During the May 17th Senate Environment and Energy hearing, the New Jersey committee passed legislation to alter the state’s current Renewable Portfolio Standard. In addition, S1925 underwent several key revisions that will hopefully promote an even stronger and far-reaching fix to the declining SREC market.
The Committee decided to further lower the Alternative Compliance Payment (ACP) by 8% each year in order to decrease the overall cost of noncompliance. The proposed ACP is approximately 50% less than the existing ACP under current legislation. The rationale behind these modifications is to bolster the SREC market by 1) increasing yearly demand for solar energy and 2) making it dramatically less expensive (the ACP is still more than double current SREC prices) for suppliers to meet their solar energy obligations. Finally, S1925 provides a 15-year roadmap of ACP that is established statutorily, not by the BPU. This offers investors, developers, and suppliers a secure, long-term picture of the price for non-compliance and similarly, the “worst-case scenario” cost of the program.
Failing to meet compliance obligations can impose significant costs on utilities, as they must pay the ACP per megawatt hour of solar energy they are unable to supply. The ACP is also generally much higher than SREC prices, thus encouraging suppliers to purchase SRECs instead of paying the penalty. Since the substituted legislation contains a slightly more aggressive solar requirement, lowering the ACP will lower the risk and cost of non-compliance- a cost that invariably passes onto consumer. If there were a situation of undersupply in New Jersey, the lower ACP would also cushion the subsequent impact on the utility and ratepayer. Additionally, a more aggressive demand schedule will, in effect, decrease the currently prodigious oversupply and allow SREC prices to return to levels that will sustain investment and deployment.
|Energy Year||Current RPS (GWh)||RPS as introduced||Substitute RPS||Current ACP ($)||ACP as Introduced ($)||Substitute ACP ($)|
|2011||306||306 GWh||306 GWh||675||675||675|
|2012||442||442 GWh||442 GWh||658||658||658|
|2013||596||596 GWh||596 GWh||641||641||641|
The amended legislation also includes substantially higher solar energy obligations for each Energy Year. Starting in EY14, the substitute bill will further increase the RPS by approximately half of a percent per year. This was intended to confront stakeholders’ concerns that the introduced legislation did not establish a demand schedule aggressive enough to dent the oversupplied market. Reactions to the second reading will unveil as to whether or not the adjustments will actually reinvigorate the market.
Another important modification made before passing S1925 involved a plan to address consistent oversupply in the future. The proposed legislation included a plan to automatically increase the solar RPS by 20% should there be three consecutive years of excessive supply. The contingency plan takes into consideration the necessity for flexibility and dynamism in a market that is clearly volatile. However, the substitute bill that passed out of committee failed to include this language, and replaced it with an investigation of methods to mitigate future market instability. This means, barring any significantly radical conclusions and recommendations from the investigation, that future adjustments to the RPS resulting from oversupply or any other shock will most likely have to endure the legislative process- a long and uncertain process in a situation that requires expediency and clarity.
S1925 was passed out of Committee for its second reading on the Senate floor as a “substitute bill.” This means it will go through one more round of amendments, then ideally return for a third reading on the Senate floor. If the bill succeeds, it will then proceed to the Assembly for approval.
The revisions to the legislation are more conducive to improving current SREC prices, but subsequent modifications should be expected upon second reading. Some in the industry still fear that even with the legislative fix, the market will remain oversupplied in the near-term given current annual installment rates.
Sol Systems will continue to track the process of S1925 through the legislative process.
A full-text version of the amended bill can be found here.
About Sol Systems
Sol Systems is a solar energy finance and development firm that was built on the principle that solar energy should be an economically viable energy solution. With thousands of customers and hundreds of partners throughout the United States, Sol Systems is the largest and oldest SREC aggregator. We provide homeowners, businesses, solar installers, and developers with sophisticated financing solutions that help make solar energy more affordable. Sol Systems also helps energy suppliers and utilities manage and meet their solar RPS requirementsefficiently by providing them with access to diverse portfolios of SRECs. For more information, please visit http://www.solsystemscompany.com.