Under New Jersey law, electric public utilities are required to source a specified portion of their power from solar electric generating facilities. This solar-produced power is represented by SRECs, a tradable commodity issued by the New Jersey Board of Public Utilities to generators for each megawatt hour of solar energy they generate from grid-connected facilities.
|Solar photovoltaic panels on the roof of Gallagher's Auto Parts, in Patten, Maine.|
New Jersey's renewable portfolio standard requires utilities need to procure a specified amount of SRECs. When the law first took effect, New Jersey had a shortage of eligible installed solar generation compared to this legislative demand, so SREC prices were high -- over $600 per MWh. These prices were a significant incentive to develop solar capacity. New Jersey installed more solar capacity in the first quarter of 2012 than any other state, and led the nation in solar installations on commercial and industrial properties in 2011. Today there are over 16,000 solar installations throughout the state, totaling over 800 MW in installed solar capacity. Another 600 MW of solar capacity is in various stages of installation.
As New Jersey experienced significant growth in solar capacity, SREC supplies grew to the point where they exceeded the level of utility demand required by the renewable portfolio standard. SREC prices fell below $200 on spot markets. These low prices hurt solar developers and other stakeholders whose financing is reliant on REC sales and assumed higher prices.
The bill signed into law this week, "An Act concerning certain electric customer metering and solar renewable portfolio standards requirements and amending P.L.1999, c.23" (available as Senate Bill 1925 and Assembly Bill 2966), is designed to fix this problem. It increases the amount of solar energy utilities must buy in the near-term. As of June 1, 2013, the state’s solar energy mix will change from a fixed megawatt-hour requirement to a percentage-based requirement. In proximate years, the change will represent an increase over the current solar carve-out; over time, it will return to the currently-planned arc of solar requirements.
The exact effect of the new law on SREC markets remains to be seen. With a short-term increase in SREC demand, prices may rise, leading more projects to come online. Will the short-term accelerated increase in demand lead to long-term price support, more development, both - or neither?