Posts Tagged ‘New Jersey SRECs’

New Jersey is a solar leader, but that’s not necessarily good for SREC pricing

Posted April 22nd, 2013 by SRECTrade.

Last month the New Jersey Office of Clean Energy (NJ OCE) and the Christie Administration released data showing that over 1 gigawatt of solar had been installed in New Jersey. As of this writing, those numbers have increased to approximately 1.03 gigawatts. In 2012 alone, New Jersey was only surpassed by California and Arizona for installed solar capacity. See GTM’s public 2012 report for details and for access to the most recent NJ OCE data visit here. Additionally, our monthly capacity report of solar generators registered in PJM GATS shows that 973.8 MW of NJ solar is registered, following the expected lag between installed capacity announced by New Jersey and GATS registrations.

At face value, more solar is a good thing, right? Yes, if all you care about is the amount of solar installed and you disregard much of the complexity of state’s various different electricity policies and the wide spectrum of impact across stakeholder groups. Luckily, SREC markets are straightforward when it comes to the relationship of installed capacity to SREC price. In simple terms, when New Jersey’s installed capacity outstrips the state’s goal for installed capacity we see an over-supplied SREC market and depressed SREC pricing. In even simpler terms this means that photovoltaic facility owners make less money overall per SREC than they would have if New Jersey wasn’t consistently exceeding its solar goals.

So how does this happen? Why is solar getting installed even though SREC prices are trading in the low $100s? One blaring factor is that the cost of installing solar has dramatically decreased. Installers are getting more efficient at building projects and pure equipment costs have plummeted. Referencing the GTM report again we see that pricing blended across all solar sectors (utility, commercial and residential) has decreased from over $5/W on average to around $3/W. That’s a 40% drop in overall cost over two years and this doesn’t even take in to account financing innovations like solar leases and easier access to renewable energy loans.

Some industry participants point to New Jersey SREC legislation (SB 1925) passed in 2012 as a saving grace for the New Jersey SREC market. The legislation increased New Jersey’s solar goals beginning in June 2013 (the start of energy year 2014) and was hailed as a bill to save the New Jersey solar market. The legislation forces a dramatic increase in SREC requirements from approximately 596,000 SRECs for EY2013 to approximately 1,633,394 SRECs for EY2014. Unfortunately this is still not enough to push the NJ market in to under-supply. Going off of numbers from our Q4 2012 SREC Market Monitor report, New Jersey would need to install approximately less than 10 MW/month to push the market into under supply by the 2015 energy year. In the first quarter of 2013, NJ installed over 70 MW of solar capacity, surpassing the less than 10 MW/month by an average of 2.5 times each month. Given this activity, it’s not irrational to calculate an over-supplied market moving into EY2015 and beyond. The build rate of solar capacity in NJ must slow down for NJ solar asset owners to experience an under supplied market.

For detailed data on the SREC markets, purchase the SREC Market Monitor report.

Governor Christie backs solar in New Jersey’s final 2011 Energy Master Plan (EMP)

Posted December 7th, 2011 by SRECTrade.

Governor Christie’s administration has released the 2011 Energy Master Plan, which can be viewed in its entirety here.  The Plan is generally positive for the stability of NJ SREC markets, and signals overall support by the Governor’s Office for solar in NJ.  The plan specifically lists support for the following:

1. Accelerate the RPS:

A temporary acceleration of the RPS would provide some interim relief for the current market in SRECs and an opportunity for the industry to adjust. This acceleration would require increasing the RPS over the next three years and reducing the outlier years of the RPS schedule to minimize the impact to ratepayers.”


2. Give preference to smaller, distributed projects:

Projects that offer a “dual benefit” should take priority for approval and any legislative expansion of SREC eligibility by modifying the definition of “distribution system” should also provide the BPU with the ability to review and approve subsidies for grid-supply projects to ensure compatibility with land use, environmental and energy policies. Additionally, the development of solar projects should not impact the preservation of open space and farmland.

We read that second bullet as support for giving the BPU the ability to manage large utility scale projects so that they don’t flood the SREC market.

Other interesting points include support for extending Electric Distribution Company contracting programs and support for a requirement to set up a supply queue that will give the market insight into pipeline of future non-residential systems.

The Governor also calls for reducing the Solar Alternative Compliance Payment (SACP) schedule to minimize impact of the previous changes to ratepayers.  This seems to be a reasonable concession on the part of SREC sellers, especially given that the current oversupply situation makes the SACP irrelevant.

The EMP by itself does not make policy or change the current NJ renewable portfolio standard.  However, it does signal the Governor’s position on any legislation that he may be asked to sign that would change the portfolio standard law, like Assembly Bill 4226 which contains many of the items listed in the EMP.

