New Jersey’s PSE&G’s Second Solar Loan III Solicitation is Coming. Here’s What You Need to Know.

28 Jan 2014

The Public Service Electric and Gas Company of New Jersey (PSE&G) will begin accepting applications in less than a month, on February 25, for its Solar Loan program. While no major changes have occurred since the first solicitation late last year, data is now available on pricing from the first round of applications and awards.

The first solicitation of New Jersey’s PSE&G Solar Loan III program began last year and closed the period on November 12th, 2013.  The program provides loans that make up significant portions of project construction costs (see an example here). The loans can be repaid through SRECs, with payment plans set at the closing of the loan. Cash can also be used to pay in case of low production. Once the loan has been paid in full, any SRECs produced thereafter belong to the owner of the system. The following capacities are available per each program segment:

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The 3rd version of the Solar Loan program now includes a competitive bidding process, in which developers submit a floor price for their SRECs over the span of the loan, which is set at ten years, down from fifteen. PSE&G chooses the developers with the most competitive SREC floor prices. Previously, the company set floor prices, and also had a call option to buy all system SRECs at 75% of the rate.

Floor prices received during the first solicitation dropped in all segments, as expected. New Jersey SREC prices have been far below the floor set during the previous Solar Loan program. Solar Loan II set and guaranteed floor prices that ranged between $330 to $450 per SREC, far above the typical $150-$170 per SREC price set in New Jersey’s spot market. With the introduction of a bidding system in Solar Loan III, however, floor prices fell significantly, adjusting to the market’s SREC price to some extent.  The higher of the SREC market price or bid-in floor price go towards paying down the loan, and these two prices converged under Solar Loan III’s first solicitation. The price level movement can be seen below:

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These results were in line with a residential example provided by PSE&G, in which at $250 per SREC, the loan covered 40% of the total construction cost of a project. Still, in other segments, margins are much slimmer. The Solar Loan III Program divides loan-applicable systems along 5 different segments, each with significant available and realized capacity. This diversity is new in the 3rd rendition of the loan system in New Jersey, which now includes mandatory minimum capacities for various segments. The first solicitation of the new program did not exceed capacity in any of the segments except for the Landfill & Brownfield Segment, which exceeded capacity by 4,093 kW DC.

The program’s fees and its interest rate, set at 11.179%, have not changed since the first solicitation. The interest can still be paid through SRECs. For both Residential and Commercial Segments, the application fee is set at $20/kW (maximum of $7,500), and the administration fee is at $85/kW, which is deducted from the loan proceeds at closing. Important to note is that for residential segments that are non-aggregated, the SREC processing fee is $120/kW, which is subtracted from the loan proceeds at closing. This differs from the $10.18/SREC, calculated annually, that aggregated residential and commercial segment develops are required to pay. Applicants, when setting the terms of their loan, should consider these expenses.

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Future solicitation capacity minimums are shown to the right, including the upcoming second solicitation period. Underutilized capacity in some segments will be used to meet oversubscribed segments in others. Developers interested in applying for a loan in the next solicitation period, beginning February 25th, should contact our team for assistance with bid pricing and financing. PSE&G prices remain at competitive levels, and capacity minimums for non-residential systems are set to drop after the 3rd solicitation. For developers that meet PSE&G’s Solar Loan III program requirements, now is the time to apply.

About Sol Systems

Sol Systems is a boutique financial services firm that offers investor clients direct access to the solar asset class and provides developers with sophisticated project financing solutions. Founded in 2008, Sol Systems focuses on meeting the most critical needs of the industry, including SREC monetization, capital placement, tax equity, and New Market Tax Credits. To date, the company has facilitated financing for thousands of projects and facilitated hundreds of millions in investment on behalf of Fortune 100 companies, private equity, family offices and individuals.

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Daniel Watson

Daniel Watson