January 10, 2019

New Guidelines for Financing Solar Installations in NJ — but Few Details Yet

Cautious optimism about the state’s proposal to overhaul program that has been faulted for costing ratepayers too much in subsidies

The state is giving the solar sector more time to figure out how to overhaul the current system of financing the installation of solar arrays on homes and businesses, a program widely criticized as too costly.

Despite ranking as one of the most successful solar programs in the nation — more than 100,000 solar arrays have been installed in New Jersey — it has long been faulted as too expensive to utility ratepayers who subsidize it. The sector employs more than 7,000 people in the state, with an investment topping $10 billion.

Worried that rising costs of solar would hinder development of other clean-energy technologies, Gov. Phil Murphy signed a bill last spring to scrap the current system for financing solar and place a cap on future expenses to ratepayers. Over the past decade, those costs have exceeded $2.8 billion and continue to rise.

Curbing costs

Reining in those costs without disrupting the state’s most robust renewable energy program, however, is proving difficult. State officials are hoping to redesign the program in three phases.

In a straw proposal, or draft plan, issued by the New Jersey Board of Public Utilities over the holidays, the state gave the industry general principles and guidelines on how it will shut down the existing program, transition to an interim system, and eventually move to an entirely new way of promoting solar energy.

The proposal leaves many key details of the process unanswered, but generally won endorsement from representatives of the state’s thriving solar sector. New Jersey ranks fifth in the nation for the number of solar installations, according to one recent ranking.

The law left it up to the BPU to hammer out when the existing program will end and how the new system will work. Those details have yet to be determined, but the proposal issued last month establishes a framework that gives state officials and industry stakeholders more time to come up with a new interim program and successor program.

That proposal will likely end the existing program in the first or second quarter of 2020, according to industry officials. “There’s more runway to develop a new program,’’ said Dave Gahl, a senior director at the Solar Energy Industries Association, a national trade group, adding the transition will take place over a longer period.

Trying to ‘ensure business continuity’

“It’s a terrific foundation,’’ agreed Scott Weiner, an attorney who represent clean-energy companies, “but there’s a lot of work ahead of us. The immediate issue is how to structure the transition to ensure business continuity.’’

One key issue determined by the BPU is defining when the existing program will end. According to the straw proposal, the current financing system, dubbed SRECs (solar renewable energy certificates), would end when 5.1 percent of the kilowatt hours sold in the state is generated by solar arrays.

For projects already in the pipeline, that deadline could be reached in the first half of 2020. After that any new projects in the pipeline that are not yet operating would need to be funded by yet-to-be-determined incentives in either an interim transition program or a successor program.

That poses a potential critical problem. If developers do not know where they will get new financial incentives to build solar systems, banks will not provide the financing for new installations, developers say. And that could lead to layoffs within the industry.

“We need to know what the metrics of the transition program will be,’’ said Fred DeSanti, executive director of the New Jersey Solar Energy Coalition. He and others support creating a system modeled after the existing SREC program. The certificates are sold by owners of solar systems to electricity suppliers, based on the power they produce, and the costs are passed on to utility customers.

‘…a slow-moving train wreck’

“The cleanest and easiest form is to continue an SREC incentive structure,’’ agreed Thomas Lynch, executive vice president of KDC Solar LLC. “The challenge is in the details.’’

Whatever the details are, the next program has to be roughly equivalent in value to the existing program, according to Gahl.

More problematic, others say, is the board’s intention to comply with a cost cap embedded in the new clean-energy law. The cap requires the state to achieve 50 percent renewable energy by 2030 while not increasing energy costs to consumers by more than 7 percent initially and eventually by 9 percent.

Once the state shutters the SREC program, some fear there will be no room left to develop new incentives for the sector to build new solar, according to Jeff Tittel, director of the New Jersey Sierra Club. “It’s a slow-moving train wreck,’’ he said.

Others said, because there is still so much uncertainty about both the transition and successor programs, some new programs likely will be hard to get off the ground, such as a pilot community solar effort to bring renewable energy to urban areas.

“Without knowing they will be getting SRECs and what the new value of incentives will be, I don’t see anyone doing any Community Solar,’’ said Michael Flett, who runs an exchange that trades SRECs.

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