The solar energy industry has been a shining star in an otherwise bleak economic climate, but as solar panels pop up at record rates, state officials are considering how to bring the soaring industry back down to earth without causing a crash landing.
“Right now, the solar industry is largely in flux, and it’s having to make some market adjustments and recognize some market adjustments,” said Joe Sullivan, a former Board of Public Utilities official who now works as vice president of energy policy and development at Concord Engineering, in Voorhees. “That’s never something that’s easy for an industry.”
The industry’s growing pains were brought to the fore this spring by a dramatic drop in the market price of solar renewable energy certificates — the credits earned by solar array owners that are sold to power suppliers, which use them to satisfy state renewable energy mandates. Prices for SRECs for the 2011 energy year, which ended in May, sold for $600 or more. As of last week, SRECs for the 2012 energy year sold for less than $200.
Michael Flett, president and CEO of the SREC trading firm FlettExchange, in Jersey City, said the drop in price is due to a surge in supply.
Demand, in this case, is set by the state, which requires energy suppliers to incorporate a certain amount of renewable energy into their energy portfolios. Suppliers can either purchase SRECs or generate their own green power.
By July, Flett said, SREC supply had virtually caught up to demand.
“The thing that everyone is looking at is the rate of installs,” he said. “We hit a record in June of 40 megawatts. Then in July it was a bit shy of 20 megawatts.”
Based on current goals, Flett said, the state needs only about 10 megawatts of solar installed per month to keep pace with demand.
Adding to the quick pace of installations are federal incentives, such as a bonus depreciation program that allows solar array owners to immediately write off 100 percent of a solar system’s depreciation, as well as a 30 percent reimbursement grant, which temporarily replaces a tax credit of the same amount. Both are slated to expire at year’s end.
The market fluctuations come amid intense discussion about the state’s energy future. In June, Gov. Chris Christie unveiled his draft energy master plan, which attempted to put into perspective the cost of such solar incentives to residential and commercial ratepayers versus the economic and societal benefits of solar energy. The plan also acknowledges that the cost of solar technology has dropped dramatically, independent of SREC prices.
In between discussions about the state’s long-term energy plans, lawmakers in Trenton are busy searching for the right mix of policies to more immediately smooth the choppy solar market.
Sen. Bob Smith (D-Piscataway), who chairs the state Senate’s Environment and Energy Committee, said legislators are considering a number of ideas to help the solar industry — from promoting long-term solar contracts, to accelerating the state’s renewable portfolio standards, even setting a floor on SREC prices.
“There’s a lot more, because nobody has a lock on how we can make this happen,” he said. “There are a lot of different views on it.”
Speeding up the state’s renewable portfolio standards by a year could jump-start the solar markets, and more modest SREC ceilings could be employed to keep prices in check, Flett said.
The SREC ceilings effectively are set in the form of solar alternative compliance payment, or SACP, levels. Power suppliers can make alternative compliance payments in lieu of buying SRECs or generating green energy. The Legislature has asked the BPU to create a schedule of SACP levels for the next 15 years, though the board has yet to act.
Ultimately, even solar developers said they’re now contemplating life without the incentive.
“We’re going to be less and less reliant on SRECs,” said Guarav Naik, principal at solar developer GeoGenix, in Old Bridge, who expects the incentive will be critical for projects installed within the next five years, before further price drops make such programs unnecessary.
Another question is what will happen to the hundreds of solar developers and other ancillary businesses that have sprouted up in the state in recent years. James LaFleur, CEO of Branchburg-based Vanguard Energy Partners, expects consolidation, which “will allow the industry to grow long term, as it will promote stronger market participants and competition.”
Naik said he expects firms that survive to gain new operations and maintenance business from developers who go out of business.
Another open question is how potential changes will affect jobs. The Solar Energy Industry Association last year estimated New Jersey would have 3,800 direct solar industry jobs by 2016. But Sullivan, who while at BPU helped draft Christie’s revision to the master plan, said numbers like that can be misleading, since they don’t factor in the jobs potentially lost when would-be employers pay higher energy rates in order to subsidize solar incentives. Sullivan said some reports suggest it costs the economy nearly $400,000 per solar job created.
“We tend to only count the jobs gained,” Sullivan said. “We never count the jobs lost.”
Sullivan said the state needs to support renewable energy, but said solar is only part of the picture, with the potential to create perhaps 5 percent of the state’s energy going forward. Other technologies, such as offshore wind or combined heat and power, have much greater potential, he said, and the state shouldn’t favor solar because it happens to be a vocal industry.
“We eventually need to get to a point where these different technologies compete with each other,” he said. “Whatever they are, they need to start being competitive with each other, and eventually they need to be competitive with conventional” energy.
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