August 22, 2011
It is surprising to most people to learn that the number two solar state in the United States (behind California) is New Jersey. The Garden State has a renewable portfolio standard (RPS) – one of the most aggressive in the United States – which requires each supplier/provider serving retail customers in the state to procure 22.5% of the electricity it sells in New Jersey from qualifying renewable sources by 2021. Unlike many states, New Jersey has a separate carve out that expressly supports solar. In other words, in addition to the requirement for 22.5% of renewable energy by 2021, utilities must make sure that at least 2518 gigawatt-hours of that renewable energy comes from solar electric generation by 2021. As a result of that separate procurement requirement, New Jersey has a market for Solar Renewable Energy Certificates, or SRECs, whereby solar customers earn a certificate every time their system generates 1,000 kilowatt-hours of electricity. Utilities operating in New Jersey meet the RPSrequirement by producing solar power themselves, or by purchasing these SRECs from others. As a practical matter, the price of SRECs generally represents the amount of subsidy necessary to make solar power cost-competitive with traditional non-renewable generation. Six months ago, an SREC sold for about $600. Now that New Jersey has reached a solar energy milestone of 10,000 solar installations statewide, however, there is an oversupply of SRECs, and the price in the spot market has dropped 50 percent, to $300 per SREC. In the first three months of 2011, New Jersey installed 49 percent more megawatts of solar capacity than it did in the same period last year, according to the Board of Public Utilities. 520 solar projects totaling more than 40 megawatts had been installed in June – a record number of projects and solar capacity for one month.
So the solar market is a little overheated in New Jersey right now, and supply got out ahead of demand. The market can be expected to stabilize as developers adjust to the new price for SRECs. The SREC market simply reflects the natural movement of supply and demand. Given the lead time associated with bringing solar projects on line, the supply temporarily overshot the demand. A bigger concern will arise if Governor Chris Christie follows through on his threats to scale back New Jersey’s renewable energy goals. A reduction in the solar procurement obligation in New Jersey’s current RPS would have dramatic and long-term consequences on the price for SRECs in New Jersey.