A bill to prop up the state's solar industry is expected to go before the state Assembly this week, and while most say the legislation is a good first step, some say a larger structural shift is needed to provide long-term stability to the industry.
The state incentivizes solar energy through its solar renewable energy certificate program. Under the program, those who generate solar power — including homeowners, schools and large industrial property owners — earn credits for the solar power they generate. They can then sell those credits, known as SRECs, on the open market.
On the other side of the supply-demand equation are power suppliers, which are required by the state to incorporate a set amount of green energy in their portfolios. One way to meet that requirement is by purchasing SRECs. Thus, solar system owners get a subsidy and the state achieves its goal of blending green energy into the state's power supply.
Last year, however, installations grew at such a rate that there were more SRECs than the market needed. Prices tanked, and forced the Legislature to consider setting new, higher renewable energy requirements.
Lyle Rawlings, president and CEO of Advanced Solar Products, in Flemington, said the bill — which Gov. Chris Christie has indicated he'll sign — will help, but it isn't an adequate long-term fix. "With the current bill, the one danger is that the runaway of construction that happened in 2011 could recur again in 2012 and 2013," he said. "If that happens, then all of the efforts that have been put into crafting this bill will fail to achieve the desired result."
Rawlings supports an idea put forth by Stefanie A. Brand, director of the state Division of Rate Counsel, to shift the renewable portfolio obligation away from power suppliers and instead place it on the companies that deliver the power — namely, the state's four electrical utilities. That could encourage more long-term SREC contracts, which Brand believes could ultimately lower the cost to ratepayers.
Brand made the suggestion as part of a Board of Public Utilities review of the basic generation service auction — the annual event where utilities procure the state's power supply.
"We certainly recognize that it's a pretty fundamental change to how we've been doing things," Brand said. "We thought it would be a good time for the board to take a look and see if this is a viable option. It certainly is an idea that could have benefits."
Brand said the current auction system is based on a series of three-year contracts. The power purchased each year is spread out over three years to help shield ratepayers from price fluctuations, but, she said, short-time horizons discourage long-term deals.
Brand said the shift would also provide more transparency, as under the current system, it's impossible to separate the cost of solar from the rest of the costs factored into an auction bid. Brand suspects that, in auctions, many power suppliers are simply factoring in the state-dictated ceiling price for SRECs in order to play it safe. "That way, they know they're covered," she said.
Michael Flett, who runs SREC trading platform Flett Exchange, disagrees. Flett said the auction is competitive, so it's not in a supplier's interest to bid any higher than needed. He believes in the long term, utility contracts could end up costing ratepayers more. "Every single time it's been done in the past — these long-term contracts for solar — they've overpaid," he said.
Flett said since utilities pass their costs on to ratepayers, they don't have the same incentive to negotiate the best prices. For instance, he said, many 10-year contracts in effect now have prices in the mid-$400 range — more than $100 higher than the ceiling price proposed in the solar rescue legislation, and triple current spot market prices.
"What I've been seeing is transitioning the development risk away from the people who are putting up solar and investing in it, and putting the risk onto the ratepayer," he said. Flett also said those selling SRECs would have fewer potential buyers if the change were made.
The Retail Energy Supply Association, a coalition of third-party power suppliers, also has expressed reservations about the change.
In May testimony before the BPU, RESA attorney Murray Bevan said his group would be open to considering such a plan in the future, but only if the renewable obligation was lifted from both third-party suppliers and the utilities.
Karen Alexander, president and CEO of the New Jersey Utilities Association, said she, too, would have concerns about such a switch. "If the state decided they wanted the utilities to have that responsibility, given (that) the things we are mandated to do by the state are recoverable to customers, it's just yet another customer burden, and really it does not give you the opportunity to see what the market will bear," she said.
Greg Reinert, spokesman for the BPU, said the agency's staff is slated to report back to the board on the review of the basic generation service auction at the board's June 18 meeting. It's unclear whether the solar restructuring issue specifically will come up.
Brand said she realizes the change would be a major shift and isn't advocating an overnight change. "What we're saying is let's take a look at whether or not there's a better way to do this," she said. "Let's figure out if we can move in that direction."
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