Friday, August 19, 2011

New Jersey considering a floor price for solar credits

[Updated on  8/22/11 to add two related stories]

The number of new solar energy systems generating electricity in New Jersey more than doubled last year.

That's good news, right?  Yes, but, as usual, there's a catch.

New Jersey uses a market-based, supply-and-demand system to subsidize the cost of solar panel installations. It has helped to propel the state into the #2 spot nationally (only California has more solar panels). Read below how the system works and you'll understand the 'catch.'

A simplified version of how New Jersey's SREC system works 
  1. When a business, town, school or individual homeowner has solar panels installed, they receive a certain number of Solar Renewable Energy Certificates (SRECs) based on the amount of energy the system will generate.

  2. The owners of energy plants that emit greenhouse-gas-producing carbon dioxide (CO2) are required by the state to buy enough SRECs each year to offset the amount of CO2 that their plants release to  the atmosphere.

  3. The price of the SRECs depends on the number of solar systems in operation. With fewer systems, the demand for available certificates pushes the price that power plant operators are willing to pay for the credits higher. Similarly, as the number of systems increase, the demand (and price) for individual SRECs decreases.

The 'catch' is that, as New Jerseyans continue to install solar panels, SREC prices continue to fall--and they're falling fast. Once pegged at $600, individual credits were trading this week at $115, according to Flett Exchange, which tracks the market.

Without the prospect of a substantial SREC price, the cost of installing a solar systems becomes less attractive to homeowners and others. So solar installations slow down and fossil-fueled energy use continues to grow.

What can be done to improve the value of solar certificates?

The state's Board of Utilities, which regulates and promotes clean energy programs, is giving thought to setting a floor price for SRECs, according to a news story in yesterday's Star-Ledger

Meanwhile, in the state legislature, the Energy and Environment Committee held several hearings on S-2317, sponsored by committee chairman Bob Smith. The bill would accelerate by one year state requirements for how much renewable energy must be produced (portfolio standards), forcing power companies to buy more SRECs. The bill passed the Senate in late June and awaits action in the Assembly.

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