On July 23rd, 2012 New Jersey’s governor Chris Christie signed S1925, new legislation that is helping to prop up the state’s solar energy market. New Jersey, the second largest solar state in the U.S., has largely been successful as a result of solar renewable energy credits (SRECs). An SREC represents 1 megawatt-hour of electricity generated from an eligible renewable system and may be sold on the open market. Unfortunately, the SRECs plus federal tax incentives led to overbuilding of solar and too many SREC’s hitting the market, thus driving their price down. Without SRECs at a certain price, the solar market in New Jersey might have died off.
According to the Board of Public Utilities, New Jersey has 15,778 solar installations on house and business rooftops, farms and brownfields as of spring of 2012 with about 4,400 projects planned but not yet built this spring. Once the supply of SREC’s exceeded what utilities were required to purchase, the price of SRECs plummeted jeopardizing future solar financings.
To help combat this fall in prices and save the New Jersey solar market, the state government increased the amount of electricity that state utilities will be required to buy over the next few years. Utilities including Public Service Electric & Gas and Jersey Central Power & Light will need to get 2.05 percent of their electricity from solar projects in 2014, up from less than 0.5 percent now. The state’s solar requirement will increase to 4.1 percent by 2028. The penalty for utilities that fail to meet the increasing percentage will be $339 for each megawatt-hour short of the goal in 2014, declining annually to $239 a megawatt-hour in 2028. Doing this will hopefully bring the supply and demand of solar systems back into balance and better equip the state to handle large numbers of solar rebates and installations.
One key question is whether this is a band-aid for New Jersey’s solar market or a legitimate fix. Like California’s solar initiatives, the state subsidy declines over time mirroring the natural decline in the overall cost of solar. So from that standpoint, a short term fix may be all that is necessary to allow the decline cost of solar to catch up with subsidies although many are convinced that there will still be a glut of SRECs in New Jersey and that prices for them won’t increase much, if at all. Free market proponents naturally oppose such government intrusion but it seems clear that the U.S. solar market as a whole has risen and fallen on the back of government subsidy and promotion. The fact is, like California, New Jersey has made a policy decision to be a leader in solar and is committed to implementing the necessary mechanisms for solar to succeed in New Jersey. For more information on the specifics of the legislation and how it can affect you, visit the release from Solar Energy Industries Association website.