The Price of Success: Inside the NJ Clean Energy Program

The overwhelming response to the New Jersey Clean Energy Program (CEP) rebate system has contributed to significant delays for commercial and residential rebate approvals — hurting many solar companies that are supposed to benefit from the program.

The issue has brought solar professionals, government officials and financiers together to craft a workable solution that will free up delayed projects and get the CEP — one of the best incentive based programs in the country — running smoothly again. But some in the industry say the New Jersey Board of Public Utilities (BPU) has not acted quickly or decisively enough to mitigate the financial blow to solar companies. The rebates, which formerly covered up to 60 percent of an installed solar system, had been a great success. And as a result, there are now many applications sitting in a queue. Both the rebate levels and consumer demand have been very high. In an effort to temper the program and limit applications, rebates have been lowered 5 times in 15 months. Also, to meet the strong solar goals of New Jersey’s Renewable Portfolio Standard (RPS), the BPU made a large number of commitments to solar projects. However, those commitments exceeded the CEP budget through 2008, putting a 9-month halt on up to 200 projects. “The purpose was to create rampant growth in the solar industry, but in retrospect, it happened too well,” said Lyle Rawlings, a member of the New Jersey Clean Energy Council. “That has caused a situation where companies in the industry are feeling very desperate because new commitments are not being made; therefore, businesses have stagnated. They are desperately hanging on, most are laying off people, and some may have to go out of business.” Rawlings, who is also President of the New Jersey-based company Advanced Solar Products, said that growth of his business has “essentially stopped” because of the long queue for applications at the BPU. For a while, things were looking good for solar companies. But then assurances for materials started to fall through. Businesses were told by the BPU that they could order solar modules for projects within months, but when applications were stalled indefinitely because of budget constraints, companies had to cease operations. Consequently, it became difficult to plan for projects, and brought the industry to a standstill. “From December 22, 2005 to September 22 of 2006, the program was in a limbo,” said Richard King, President of American Energy Technologies (AET). “There was this cascade effect within the community for electricians, roofers, crane operators, delivery drivers, distributors and dealers who were just ramping up the program.” According to King, AET, a renewable energy installation company based in New Jersey, currently has tens of millions of dollars in projects waiting in line at the BPU. It could be anywhere from 9 to 16 months before any of the projects start moving again. While the delay will be difficult for many solar companies in the state, the CEP has a different view. New Jersey’s RPS, which set a goal of 1,500 megawatts (MW) of installed solar by 2020, requires aggressive action. By setting high rebates and allowing a steady flow of applications, the state has seen installations of roughly 22 MW of solar in the last 5 years. That, said CEP Director Mike Winka, has been very good for solar businesses. “We have a very vibrant program,” said Winka. “We are working very hard to meet the solar requirements set by the RPS. And with a proper switch from rebates to a Solar Renewable Energy Certificate [SREC] financing system, the program will be that much better.” AET’s King agreed with that assessment. However, while he praised the intentions of the program and faulted no one in particular, he found it “unforgivable” that companies have suffered so badly. He felt that the BPU has not acted fast enough to transform the program and get a full SREC system in place as promised. An SREC system is a market-based payback option supported by clean energy generation Alternative Compliance Payment (ACP) options, which are paid by the electric utilities within their operating expenses. Owners of solar arrays obtain an SREC each time they generate 1 megawatt-hour of electricity. Currently, one SREC is worth about $200. The owner trades those certificates on the Clean Power Market, allowing utilities to buy the clean power credits. Eventually, if the value of SRECs can double, that will allow the CEP to phase out the rebate program. But it will take time to make a transition from rebates to SRECs. “We’re going to move as quickly as possible to put this system into place,” said Winka. But we can’t move too fast. We need to be cognizant of the regulatory structures. The financial industry needs to have trust in those regulations.” There are many differing views on how the new SREC system should work. The Office of Clean Energy has posted White Papers on its website authored by members of the Clean Energy Council. The papers offer ways to transition from the rebate program to an SREC financing system. The CEP already offers SRECs as an option to consumers. But in June of 2007, a broader 17 MW pilot program will be put in place to gauge how best to implement a full certificate system. The problems facing the New Jersey CEP are paradoxical. Businesses are hurting because of delays; however, the delays have been caused by the growing demand for solar. Now it is a matter of managing the program’s success so that everyone will be satisfied. Indeed, sometimes being a leader means making mistakes first — then coming up with the best solutions. Other states will be watching closely to see how the New Jersey CEP makes a transition from rebates to SRECs. The outcome will certainly provide some valuable lessons for all.