Report: NJ solar bailout working, for now

TRENTON — A 2012 law that rescued New Jersey’s solar industry from collapse succeeded in stabilizing the market for solar power, but more volatility could develop in the next few years, according to a new state Board of Public Utilities report.

The report, “Solar Market Development Volatility in New Jersey,” was submitted to the Legislature on Wednesday, as required by the bailout law, the Solar Act of 2012, which rescued the industry by requiring power companies to buy more electricity from solar generators.

The rescue was needed because of the rapid increase in solar development in 2009, 2010, 2011 and early 2012, as solar panels cropped up on the roofs of homes, offices, schools, hospitals and open spaces throughout the state, which ranked No. 1 in the nation in solar development during the first quarter of 2012.

According to the report, the boom was spurred by federal incentives and a reduction in the cost of solar panels, and the high price that solar electricity was fetching on a state market created to spur investment in solar development.

Under state law, utilities must obtain part of their electricity from solar generation. To do so, most must buy solar renewable energy credits, or SRECs, from solar panel owners.

The oversupply in solar energy caused the SREC market to crash, as prices dropped from over $600 per credit to less than $100, endangering investments from private and public solar panel owners — such as municipal governments, counties and school districts — that invested thousands or millions of dollars to install panels on the roofs of buildings or in open spaces anticipating both cost savings on electricity as well as revenue from the sale of energy credits.

The crash also endangered solar industry-related jobs as new projects in the pipeline stalled.

Under the bailout legislation, the market was strengthened by requiring utilities to obtain a larger percentage of their electricity from solar sources in the near term in order to absorb surplus supplies.

The law also increased transparency in the solar market, lowered the ceiling on SREC prices, allowed solar developers to hold onto SRECs for five years rather than three years, and changed the utilities’ solar quota from a fixed amount of energy each year to a variable percentage.

The changes were intended to both boost the SREC market and reduce the volatility.

The report found that the measures successfully boosted prices above $100 to its current price of about $170, helping to generate more solar development.

But the report also warned that another boom and bust are possible, as early as 2017, when a federal incentive is scheduled to expire and the quotas on New Jersey utilities begin to flatten.

“Policymakers should be aware that a number of factors could drive future volatility, including expected declines in federal incentives at the end of 2016 and the currently legislated SREC demand schedule,” the report said.

The report highlighted some additional options that the state could consider to reduce volatility, including creating an SREC price floor or other changes.

In response, the BPU directed its staff to continue monitoring the market so that it can take additional action in the event that significant volatility occurs for three consecutive quarters.

Earlier this month, representatives from the solar industry testified at a legislative hearing on the issue that they generally agree that volatility in the solar market could return soon, but they disagree about whether changes in state law or regulations are needed.

“We believe it is more likely there will be continued oversupply where the market never comes into balance, and conditions for a destabilization as early as a year and a half to two years from now,” Lyle Rawlings, vice president of the Mid-Atlantic Solar Energy Industries Association, told the Senate Environment and Energy Committee.

Tom Lynch, executive vice president of KDC Solar, of Bedminster, Somerset County, testified that the Legislature should not tinker with the program while the market is currently stable.

“From our perspective, the Solar Act of 2012 did what was intended. It brought recovery and stability to the market,” Lynch said.

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