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Possible Death Blow to New Jersey’s Solar Energy Projects!

May 27, 2011

In a surprise move, Gov. Chris Christie announced that New Jersey, a national leader with its Solar Renewable Energy Certificate (SREC) program, intends to drop out of Northeast’s greenhouse gas reduction program by the end of the year.

To better understand the possible impact this announcement may have on the Garden State’s SREC RPS and Compliance Penalty Programs, I contacted the Governor Christie’s Office.

The official word is that “the impact is unknown at this time until New Jersey’s Master Plan is approved.”

Most solar projects in New Jersey, which are based on SREC revenue, are now extremely risky business.

New Jersey SREC based solar projects in development are potentially worthless and unbankable. Those in construction and operation have a questionable future.

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8 Comments leave one →
  1. May 28, 2011 11:22 AM

    I have a problem with a statement like the above without any form of explaniation. The statement that the impact is unknown is playing to peoples fears and how much of the Masterplan does the solar projects involve? Could it be that New Jersey got into a play with Solar Renewable Energy Credits without understanding the commodity and just like any “stock play” put all their eggs in the SREC basket.
    North America does not understand the REC market as does Europe and Asia. When you speak to people about REC in Canada, for instance, their eyes glaze over. Maybe New Jersey should look toward Europe with their SREC”s. Soon the airlines won’t be able to secure their landing rights with a specific amount of REC”s. That looks like an unprecedented surge in the demand for REC’s.

  2. May 28, 2011 11:38 AM

    My team and I predicted this a year ago. With many mom-and-pop HVAC, roofing, and home repair companies suddenly getting into the energy business, relying on incentives from almost bankrupt state governments, who could really be surprised. We saw this coming concern and developed patented solar technology that provides power at grid pricing. No government assistance needed. This development is actually great news because no mainstream energy product that relies on the government will win.

  3. May 29, 2011 2:57 PM

    I said “possible” and mentioned I called the Governor’s office to better understand if there would be any impact on SREC. After several hours, the office called me back and indicated “The official word is that “the impact is unknown at this time until New Jersey’s Master Plan is approved.”

    Here is some current news:
    NJ SREC Prices Drop in Anticipation of an Oversupply

    ——————————————————————————–

    Posted on May 16, 2011 by Ronald Black| Leave a comment

    The New Jersey Energy Year 2012 (June 1st 2011 – May 31st 2012) SREC prices have experienced a sharp decline. The precipitous drop in price is due to an expectation of an oversupply of SRECs for New Jersey in the next 12 months. Solar development has quickly outpaced state mandates. New Jersey is second only to California for installed solar capacity and now has over 9,000 statewide solar installations, which equates to 330 Megawatts (MW) of distributed generation. The Board of Public Utilities (BPU) recently announced that 29 MW of solar was installed in April 2011. This monthly record build will assist New Jersey in meeting and exceeding its Renewable Portfolio Standard (RPS). The prior record build was 25 MW which was set in December 2010 and installed solar capacity has averaged 15MW per month since September 2010.

    In order to quantify the oversupplied scenario let’s review the NJ SREC supply and demand situation. As of April 2011, 330 MW of solar was installed in NJ which equates to approximately 396,000 annual SRECs. If the NJ solar industry stopped installing solar right now, the market would remain short compared to the required demand. However solar installations are gaining momentum and continue to be installed at a robust pace which could quickly oversupply demand. The build-out rate will dictate the severity of the oversupplied situation. This leaves the most important question: will the market continue to build at the current rate or will the market participants assess the oversupply risk and throttle back on installs? Our conservative estimate of an annual monthly build out rate of 7 MW per month starting in July would produce approximately 501,000 SRECs for EY 2012. Another estimate of a 17MW per month build out rate would produce 564,000 SRECs for EY 2012. Load Serving Entities (LSEs) need to purchase 442,000 SRECs for Energy Year 2012. If LSEs do not purchase enough SRECs in the spot market to satisfy their state mandated obligation, they are subject to pay a Solar Alternative Compliance Payment (SACP) of $658.00. In past NJ Energy Years SREC demand has outstripped supply, creating a tight market and allowing the SRECs to trade between 92%-97% of the SACP. However this should not be the case for Energy Year 2012. The above estimates create an oversupply situation of 59,000-122,000 SRECs for Energy Year 2012.

    The Pennsylvania SREC market is an example of what can happen to an SREC market when it goes oversupplied. In EY 2010 PA SRECs were trading in the $300s, when the market went oversupplied and prices declined swiftly and lost 70% of their value in a year. This is a good lesson for NJ solar generators and demonstrates that SREC markets can be volatile and illiquid by nature and that the best way to sell SRECs is on a regular basis or “hit bids” as the market moves lower. Some PA solar generators failed to sell their SRECs as prices moved lower, only to capitulate at lower prices. Waiting until the end of the Energy Year to transact your NJ SRECs at a premium price is now a thing of the past. NJ solar generators should be pro-active with their NJ SRECs and should sell as prices move lower to achieve a healthy dollar cost average to ensure a steady revenue stream.

