Transition Period for New Jersey Solar Program

Because of the high number of applications submitted to the Clean Energy Program (CEP) for up-front solar rebates starting in 2005, the BPU quickly exceeded its budget, thus holding up the approval of many projects. A queue was then created to manage the flow of applications. Ironically, the high level of interest in rebates caused a slowdown in the market as more applications piled up. To date, there are over 1,200 applications waiting in line at the BPU.

With the release of $47 million for residential and commercial projects, the queue has moved—mostly for installations under 10 kilowatts (kW). However, all the money budgeted through 2008 has been spent, leaving many applicants wondering when they will get an up-front rebate.

According to a non-scientific survey conducted by the Mid-Altlantic Solar Energy Industries Association (MSEIA), the slowdown at the BPU caused some turmoil for the state’s solar industry—resulting in a sharp drop in business, significant job cuts and loss of investors. The survey results show that “62 percent of responding companies laid people off…81 percent of responding companies have reduced, and in many cases, eliminated marketing and sales efforts…[and] 77% report a loss of investors over the last year.” A total of 21 companies responded to the survey.

“It was clear when we went out to all our members and asked them for information about what kinds of impacts the slowdown in the rate of approvals and rebates and the processing of rebates was having on their business, many of them said they had to either change their business plans, let people go or take other kinds of measures in order to deal with the slowdown,” says MSEIA Executive Director Susan LeGros.

In response to the difficulties the industry has faced because of the popularity of rebates, the BPU, NJ solar businesses and solar interest groups are working together to implement a new financing system for future projects.

“The industry has slowed down in the last year and a half. This highlights the urgency of developing an alternative approach to make available reliable financing for new customers that want to sign up to build and develop solar projects in New Jersey,” says Chris O’Brien, Vice President of Strategy and Government Relations at Sharp Solar Systems.

The up-front rebates, which are especially attractive to residential and small-scale commercial developers, have been lowered five times over the last two years in order to accommodate as many applicants as possible. Currently, rebates are $3.80 per watt for systems under 10 kW and range from $2.75 to $2.00 per watt for systems over 10 kW. While the up-front rebates will not get phased out for a couple of years—if they get eliminated at all—there is a push to develop a different financing model as quickly as possible.

This August, a pilot financing program based upon Solar Renewable Energy Certificates (SRECs) will begin in order to test the feasibility of a broader market-based approach.

SRECs are the financial value of energy generated from a solar system. At the moment, one SREC in New Jersey is worth about $250 per megawatt-hour (MWh) of energy produced. The credits are funded by Alternative Compliance Payments (ACP) from utilities that need to meet their renewable energy procurement obligations under the state’s renewable portfolio standard (RPS). The solar system owner trades their earned credits on the clean power market to payback the initial investment.

The pilot SREC program will be a way for the industry to test out the market, establish what the ACP should be and determine how the RECs will be valued. That information will not be available until the pilot gets underway. When the program finally begins, the most important concern will be price stability of SRECs, says Jim Torpey, President of Madison Energy Consultants.

“What we’re really trying to work with the BPU to do is find a way to securitize, say for 15 years, the SREC revenue stream so that it’s something predictable and something that can be used to finance projects,” says Torpey.

Ensuring stability might mean setting a floor price for SRECs, creating a hybrid SREC/rebate system, or creating another type of hybrid financing system that helps reduce the risk for project developers.

A report created by Summit Blue Consulting for the BPU, released last month, looked at a variety of financing options for the New Jersey solar market. The report determined that an SREC-only system was the most risky to system owners, while a 15-year tariff, which would require utilities to purchase SRECs at a fixed price, would be the least risky.

“When comparing a commodity market with a tariff, there’s no question—hands down—the tariff would work much better for my company. It’s kind of a no-brainer,” says Lyle Rawlings, president of Advanced Solar Products as well as president of MSEIA. “Would you rather have a long-term contract at a fixed price or a fluctuating commodity market?”

Currently, there are a number of financing mechanisms under examination by the BPU. New Jersey’s leading electricity provider, PSE&G, recently proposed a financing model that will be reviewed at a BPU hearing on May 31. The utility would loan a potential solar system owner the money to cover around 40-50 percent of an installed system. A bank or investor would fund the rest of the project. PSE&G would be repaid with SRECs generated by the system owner over a 15-year period.

The BPU, which declined to comment for this story despite multiple interview requests, issued a straw proposal on these financing mechanisms last Friday. The BPU is proposing to keep the current rebates for systems under 10 kW and lower the rebates based upon the number of MW installed. The board is also proposing to create an 8-year SREC-only financing model for private systems over 10 kW and a 10-year SREC-only model for public systems above 10 kW. The estimated price of the Solar Alternative Compliance Payments (SACP) were also released, ranging from $525 in 2009 to $449 in 2016. The straw proposal is now open to comments from stakeholders.

Many people are hopeful that developing a new way to finance projects will bring the solar industry back on track and secure New Jersey’s role as having the second best solar program in the country. While there is no clear consensus on what the best model will be, everyone seems to agree that a change is needed.

“We would favor any system that works, that gives the market the stability it needs,” says MSEIA’s LeGros.

“[T]he industry has definitely been hurt…we’re just hoping we can get a quick resolution to this issue,” says Madison Energy Consultant’s Torpey. “We’re really looking for something at the end of the day that sets up a structure for the long-term that everybody knows the rules and everybody can go out and start to sell projects based on those rules.”