Governor Christie Signs Sweeping Solar Legislation
This week, New Jersey Governor Chris Christie signed legislation (S.1925) to significantly expand the state’s already-aggressive solar mandates. This bill will, among other things, double the state’s solar requirements next year.
This may come as a surprise to casual onlookers. After all, solar has been red-hot in New Jersey in recent months. Thus far in 2012, there has been an average of 40 megawatts of solar installed every month, and a total of more than 800 megawatts now installed statewide (enough to power 160,000 homes). To put this in perspective, New Jersey’s monthly solar installs are roughly equivalent to annual solar installations in Texas.
Why then is New Jersey making its solar mandates even more aggressive?
To answer that question, we have to understand the unique nature of New Jersey’s solar requirements. Those companies that provide electric service in the state are required by law to procure a fixed number of “solar renewable energy certificates” (SRECs) in what’s known as an “energy-year.” The amount of SRECs required to be purchased increases every year, and the current requirements now extend until 2028. Owners of residential, commercial, and utility-scale solar systems produce and sell these SRECs on the open market, improving the financial return for their solar system.
Given this market structure, where the year-over-year demand is essentially fixed, the supply of SRECs in the marketplace has a significant impact on price. This SREC-supply dynamic has been fundamentally altered in recent months, due to the rapid build-out of solar within the state.
The previously-mentioned rate of solar installation – and the ensuing SREC production – outstripped the state’s requirements, creating an oversupply and reducing the price which load-serving entities were willing to pay for SRECs. Not surprisingly, this market volatility made prospective solar customers, financiers, investors, and many others nervous about the future of the New Jersey solar market.
As a result, in June the State Assembly and Senate passed legislation which will “pull forward” or increase the state’s SREC procurement requirements beginning next year, to alleviate this oversupply. Let’s take a look at the “old” solar growth curve versus the “new”:
This legislation is not without its trade-offs. As evidenced by the graph above, the end-goal for New Jersey’s solar program has been reduced somewhat, from roughly 4500 megawatts to roughly 3500 megawatts. In addition, the penalty for non-compliance with the requirement (which serves as a de facto SREC price ceiling) has been sharply reduced. In fact, New Jersey’s Division of Rate Counsel estimates that the law will save ratepayers more than $1 billion over the next 15 years, compared to the prior program.
Without question, however, this legislation will be a net-positive for the state’s already-strong solar market. We’re already seeing optimism from SREC buyers and brokers, which indicate that the economic proposition for residential and commercial solar will materially improve soon. Moreover, the fact that we’ve barely ascended up the growth curve pictured above suggests that New Jersey will continue to be solar’s East Coast hub.
Good times for solar – and saving money on electricity – in the Garden State.