    It is also important for participants realize that SREC markets were established to self correct. When too much solar is developed there is an oversupply of SRECs and prices go down. When not enough solar is developed SREC demand increases and prices go up. When a SREC market corrects to the downside, only the most cost-effective installations will be brought to market, since they have the ability to install solar at a lower SREC price and receive a lesser return. Going forward, installations who accept a lesser return-on-investment and embrace more SREC risk will be the ones being developed in New Jersey.

    There are two ways to prevent the SREC market from being oversupplied. First is to slow the pace of solar development and second is for New Jersey to increase the amount of solar needed. State RPS goals for 5 Giga Watt Hours of solar by 2026 should be moved forward. New Jersey is a clear leader in solar energy and hopefully the revised Energy Master Plan will recommend an increase in solar in a shorter amount of time.

    New Jersey SREC prices for Energy Year 2012 are currently being quoted on the Flett Exchange. Our customers can utilize Flett Exchange’s online trading platform to price their first delivery of 2012 SRECs, which occurs in late July 2011. The current EY 2012 NJ SREC market is $400 bid and offered at $500. Please go to http://www.flettexchange.com to review daily SREC settlement prices.

  4. May 29, 2011 2:58 PM

    Governor Christie Pulls out of Regional Greenhouse Gas Initiative RGGI

    ——————————————————————————–

    Posted on May 26, 2011 by Michael Flett| Leave a comment

    New Jersey Governor Chris Christie announced today that ” We (New Jersey) will withdraw from RGGI in an orderly fashion by year’s end”. This news is coming in front of a summer release of an amended Energy Master Plan for NJ. It is suspected that the major focus of the future for electricity generation in New Jersey will be on natural gas with a commitment to wind and solar. Major initiatives will be put on energy efficiency with the use of combined heat and power. Pulling out of RGGI will potentially allow for a more concentrated investment approach while reducing RGGI costs to ratepayers.

    New jersey has a robust market for the development of solar by homeowners, business’s and municipalities. This market, which enables individual ownership of solar generation with an accelerated payback associated with a competitive REC market, has been hugely successful in spurring investment in the small sliver of power generation required from solar. The RGGI model differed by focusing on giving out lump sums of money towards all facets from energy development to energy assistance for the poor. During the last year New York and New Jersey siphoned RGGI money off to help fill budget deficits. A similar system to SRECs would spur investment in wind and combined heat and power. This would help New Jersey produce enough power in the future without building more coal plants.

    A pull-out of RGGI would allow New Jersey to self tailor investment toward these new clean energy goals. RGGI funds were not used to the fullest potential previously. The same amount of money invested with a competitive REC market will go allot further. Private investment would take the risk while public support via a REC model. Ratepayers benefit in the long run because the price of the SRECs always track the lowest cost installations over time.

    Posted in: Research, RGGI

  5. Sonny Skys permalink
    June 1, 2011 11:55 AM

    Micheal Flett,

    Is the SREC program impacted by Gov Christies withdraw from RGGI?

  6. Carter Lavin permalink
    June 1, 2011 12:24 PM

    RGGI funding and SREC markets are not strongly related

    According to eh RGGI website, 60% of the funding from the program goes to “the New Jersey Economic Development Authority (EDA) for end-use energy efficiency, combined heat and power, and renewable energy project loans and grants in the commercial, institutional, and industrial sectors.

    The SREC market price is set by the compliance payment- which is set 8 years in advance by the board of public utilities- and market supply.

    The question is how does NJ pulling out of RGGI impact solar supply- and I believe the answer is very little. In total RGGI funds have helped fund 12 renewable energy projects in NJ totalling ~30MW of installed capacity. But that is total projects, a large chunk of which I assume, will go to sources other than solar installations.

    RGGI funds do not seem to play a large role in financing solar projects in NJ and thus would not have a large impact on the SREC market.

    Gov Christie’s move is lamentable, but should not hurt the SREC market

  7. June 11, 2011 10:15 AM

    The legislature “D” must vote to change the 2008 EMP or meet in the middle.
    So The ACP could be a point of interest , the RPS another and the Goal as set in 2008 of 30% vs the newly proposed 22% then again another discussion point. BPU will follow the guide lines as set in the EMP now as they are, or if tweaked.
    Rate payers concern, well with that, a statically place solar generator can reduce the peak demand rate and reduce energy used to get it to the Load source. Community Solar plants where the Municipalities can have their consumption reduced by 30% PPA a benefit to rate payers, oh yes Clean air for generations to come. We as solar promoters could ask where are the rate payers’ priorities when they spend thousands of dollars on marble counter tops for their kitchens when they could help in cleaning the air and getting a return for their future. I guess most rate payers are after an instant gratification result then looking to the future, so again it rest with the powers to be to educate the rate pays. Those who invest wisely should be rewarded but as a bonus we can also reward many more if done and directed smartly.
    My option as I see from EMP2008 Meet or beat the Generation Goal of renewable energy source for NJ and if that means pulling the RPS forward and leaving the ACP as it is with a 2.5% decrease /yr sounds good to me or the percentage/proportional to the benefits received.

  8. October 24, 2013 5:33 AM

    Just a thought if government would require 70% the space of the roof of new construction homes and businesses to have solar panels it would be another small step in the right direction.

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