What Happened to the Solar Renewable Energy Credit Market in New Jersey?

Ucilia Wang, Contributing Editor
September 28, 2012 | 13 Comments

Earlier this summer, New Jersey policymakers tried to fix the solar renewable energy credit (SREC) market that had helped the state to become one of the largest solar energy producers in the country. Is the legislative solution working? Not so much, said a solar project developer at the Renewable Energy Finance Forum in San Francisco on Thursday.

“For all intents and purposes, the New Jersey market is dead,” said Paul Detering, CEO of Tioga Energy, on a panel at the conference. “The fix is not enough, and the general prognosis is the market will stay oversupplied of the (SRECs) through 2015.”

SRECs have played a big role in New Jersey’s rise as the No. 2 market for photovoltaic installations, behind California. Each solar energy generation project creates an SREC for each megawatt-hour (MWh) it produces, which the developer can sell to help finance his next project. Each credit fetched over $600 just a few years ago, but the price crashed to nearly 25 percent of that value toward the end of 2011.

The crash came because developers flooded the market with energy credits. It was a classic problem that is plaguing the market for solar panels worldwide and leading to many factory closures and bankruptcies in North America, Europe and Asia.

Detering said New Jersey's energy credit market, while appearing to be attractive, hasn't been well run to start. So it didn't help when developers then began to offer credits without paying close attention to the likelihood of creating a big imbalance of supply and demand.

The glut of SRECs was so severe that the state Legislature and Gov. Chris Christie intervened. They passed and signed a law in July that will require utilities to buy more solar energy. In fact, with the new law, the utilities will have to speed up their solar energy purchases by about four years. Solar will have to make up 4.10 percent of the state's electricity sales by 2028. That requirement was meant to boost demand for the energy credits. Utilities can meet the renewable energy mandate by buying the energy credits from project developers. While the new mandate hasn't been in place for long, Detering said there remains too many credits for sale, and that glut will take longer to absorb even with the new legislation.

Developers can also hold onto the credits for five years instead of three, a change that will give them more time to sell the credits at an opportune time. On the other hand, it also makes it tougher to forecast the energy credit market, according to the Solar Energy Industries Association.

While low prices aren’t good news for developers, they have forced developers to figure out ways to lower their installation costs. That in turn has led to lower-cost solar electricity.

13 Comments

Thomas Ford
January 3, 2013

I live in NJ and I use 100% renewable energy. And I pay only $0.1180/kWh. So it is cheaper than my old not renewable energy. If you want to check it I ordered in this webshop: http://site.acndirect.com

I'm going green. :)

ANONYMOUS
October 8, 2012

The issue I see in the market is less about short-term pricing, and more about the availability of a long-term offtake contract. $150/MWh or even $100/MWh for 10 years coupled with a solid PPA rate with a creditworthy offtaker could make a project finance-able.

Investors do not want to own the risk associated with spot market SRECs, even in situations where there is stronger legislation like Massachusetts.

If build costs and operating costs can be reduced such that the PPA alone covers the costs, and any potential environmental attribute revenues (SRECs or otherwise) are "gravy", then the projects become much more appealing to investors.

Gregory L Smith
October 1, 2012

Feed in Tarriffs are better in my opinion, after seeing how SRECs operate. It is an investment to those companies that started into it, believing they could get a good ROI! If you over sell something, you are the guilty party and Utility companies are more than guilty of overselling the SREC Credits at this point. If you can get an incentive profit, then that is another thing entirely, as California has determined exactly the best way to use both programs creatively to meet their goals, with the help of their mandated energy mixes and the need to create fading Feed-in-tarriff laws that naturally have tiers of participation and then die at some future designated point, normally when equipment costs are depreciated down to cost. SO again, it is Utilities that have been both the targets and the winners in these SREC requirements and mandates. They win some, they lose some, but Feed-in-tarriffs are more for the fiscal managers, because they have structure, have determinable outcomes, and do not rely on market to determine their value, so a price and value can be easily affixed and loans can come easily with a know quantity, and in Oklahoma this would be the beginning of great market profits for all Solar participants as well as wind participants, and to a lesser level Geothermal users. So, put me down for the predictable FIT!

