Everyone seems to know that California currently leads in the nation in installed solar capacity. Many, however, do not know that New Jersey is the second largest solar state in the U.S. with 137 megawatts of installed solar power in 2010 which was almost a 140% increase over the 57.3 megawatts installed in 2009 and 517% increase over the 22.5 megawatts of installed New Jersey solar in 2008. In addition, New Jersey became the second state (California) to install over 100 MW in a single year.
What is the reason for New Jersey solar success? Most states in the U.S. offer solar cash rebates based on the size of the solar system. Usually it is between $1 – $3 per watt of a solar system which amounts to between $4000 to $12,000 state rebate assuming a 4 kilowatt solar system. Combine this with a federal income tax credit of 30% of the cost of the solar system (after the state rebate is deducted), the initial cost of solar is dramatically reduced.
New Jersey, however, does not operate on such a state rebate system. They actually used to offering cash rebates up to 50% of the cost of a solar system, however, currently the cash rebate system is limited to wind and biomass renewable energy projects. Cash rebates for solar were exhausted in 2010.
New Jersey offers a very unique solar incentive system. First, the New Jersey Board of Public Utilities supervises a loan program called the Solar Loan II program which was opened in December 2009 with $143 million in available loans to support 51 megawatts of installed solar capacity throughout New Jersey. The Solar Loan II program offers loans which cover 40-60% of solar power system costs. These loans, which are funded by rate payers, offer residential solar systems 10 year loans at a 6.5% interest rate and non-residential systems a 15 year loan at an 11.3092% interest rate. The actual loan amount is based on how much energy the system is expected to generate in its’ lifetime. These loans are only available to systems smaller than 2 megawatts in installed capacity that are net metered and generate Solar Energy Renewable Credits (SRECs) (see below). While the interest rate on these loans is relatively high, it allows customers to repay the loan and interest with the SREC…the heart of New Jersey solar incentives.
So what is an SREC? An SREC represents 1 megawatt-hour of electricity generated from an eligible renewable system. Think of it like a stock certificate where its value is based on the amount of electricity your solar system produces. And just like stocks, SRECs are sold on an open market at varying prices correlated to demand.
Launched in 2004, New Jersey’s online SREC trading market was the first of its kind and has helped to dramatically increase the monetary value of SREC’s. Why? Easy…New Jersey law requires its utilities (in the aggregate) to produce 5,316 gigawatts of solar energy by 2026 (New Jersey currently uses over approximately 82,000 gigawatts of energy a year). In order to comply with this requirement, New Jersey utilities purchase SREC’s on the open market forcing the price per SREC to go up.
What is interesting about New Jersey’s SREC market is that it essentially has a price ceiling and a price floor, providing much needed stability in a relatively new market. When an electricity supplier does not purchase enough SRECs to fulfill the solar RPS, the supplier must pay a Solar Alternative Compliance Payment per missing megawatt. The payment for the 2010-2011 reporting year is $675 per missing megawatt. If the price of an SREC were to rise above the $675 compliance payment, a utility would have no incentive to purchase a SREC on the open market, therefore creating a price ceiling.
As far as a price floor, PSE&G buys SRECs at a minimum basement price of $420 and $380 per megawatt, for residential and small commercial systems. As a result, this creates a price floor. The price floors decline semi-annually depending on system size and sector. If the price per SREC is higher than the basement price (they usually are) customers will receive the market price and this will help reduce the principle amount on the loan for your solar power system. If the loan is repaid early, PSE&G retains the right to purchase the SRECs at 75% of the market price for the remaining loan term. After the loan term, customers will retain the rights to any generated SRECs, although according to state laws a solar system is only eligible to produce SRECs for the first 15 years of operation.
As a result of the SREC structure, consumers really benefit. For every megawatt of electricity your solar system produces, whether you use the electricity of not, you will receive an SREC. For the average family with a 5 kW system, an SREC is produced about every 2 months. SRECs have an average price of about $560, meaning, if you sell them on the market, you’ll have about $280 back in your pocket every month to help pay any costs associated with buying the solar system. Those payments should continue for up to 15 years from the date the solar system comes online. And as an alternative to cash payments from selling SREC’s on the market, customers may sign over their SRECs to PSE&G to repay any or loan payments on their solar power system, if any. All in all a win-win for New Jersey utilities and their residents and one of the main reasons why New Jersey solar is so popular.