This CESA report provides an overview and specific examples of three creative finance tools that any state can use to support PV in the context of an existing RPS: solar set-asides, feed-in tariffs, and reverse auction mechanisms. These tools are primarily targeted at commercial- and utility-scale projects, and use of any of them can reduce the need for states to provide direct rebates and incentives to PV projects. These tools, if smartly designed, can allow states to build sustainable solar markets with programs that are economically efficient, reward PV system performance, allow for program continuity, advance market transformation and avoid rebate dependency.

The authors contend that providing special treatment to PV projects in the context of an RPS is important if states are to build and maintain public support for their RPS programs, particularly in cases where solar is the most widely accessible in-state renewable energy resource.

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Source: Clean Energy States Alliance

New Jersey’s Solar Transition to a Market-based Solar Financing Program

New Jersey’s clean energy goal is simply stated to be 20% by 2020. More specifically, the state hopes to achieve 20 percent reduction in GHG by 2020; 20 percent reduction in energy use by 2020, 20 percent use of renewable energy by 2020, and 2.12 percent of its energy to come from solar PV by 2021, as mandated by the state’s Renewable Portfolio Standard.

Today, with over 3100 solar pv systems installed across the state, New Jersey is second only to the state of California in the number solar panels installed. New Jersey’s favorable net metering and interconnection rules have allowed for this impressive solar push by allowing PV systems to connect to the electricity distribution system (the grid) and be compensated for the generation of clean, emission-free electricity that is fed back into the grid.

New Jersey’s success has been accomplished through the New Jersey Clean Energy Program, administered by the NJ Board of Public Utilities, that has provided over $227 million dollars in funds from May 2001 – June 2008 to promote solar energy through rebates on the cost of installations of PV systems in New Jersey. Historically, NJ’s upfront rebates to solar PV owners have provided up to 50 percent or more of the installation costs.

New Jersey will seek to grow its cumulative solar capacity to as much as 2300 MW by 2021, up from the 57 M-dc installed, grid connected cumulative capacity as of June 2008. However, if the current rebate program were to continue, it was estimated that the cost to achieve the 2.12 % solar RPS requirement by 2021 would be almost $10 billion dollars. Because of this and other factors, the NJ Board of Public Utilities decided in September of 2007 to move NJ away from a rebate program to advance solar and to begin a market-based Solar Financing Program to ensure continued growth of NJ’s solar market. NJ will phase out rebates by 2012 and rely on Solar Renewable Energy Credits (SRECs) and a Solar REC-based financing to spur private investment and market development for solar technologies.

SRECs represent the renewable attributes (clean energy benefits) of solar power generated from a solar electric system, and they can be bought or sold separately from the electricity, thus providing the PV system owner with a source of revenue to help offset the cost of the system installation. An SREC is issued to a solar facility for each 1000kWh (1 MWh) of solar energy it generates.

If a generator has accumulated a fraction of an MWh by the end of a reporting year (May 31), the fraction may be carried over and combined with energy generated in one or more subsequent reporting years in order to make a full MWh that is eligible for sale. Under existing rules, one or more full MWh (SRECs) may not be carried over to subsequent years.  However, “bankablity” or the extension of the utility of a SREC for an additional year is one of several rule changes proposed as part of the Solar Transition that is currently before the Board.

Under existing rules, an annual estimate can be used, at the option of the owner, to calculate the monthly SREC generation for systems with a capacity less than 10 kilowatts (kW). The program’s web site allows owners of systems 10 kW and larger to upload monthly meter readings and/or production information. When a generator has at least one SREC in an account, the generator can use the electronic bulletin board on the SREC web site to announce a sale offering. Interested buyers can also use the web site to request an SREC purchase. Buyers and sellers contact each other offline and execute a sale. After the sale is executed, the seller uses the web site to transfer SRECs to the buyer. Electricity suppliers can also use the web site to retire SRECs that have been used to meet their RPS requirements. Generators also have the option of recording and retiring SRECs for purposes other than for RPS compliance.

PV system owners can choose to sell their SRECs to a broker, aggregator or Load Serving Entity (an electric supplier or provider in New Jersey’s restructured electric industry not a utility) that must buy SRECs to meet its RPS obligation. Some solar installers or project developers will offer to buy the SRECs as part of the project financing, thereby reducing the amount of capital needed up front to finance a project. All residential and commercial customers considering financing options for a solar installation should ask about the value of SRECs and who will have the rights to claim them. By increasing the value of SRECs paid out over the life the system, the amount of the rebate needed up front can thus be reduced or eliminated.

The SREC value is determined by the market with supply of SRECs a function of installed capacity and demand determined by the RPS percentages and the level of retail electricity sales by regulated entities.  The price is effectively capped by the level established for Solar Alternative Compliance Payments (SACP) in a particular Energy Year. The SACP is a tool within NJ ‘s RPS that enables compliance during times of insufficient supply of Solar Renewable Energy Certificates.  The regulated entities in NJ’s RPS rules, electric suppliers and providers (not utilities or EDCs), must supply either SRECs or SACPs in proportion to their retail sales to comply. 

The SACP level had been $300 per MWH since it was established in 2004.  In September 2007, the Board of Public Utilities approved an increase in the SACP for Energy Year 2009 to $711 per MWH as part of our state ‘s effort to transition the solar subsidy delivery system away from a heavy reliance upon rebates toward greater emphasis on the RPS.  The Board also established a schedule for the SACP level for eight years and a process for setting the level for the “new” eighth SACP amount annually.  The current schedule for eight years of SACP decreases by 3% from $711 per MWH and currently culminates at $549 per MWh in 2016. This Fall the Board will convene an Advisory Panel to recommend an SACP level for the new eighth year, i.e., 2017.

