The following is a write-up by Michael Flett – President of Flett Exchange, LLC in response to the passage of A-3723 in the New Jersey legislature and now on the desk of Governor Murphy to sign into law.
Renewable energy in America affects everyone today. The societal benefits are obvious - less pollution and infinite energy. In New Jersey, solar energy production is subsidized by the public either as a taxpayer through federal or state incentives or as a regular electricity consumer. They need to be part of the conversation.
Where is the support for this bill?
Due to the widespread benefits and costs one would assume that when crafting solar legislation it would include any and all stakeholders. That was not the case here in New Jersey where a renewable energy bill was quietly folded into a three bill package that included a nuclear subsidy bill and a health care insurance bill! The environmental community, who you would think, strongly supports renewable energy called for the process to slow down for a more deliberative process in order to create a long term program that would include community solar, not just a “pilot” program. That was certainly not the case with this bill. A small group of solar owners along with financial solar dealers spearheaded the quick passage of this bill in Trenton. If enacted, this law would close the successful free-market SREC program for all future solar development after 2021. As written, it will come at a multibillion dollar cost to ratepayers and divert future payments away from new solar development. All coming about without the widespread support and dialogue with environmentalists, ratepayers, business owners or even the majority of the homeowners or businesses that invested on solar on their homes and businesses. Flett Exchange has thousands of customers who own solar in New Jersey. These investments were made because of the SREC program and this bill extinguishes that program and causes uncertainty.
SREC = Competition = Fairness
New Jersey has been a nationwide leader for 15 years in solar development. The reason for this success is the open and competitive nature of our incentive program based on the SREC. New Jersey, in its wisdom over a decade ago, made the decision to let the market decide the most economical price for solar to bring in investment and at the same time protect the ratepayer. Due to the rapid reduction in cost of solar, an adjustment in the states’ law around solar was made in 2012. It worked beautifully. Solar was built. State renewable goals were met. The price to the ratepayer dropped as well. There was absolute freedom for homeowners and business to compete and install solar and earn SRECs.
Due to the success of the SREC program, New Jersey achieved all of its solar build-out goals and under budget. Now, like in 2012, the laws need to be adjusted to bring in the next phase of investment in New Jersey. Consistency needs to be maintained to maintain investor confidence, protect the ratepayer, protect past investments in solar infrastructure and bring more solar to everyone. The open and free SREC market is that tool. It allows for the freedom to compete and allow homeowners and business to install solar. It ensures that if prices drop for solar energy technology in the future, the public who pays for it with their electricity bill, will not be stuck for decades with long term contracts. The proponents of this bill are only interested in maximizing their rate of return when it comes time to selling their solar projects. They do not have the public’s interest at heart. We can do better.
Now, like in 2012, the cost to install solar has again plummeted. The state law can be adjusted to bring in the next phase of investment in NJ based on a free and open market called the SREC. The current bill phases out the tools that made New Jersey a solar leader.
Why Remove Fairness from a Successful Program?
Why? Because by closing the SREC program large solar owners will land a multi-billion dollar payday.
There are over 2,000 Mw of solar installed statewide. There are a few owners with control of 100 Mw each. Based on current free market SREC prices, the typical owner of 100 Mw of solar will earn $50 to $70 million dollars over the next 10 years in SREC payments. (This revenue is based on the forward 10 year curve of SREC prices in a freely traded SREC market prior to the run-up in prices due to this bill)
A-3723, as written, abolishes the SREC market and maximize payments. Those same large owners will earn $250 million in the next 10 years – a $180 to $200 million windfall – each. (The back-end of the SREC curve moves up due to the artificial demand created by this bill) If you add up the total amount for all 2000 Mw installed in New Jersey the cost to the ratepayer over 10 years is $8.5 billion – up from $1.4 to $2.8 billion based on the freely traded SREC. This bill as written will cost the ratepayers of New Jersey $5.7 to $7.1 billion more over 10 years! The majority of this money builds NO new solar! These projects will be sold quickly and when the real costs materialize the public will demand action. To put this in perspective, $6 billion would build an additional 3,000 Mw of new solar at an install cost of $2 a watt. $2 a watt is a fair install price for new solar for medium sized distributed systems that would benefit typical small business’ and homeowners in New Jersey.
The proponents of the legislation have provided one sided cost analysis. All the press releases and articles actually mention that it will save money which is only attainable in economic models in which the inputs are misleading and statistically near impossible.
How do we Maintain Fairness?
The New Jersey legislature and governor need to address solar development today as it was addressed in 2012. All stakeholders have to be heard. The cost analysis needs to be vetted. A clear path forward for the cost of solar development in the future needs to be planned. Plain and simple the path is:
A-3723 demands closure of the SREC market and re-direction of ratepayer funds away from long term new solar build-out that we have today. A clear reversal of past success.
The passage of A-3723 deviates from all of the success of the market based program that is responsible for the financing of over 80,000 solar installations in New Jersey. If enacted the bill will result in a quick short-term boost in SREC payments to investors of solar in New Jersey. This has happened already in the run-up in prices from $170 to $240 in the past 6 months because of the prospect of the legislation being passed. In reality, owners of solar are being duped into supporting this legislation because of the short-term run-up in prices. In the long term it puts all solar investment in New Jersey at risk by replacing free-market mechanisms by a law that is vague in its long-term support of solar. It de-links past investment in solar from future long-term solar build out. This is a dangerous proposition for those who own solar and rely on SRECs to pay back their investment in the clean energy future of New Jersey.
Short-Term Flips – No Long-Term Path – Sorry, New Jersey
Not one segment wins in the passage of this law except for a few select solar financers. In the next few years they will be able to flip projects for huge profits to unsuspecting investors who will get caught holding the bag in the long term. New Jersey homeowners and businesses who invested in solar and relying on SRECs will be in limbo without the continuation of the SREC program. Finally, and most importantly, the environment loses, the ratepayer loses, labor loses, and the new Investor in solar loses. When the costs are calculated in the next few years it will be apparent at the magnitude of ratepayer funds that were squandered and could have been used in an efficient manner to build out our renewable energy future. The right choice is to continue with a competitive and free incentive SREC market for the benefit of everyone in New Jersey as outlined above.
This bill is not law until Governor Murphy signs it. He can also significantly change it so it retains SRECs, maintains competition, and protects current solar investors and ratepayers or veto it and start over. Most importantly, the bill needs to be changed so that ratepayer funds are used in the most efficient manner to achieve our renewable energy goals.