Steve Fortuna
October 1, 2012

It should come as no surprise that the SREC market was demand driven. The smart money people were early adopters who cashed in on above market value 'carbon credits', while the timid sitting on the sidelines lost out. Every solar 'quota' in US history has been oversubscribed in one quarter of the time analysts and pundits thought it would be. Given the choice of generating your own clean, renewable energy and MAKING 50/60 cents per kWH, anyone would opt for solar. The NJ problem is they didn't limit SRECs to distributed generation only - they opened it up to the megainvestor and Direct to Grid market. If the goal was to stimulate the MOST installations instead of the LARGEST installations, the utility scale projects would have been excluded from the calculation. There are 15,000 commercial and residential solar installations in NJ today, which is still less then one half of one percent of the homes in the state. If SRECs were restricted to behind the meter projects under 1 MW,there would have been at least 35,000 installations in the state until RPS requirements were met. In order to tap the other 99% market, solar manufacturers, installers and townships must focus on driving out cost and being satisfied with single digit margins. Today the value proposition is 'long term energy savings' and 'inflation proofing' your energy spend. Personally, I'm glad NJ SRECs are dying - it takes away the power from the hopelessly incompetent, arrogant and backward NJ Clean Energy Authority and its outsourced lackies, Honeywell and CSG.

Tim Dolan
October 1, 2012

@GeraldR,
The investment may be worth nothing to the energy company that purchased the SREC to satisfy the requirement, but to the country, we now have that much more energy available that is clean and renewable that we didn't before. It is an incentive program, it is not an investment program (except to the country as a whole). Feel free to call it a tax, feed-in tariffs are also taxes on the energy companies, but at the same time they are used to provide an incentive to get more solar energy out there. Of the two I like SRECs better over the long term. Because there will come a point where they are not needed any more (or so I dream) and SRECs go away naturally while FITS don't necessarily.

Gerry Wootton
October 1, 2012

Interesting take longwatcher. So, the good thing about SRECs is that they will eventually fade away. So companies that purchase SRECs to avoid actually fulfilling a renewable energy commitment, will have made an investment that is eventually worth nothing. In the meantime, their investment will have indirectly capitalized a competitor's business. Seems like a wonderful proposition. When you take the long view, digression in the value of SRECs seems the logical result - hardly a news story - unless someone thought SRECs were something akin to corn futures.

ANONYMOUS
October 1, 2012

Let's get this straight ... unless under contract, an SREC is fetching what in NJ now? $75 not $150 and I'm seeing contracts as low as $12 so PA at $16 might be a great deal.

As for the market, it's dead, and that drives consolidation but don't blame the small installers for the crash. Blame falling material prices, the Fed grant program, and those sales professionals. The industry was supposed to self regulate based on SREC value and that's exactly what it is doing in NJ. It was designed that way and it's working. Unfortunately, no one paid enough attention and the freefall began - just wait until we get to the 5 year point when people need to sell that SREC they are holding or it disappears. Those sales, finance and business background people plus the industry associations were the ones who could see it coming and didn't do anything to stop it because it would have meant cutting back on installations. Those "strong" players put us here and now they are going to save us. Sounds all too familiar.