For smaller PV systems, solar rebates will still be available for the years 2009-2012. A funding level of $53 million has been recommended for these rebates over that time period, and they will be administered from the NJ Clean Energy Program.  The funding levels proposed by staff for solar PV as well as other clean energy measures are currently being considered by the Board with a decision expected before the Fall of 2008.

Finally, under the recently proposed rule amendments, PV systems can be qualified for SREC revenues for a period of 15 years, after which the system will be considered eligible for Class I RECs in NJ’s RPS.  And each SREC will have a two-year vintage, meaning that an unused SREC may be carried forward for one year in the market.  As a financial safety valve for ratepayer funding, a cap on overall state solar incentives has been recommended to approximately 2 percent of total electricity sales (ratepayer bills) on an annual basis. The NJ BPU will monitor the costs of solar installations relative to the total retail market electricity costs to provide for a “safety valve” in the RPS rule making as needed.

By transitioning to the Solar REC-based financing program, NJ will use market forces to achieve its clean energy goals by shifting away form up-front rebates and toward a performance-based SREC revenue stream.  A chronology of documents used to support the stakeholder proceeding which culminated in the Solar Transition adopted by the Board is available at http://www.njcleanenergy.com/renewable-energy/program-updates/program-updates.

A set of answers to Frequently Asked Questions on the New Jersey Solar Market Transition can be found at:

http://www.njcleanenergy.com/files/file/SOLARTransitionFAQs121707%20fnl2(2).pdf

The NJ Clean Energy Office Solar REC Program is one of five awarded the Clean Energy States Alliance "State Leadership in Clean Energy" awards in 2009. 

The report describes the key policies and program strategies that have emerged as effective tools for states to advance wide-spread solar deployment. The report’s recommendations are based on the input and lessons learned of the members of the Clean Energy States Alliance, a coalition of state clean energy funds working together to support renewable energy technologies.

The report recommends that states serious about local market-making focus on the following interventions:

• Provide predictable, long-term financial incentive support for solar projects
• Establish “PV friendly” laws such as expanded net metering, simplified interconnection standards, streamlined local permitting, and renewable portfolio standards with solar targets
• Ensure sensible incentive program design to reduce customer transaction costs
• Stimulate favorable solar financing programs
• Commit to use of solar on public buildings
• Support local work force training and development
• Educate consumers on the merits of solar

The report also provides specific examples of state program features and policies that we believe to represent “best in class” approaches.  It is hoped that states will use the report as a blueprint for actions they can pursue to effectively mainstream solar electricity.

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Source: Clean Energy Group  

The majority of states in the U.S. have established a Renewable Portfolio Standard (RPS) that requires utilities to supply a specified percentage of electricity used from renewable resources. An RPS represents an important tool to expand state solar markets if designed with differential support for solar technologies. However, a traditional RPS – where all eligible renewable resources compete – supports least-cost projects such as wind and landfill gas, and is unlikely to provide adequate support for smaller-scale solar distributed energy due to cost and solicitation barriers.

In recent years, states increasingly are providing differential support for solar with an RPS in two ways. First, eleven states now have established a solar share or set-aside – a requirement that some portion of the RPS come from solar resources specifically, or distributed generation more broadly. Second, several states use a solar “multiplier”, giving more credit to solar electricity than other forms of generation toward meeting RPS targets. These mechanisms attempt to strengthen solar markets by allowing solar technologies to compete against less costly renewable technologies, and are becoming more popular and increasingly driving solar development.

According to analysis by Berkeley Lab[1], states are moving toward set-asides and away from multipliers due the greater success with the former approach. RPS policies that only have credit multipliers for solar have not yet seen significant solar additions.

New Jersey has been most aggressive in its use of a solar set-aside, with 2% of its RPS target required to be delivered from solar PV systems, requiring 1800 MW AC of solar by 2021. New Jersey’s solar development targets are the largest in the country on a per capita basis and are now driving the high growth in PV installations in the state. 

Berkeley Labs reports that the impact of state RPS set-asides on solar PV already has been substantial. Excluding California, 67% of PV additions from 2000 through 2006 came from states with active RPS solar targets. Further, the future impact of existing state RPS solar set-asides could be sizable: 400 MW in 2010 and 2000 MW by 2015, assuming full compliance.

For an RPS to significantly benefit solar technology and markets, a solar set-aside requirement appears to be necessary. States with an RPS should consider requiring a specific solar share percentage in recognition of the special benefits of solar installations (e.g. local job creation, ease of siting, used primarily at the point of generation, no adverse environmental impacts). However, according to Berkeley Lab, contracting and incentive policies are critical to the success of a solar set-aside.  Reliance on short-term Renewable Energy Credits (REC)[2] purchases to meet a solar RPS is likely to be costly and ineffective. States therefore should encourage or require long-term REC contracting and/or provide up-front payments for small PV systems.

Both Maryland’s recent RPS law and New Jersey’s new solar REC program provide good examples of state approaches.  For Maryland’s approach, see http://www.dsireusa.org/library/includes/incentive2.cfm?Incentive_Code=MD05R&state=MD&CurrentPageID=1.  For New Jersey’s program, go to: http://www.njcleanenergy.com/renewable-energy/programs/solar-renewable-energy-certificates-srec/new-jersey-solar-renewable-energy