NJ SREC Market Volatility and the NJ Energy Master Plan

Boy, nobody saw this coming.  We all knew that Lee Solomon (BPU President) is a huge nuclear fan, but we never expected the EMP to be so anti-solar.  Hopefully, with the upcoming public hearings on the plan, the message will come through loud and clear that 2 primary stakeholder groups – potential solar customers and solar integrators – are concerned.  As I write this, lobbying groups are being formed fast and furiously.  For customers, the uncertainty that is the result of this plan will mean more difficulty making solar projects ‘pencil out.’  Lending and financial options will shrink.  For integrators, it’s all about jobs.  Fewer solar projects = fewer employees needed.  This runs counter to the theme espoused by Governor Christie since he was a candidate for Governor.

There is an overriding theme in the draft EMP that the RPS is too aggressive and that the targets for solar should be revised downward.  Additionally, comments contained in the plan suggest concern that every ratepayer is subsidizing the benefits of the relatively few who are taking advantage of solar.  Yet when you look at the numbers provided in the plan itself, you come away scratching your head — less than 8/10 of 1% of your electric bill goes to pay for SRECS.  Doesn’t sound like a significant hit to me.  Especially when you consider how many NJ residents we put to work in good paying jobs.  Statistics show a 4 to 1 effect of this.  For every $100K the solar industry pays in salaries, the NJ economy sees $400K in benefit.  In this economy, that’s something to be celebrated, not shut down.

Other things mentioned:

  • A suggestion to reduce the SACP by possibly 20% in 2017
  • A suggestion to subject all solar projects to a cost benefit test and to promote solar PV installations that provide economic and environmental benefit (not sure what this is or how/who will determine)
  • Recommendation to not allow farmland to be turned into solar farms (we think this to be a good move)
  • A call to allow municipalities to levy property taxes on the improved value of the land after a solar installation.  This is huge.

In the next few weeks, there will be a series of public hearings where you can state your reaction to this draft plan.  Additionally, there are a number of lobbying groups being formed to try to get this plan to be more solar friendly.

SREC market values

It is a fact that the amount of solar installed in the 2012 energy year (6/1/11-5/31/12) is sufficient to meet the needs of electric generators under the state’s renewable portfolio standards.  That means the market is in equilibrium.  As a result, like any free commodity market, price has fallen.  Recent spot prices have fallen from $650 for the 2011 energy year to $460 for the 2012 energy year.  3 year forward contracts, which had been yielding about $525 for 2011-2013 are now about $355 for 2012-2014.  5 year forward contracts had been about $475 for 2011-2015 are now about $295 for 2012-2016.  So, yes, SREC values have fallen.  We all expected this to occur at some point, but most did not expect it to be so soon.

The reason for this is that the returns and paybacks on solar projects in the past few years in NJ were (unrealistically) far beyond any other form of investment.  As a result, huge sums of money flowed into the business.  Now, with SREC values where they are, this money is slowing down dramatically.  Large projects that had been slated to be built now will probably not be built because the economics have changed.

We believe that depressed SREC values are a short-term ‘bump in the road.’  We expect that in 2013 the amount of solar online will not be equal to what is required and that shortfall will once again cause SREC values to rise.  Will they hit where they had been?  Probably not.  However, we do expect paybacks on NJ solar projects to once again be about 5 years.

As has been the case with the solar business, stay tuned.

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