Tim Dolan
September 30, 2012

I think New Jersey was a fine example of a SREC markt priced too high, DC's and PA's started out about right, but with too low a percentage of mW targeted for solar. DC has corrected their's and I think it is running about right where it should be at this point in time (around $300). I have been saying that a good SREC market should be around $250-$300 at this point and likely hang there for about 5-10 years. The nice part of SRECs (over say feed in tariffs is that it will fade away naturally over time. It actually did in PA, NJ, and until corrected DC. The target should be 10% saturation of energy production. SRECs should be set to meet that goal. If that goal is met then SRECs by their design will lower in value and eventually go away. That is the way an incentive program should work. Strat strong and then fade naturally with no additional interference or active need to cut it off when you meet the goal. We are still giving billions of dollars to oil companies long after the incentive is needed, because it was not set correctly. The design of SRECs serves that go away on its own function. However, without a lot of history in this kind of thing, some of the states got it wrong to start with and they need to correct it to make it work again. If NJ is at $150 then it is within tolerance given the over-saturation of that market. DC fixed theirs (and I would like to thank them for grandfathering in residential systems already on their system). PA needs to do the same. Not sure on other states, except Virginia, which is owned by the utility companies, so no SREC program and actually some dis-incentives to installing solar.

I like the concept of SRECs and want to see it in more places, but we need to do it right and make the few corrections needed.

ANONYMOUS
September 30, 2012

Why does NJ need an SREC market anymore? In india, solar is being installed at 14c/kWH and with current NJ electricity prices, developers can potentially hit grid parity if costs are controlled. EPC guys need to start becoming competitive and cut throat..right now they are too high and all the Chinese solar tariff is not helping much.. SREC market has not helped to make solar cheaper.

Delroy Leslie
September 29, 2012

Okay guys, please don't complain too hard. Here in the Midwest, we do not even have an SREC market. A few years ago we were allowed to sell our SRECs in the DC market, but that is closed to outsiders so now the only market available to us is NC at less than $5.00 per credit.

William Fitch
September 29, 2012

Hi: 'Each credit fetched over $600 just a few years ago, but the price crashed to nearly 25 percent of that value toward the end of 2011.' SO, at the end of 2011 the price was in the $150 ball park.. I am so sad and feel so bad... I live in PA and when my project of 6 tracking arrays totaling 9.1 KW is complete, I will fetch the staggering SREC price for my 14MWH a year of production of $224, FOR ALL OF IT!! That's $16 a MWH!! And you are whining at $150!! Our Elected Governor Mr. CH4 believes clean energy comes in the form of a compressed gas created millions of years ago, now safe in rocks along with its Radium 226 (Ra226) and Radium 228 (Ra228) and a whole pile of other _hit!! But he wants all our water to glow in the dark and bubble like Seltzer water... but I digress... So sorry NJ.. or how did the song go... "don't cry for me New..oo ..Jersey.. the truth is I never left you... all through my sun days.. my low resistance .. I kept conducting .. don't loose those SREC's..." LOL... too much fun... .....Bill

ELISEO SEBASTIAN
September 29, 2012

I live in Lima Peru South America, here and in many parts of South America, not feeling, not known, not broadcast it technically or economically-financial scale of this moderana solar energy industry. At least to us and our rulers orientation serves to capture the problems and solutions.
It should be noted, however, that Brazil and Chile are showing signs of progress in regard to the utilization of solar energy but unfortunately in other countries such as Peru and at the Ministry of Energy and Mines in contact with the mass population does not feel spread or not to use these ranges for those most in need.
We will continue to follow the news as to Spain where the problem is not technical, but financial. That's a good way for me personally.
From: www.eliseosebastian.com

Tom Ferraro
September 29, 2012

While the drop in SREC prices has put pressure on the NJ solar industry, the solar market is by no means dead. What will happen is consolidation of weak players. This will lead to a stronger, customer focused industry. Much of the industry in the past was driven by installers who didn't need sales/management skills to generate an ongoing, financially stable business as high SRECs enabled anyone to start a solar business. Now the focus will evolve into a more traditional business model managed and run by people with sales, finance and general business backgrounds. That is a good thing!

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Ucilia Wang

Ucilia Wang is a California-based freelance journalist who writes about renewable energy. She previously was the associate editor at Greentech Media and a staff writer covering the semiconductor industry at Red Herring. In addition to Renewable...