New Jersey solar-energy boom hurts market for credits

TRENTON - New Jersey announced last month that it had reached a solar-energy milestone - more than 10,000 solar installations statewide.

But now some worry that the state's solar industry, second behind only California's in the United States, is being hurt by its own success.

That's because an oversupply of solar renewable-energy certificates, a major means of financing solar projects, has led to a dramatic drop in their price in the spot market.

Solar customers earn a certificate every time their system generates 1,000 kilowatt-hours of electricity. Power suppliers are required to buy a certain amount of the credits, known as SRECs, to meet New Jersey's renewable-energy standards.

"If the price of the [certificates] drops, then the time period I get my money back to break even is longer," said Gene Mulligan.

The Wildwood Crest resident received federal and state incentives to install a $30,000 solar system on his condominium last year. But he had also counted on paying off the system by selling solar certificates, which were selling for more than $600 on the Flett Exchange, an online trading exchange, when his system started generating power.

The price in New Jersey has fallen below $300 on such exchanges during the last six months.

Pennsylvania's solar market, fueled by the state's generous rebate program, has also led to an oversupply of SRECs and a dramatic drop in prices, analysts say.

In New Jersey, "we've done such a good job at stimulating solar that the market is now crashing," said State Sen. Bob Smith (D., Middlesex), chairman of the Senate Environment and Energy Committee.

Smith is the sponsor of legislation that would accelerate by one year state requirements for how much renewable energy must be produced, forcing power companies to buy more SRECs. The bill passed the Senate in late June and awaits action in the Assembly.

In the first three months of 2011, New Jersey installed 49 percent more megawatts of solar capacity than it did in the same period last year, the Board of Public Utilities said.

It reported that 520 solar projects totaling more than 40 megawatts had been installed in June - a record number of projects and solar capacity for one month.

Nearly 5,000 more approved projects are in the pipeline, the BPU said.

But industry observers project that in the next year or two, at least, the market will slow down.

"It can't keep going at this pace. . . . I think things may slow down over the next year, but overall I think our prospects are for a very healthy long-term solar industry," said James Hough, an energy trader at PSE&G Energy Resources & Trade, part of the state's largest utility.

PSE&G has spent tens of millions of dollars buying solar certificates in the last year, according to the company, and has also sold SRECs for the solar projects it finances.

"Especially over the past six months or so, the amount of construction has really kind of taken off, and because of that we're in a situation where there's more solar being generated than what's being required" by the state's renewable-energy standard, Hough said, "so as such it really makes sense to see the prices go down. It's a sign the market is working the way it's supposed to be working."

Greg Reinert, a spokesman for the BPU, agreed that the SREC market was working as designed when the state launched it in 2004.

He said falling prices in the spot market were not significant because a big percentage of certificates were being exchanged through long-term contracts to give people more certainty over prices.

But the state this year stopped accepting applications for an incentive for solar customers to enter into long-term contracts to sell their solar certificates to electric distribution companies, and ended solar rebates last year, Reinert said.

Lyle Rawlings, president of the Mid-Atlantic Solar Energy Industries Association, said New Jersey should have instituted SREC floor prices and made it easier for customers to lock in rates through multiyear contracts.

He also said Gov. Christie's energy master plan sent mixed signals about the solar industry.

Environmental advocates have criticized the plan for scaling back renewable-energy goals and have said it does not emphasize solar energy enough. During recent hearings they have also voiced concerns about the SREC market.

Changes in the market have already caused concern at Borrego Solar, which designs, installs, and finances solar projects in New Jersey and Pennsylvania.

The company has long-term SREC contracts for projects it is doing with the Archdiocese of Newark, said Dan Berwick, director of policy and business development at Borrego. But it will reduce its investment in New Jersey over the next year or two "as this works itself out," he said.

While it's a new phase for the New Jersey solar industry, it's not a breakdown, Berwick said.

"The market is supposed to respond to the natural movement of supply and demand . . . and that's what we're seeing now," he said. "It's tough medicine, but to a certain extent the industry kind of has to take it."