Comments Submitted to the Solar Transition Work Group

March 8th, 2012

The following comments were submitted by Rager Energy Consulting to the Solar Transition Group and stakeholders on December 2, 2011:

My name is Clay Rager and I am submitting comments on behalf of Rager Energy Consulting (Rager). Submitting comments is an important part of the policy making process and I think I speak for the Solar Alliance and the greater stakeholder community when I say thank you for the opportunity to be heard.

New Jersey has become one of the nations leaders in solar installations since the inception of the SREC market. The state has set ambitious solar goals, which the New Jersey solar community has risen to meet and surpass, while simultaneously reducing the cost of solar installations. In the process of meeting ambitious generation goals, the solar community has brought solar investment money into the state, created  white, blue and green collar jobs and developed a healthy industry that is working hard towards becoming independent of subsidies.

While the local solar community is making every effort to bring down the cost of solar installations, most solar projects are still reliant on SREC sales in order to bring project payback periods and PPA prices down to manageable levels.

In the last year, we have witnessed volatility in the SREC price as a result of supply outpacing demand. I fear that less than desirable SREC prices will slow the pace of the development and pump the brakes of a growing industry that is creating jobs and bringing in money during slow economic times while gradually reducing our reliance on traditional generation technologies. Volatility in the SREC market adds risk to solar projects, and ultimately increases the cost of doing business.

The New Jersey solar industry has proven itself capable of meeting even more ambitious generation targets than those currently set. Ramping down the solar industry by allowing the SREC market to govern itself will lead to decreased investments in the solar industry, anemic margins and ultimately unemployment, as too many developers compete for too few jobs.

If a rigid, vertical demand curve in the SREC market is maintained, I fear that it will lead to boom and bust cycles in the New Jersey solar industry, much like the expiration of the federal wind production tax credit in the past has led to detrimental lapses of wind installations in years it had expired. The state of New Jersey cannot afford to slow down one of the few industries creating jobs, as well as environmental benefits in these times.

Volatility not only hurts project owners, developers, installers and financiers, but can lead to frustration from the utility perspective as well. Several solutions have been proposed to reduce volatility in the SREC market, such as price floors, and increasing SREC quotas. Price floors will do little to quell market volatility, and as the price of solar drops, a price floor will artificially inflate the true cost of solar on ratepayers. Increasing the SREC quota is unfair to LSEs attempting to budget for SREC payments.

As proposed by the Center for Energy, Economic and Environmental Policy at Rutgers, I advocate investigating the implementation of a downward sloping SREC demand curve as the primary tool for reducing SREC market volatility. A downward sloping demand curve would limit the impending slowdown of the New Jersey solar industry that is imminent if no action is taken, by creating a market for excess SRECs to sell at a discounted price. Providing the New Jersey solar industry with an opportunity for growth will bring down the cost of solar more rapidly than if the industry were allowed to shrink by enabling innovation and learning.

It should be clear that we recognize the importance of limiting solar subsidies’ burden on ratepayers as well as the need for LSEs to be able to budget SREC payments in the coming years. Employing a downward sloping SREC demand curve can limit the maximum SREC cost to ratepayers by pricing the excess supply SACP based on the amount of excess SRECs. In other words, the more excess generation, the lower the price of the SACP beyond SREC targets that have already been set.

Another tool for reducing SREC market volatility is enabling and requiring long-term SREC contracts. SREC prices in long-term contracts have proven to be much lower than those traded on the spot market. Long-term contracts also give investors the confidence they need to invest in solar projects.

If both these elements are implemented into and in support of the New Jersey SREC market, SREC prices will be pushed down due to decreased cost of doing business as well as industry learning. The end result is a decreased dependency on solar subsidies such as the SREC, and a self-sustaining industry that will continue to create jobs and environmental benefits for the state of New Jersey.

If the goal of the SREC market and carve-out was to develop a solar industry, lets allow the market to create the strongest industry possible, and remove market flaws that are holding the industry back.

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