up and the state is reaching its goals (starting in 2012), the SACP should be a non-factor. However, if the SACP is set too low, SRECs will not be enough to finance solar, stifling growth and compromising the “competitive market” aspect of what makes the SREC program such a powerful force in making New Jersey the 2nd largest solar industry in the U.S. There’s no reason not to extend the SACP at the current rate of a 2.5% annual reduction through 2026, remaining consistent with the precedent.

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One Response to “New Jersey Energy Master Plan Myths”

  1. […] has recently raised some uncertainty over the state’s commitment to solar energy in the Energy Master Plan, there certainly is no doubt where the state Senate stands on the subject. Last week the Senate […]