The EMP process itself has been illuminating, revealing a Governor’s office that is responsive to stakeholder input and seems to be responsive to data over dogma.  The draft EMP released earlier in the year was far less positive toward solar, however over several public meetings and hundreds of public comments the Governor’s office heard a great deal about the impact of solar on jobs and NJ’s energy supply.  The final Plan reflects much of this input and is a very different document from the draft.

Overall, the 2011 EMP indicates that the Governor supports solar, but he isn’t willing to write the industry a blank check.  The solar industry will need to continue to prove it’s value to New Jersey, and as long as it continues to do so it appears to have the support of Governor Christie.

 Accelerate the RPS
A temporary acceleration of the RPS would provide some interim relief for the current market in
SRECs and an opportunity for the industry to adjust. This acceleration would require increasing
the RPS over the next three years and reducing the outlier years of the RPS schedule to minimize
the impact to ratepayers.

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.

Governor Christie throws support behind NJ SREC program

Posted March 18th, 2011 by SRECTrade.

Many wondered what might happen to the New Jersey SREC program when the state Governor’s office shifted into Republican control. Since taking over, Governor Christie has initiated a review of all the state renewable programs to understand the effect they have on ratepayer costs. SRECs make up such a small percentage of the overall electricity market, that the cost increases should be relatively minor across the ratepayer base. Furthermore, as a cornerstone of the solar industry in New Jersey, the impact that the SREC program has had on the growth of investment and jobs in the Garden State will likely overshadow any nominal increase in electricity rates.

To this effect, New Jersey has out-distanced every other state in the region, particularly in establishing an SREC market that can support an industry – not a few utility scale solar projects. The primary driver of this success has been the emphasis on smaller, distributed projects and accessibility to a market of buyers. In the early years of the SREC market, New Jersey had a cap of 2 MW, limiting the size of any single entrant in the market and ensuring that many stakeholders could benefit from the program. This is in stark contrast to a state like Ohio, where the SREC program has been tripped up out of the gates by large projects that have cornered the market for SRECs.

The divergent stories of AEP and FirstEnergy in Ohio demonstrate a perverse incentive set up by a poorly designed SREC program. With no cap on the size of projects eligible for the SREC market in Ohio, AEP chose to make plans for utility scale projects. The first was a 10 MW project in Upper Sandusky Ohio and the next project is slated for 50 MW by 2015 in southeastern Ohio. Meanwhile, FirstEnergy chose not to develop these utility scale projects in favor of sourcing SRECs from the in-state solar industry. The RFPs (requests for proposal) they issued with the help of Navigant Consulting were ineffective and at the end of the year FirstEnergy was unable to find any supply of SRECs. In their request to the Ohio Public Utilities Commission to be relieved of their SREC obligation in 2010 due to a shortage of supply, FirstEnergy accurately cited that AEP was successful in sourcing SRECs because it went with utility scale projects, whereas FirstEnergy attempted to purchase from distributed projects. The problem in Ohio with SRECs is that a robust market for spot transactions or bilateral contracts was not developed early on because a few utility scale projects corner most of the market, while the rest of it is made inaccessible by bureaucratic RFPs that just don’t cut it in a burgeoning solar industry filled with startup entrants.

This is where New Jersey has been successful. Since the beginning, the SREC market was established in a way that made it accessible to homeowners and businesses, local installers and upstart developers. The New Jersey Office of Clean Energy has meticulously reported statistics on a monthly basis of how many SRECs are created, traded and the prices at which they are trading. Combined with the knowledge that the market was secure from the threat of utility scale entrants, the installation companies and solar development firms that entered the industry were able to make informed decisions that ultimately led to investments in solar. This is why New Jersey has a legitimate solar industry with a diverse group of entrants that will eventually be self-sustaining as the cost of solar continues to come down. Governor Christie gets this.

In the passing of AB 2529, a New Jersey Bill that would expand the eligibility of the SREC program, the Governor rejected a change that would allow utility scale projects to bypass the scrutiny of the BPU in being accepted into the SREC program. As the New Jersey market stands, a utility scale project can be accepted into the SREC program only if the BPU deems that it will not have an adverse impact on pricing in the SREC market.  This Bill would have created an exception to that rule that could have jeopardized the SREC market. Governor Christie writes:

Accordingly, I recommend that this exception be eliminated. I am concerned about the impact that these solar facilities may have on ratepayers, the impacts these facilities may have on the solar power and SREC market and, the impact these facilities may have on the land use. The role of the BPU and DEP is vital in determining the impacts that large scale solar facility projects will have in New Jersey and should not be by-passed.

This is a major vote of confidence in Governor Christie’s support of using the SREC market as a cornerstone for building a solar industry in New Jersey. It demonstrates that he sees the value of protecting this market for the entrepreneurs and small businesses that have made a living on solar in New Jersey. Many of those businesses have taken their expertise into other markets, creating more opportunities in nearby states. As a result of the SREC program, the state has created opportunities for its solar-smart residents both at home in New Jersey and beyond the state line.