COVER STORY, MARCH/APRIL 2012

IS THE SOLAR BOOM OVER?
Incentives drove increasing demand for solar during the last few years. Today, it’s a slightly different story. What has changed?
By Lindsey W. Marcec

This time last year, installing cost-effective solar energy systems was, in many cases, a sure-fire way for property owners to save thousands on energy costs — or even bring in additional revenue — thanks to federal and state incentives. Today, the economics of solar have changed in some states, in large part due to Solar Renewable Energy Certificates (SRECs). But, with solar equipment prices continuing to drop and the promise of new incentive programs on the horizon, solar is still a viable way for property owners to save energy — and money.

First, let’s take a look at the current SREC market. SRECs are incentives some states offer to spur the use of solar energy. Basically states mandate that utilities sell green energy. Utilities that do not meet the requirement in a given year must pay a significant fine. In order to meet the requirement, utilities can install solar or they can buy SRECs — essentially paying consumers that install solar.

Last year, New Jersey had one of the most successful SREC markets in the country. But, because of its popularity, there was a concern about oversupply — and, most importantly, what that oversupply would do to the SRECs’ value, which fluctuated based on supply and demand.

“The SREC market in New Jersey is what caused the boom,” says Lawrence Garb, executive vice president-administration with Hartz Mountain Industries, a Secaucus, New Jersey-based company that constructed 11.87 megawatts of rooftop and ground-based solar arrays in 2011, representing 3.8 percent of New Jersey’s total.

The SRECs also caused the bust, at least in New Jersey.

“New Jersey was a barren wasteland of black roofs, and then, all of the sudden, you could throw a solar system on a roof and be profitable in 3 to 4 years thanks to SRECs,” explains Chad Gessin, vice president with Manhasset, New York-based Chatham Energy Solutions. “So many people rushed to get into solar installation services that the amount of solar certificates available far exceeded the requirement of them, and the value crashed.”

Here’s an idea of the extent of the value depreciation: Last May, New Jersey SRECs were valued at $500. As of March 22, they were settling at a mere $140.25. (Source: www.FlettExchange.com)

According to Garb, “The market for SRECs remains in a long position (significant oversupply), so there is the prospect of SREC pricing dropping even further. That’s a real risk if the program is not fixed in the coming months to help stabilize the market. A resurgence in the development of new projects will be dependent on legislation that corrects the oversupply currently in the marketplace.”

Vanguard Energy Partners completed a 173.42-kilowatt solar installation for High Point Solutions in Sparta, New Jersey.

“The New Jersey solar program is a victim of its own ‘great’ success,” says Todd Hranicka, vice president of sales and marketing for Branchburg, New Jersey-based Vanguard Energy Partners.

So what now? According to Garb, the current SREC environment in New Jersey makes it very difficult to make anything work. “A lot of solar development will come to a halt until there’s a solution,” he says. “We’re hearing there’s a bill that may come about later in the year, but we don’t know if it will pass. Until then, we’re in a holding pattern.”

Garb notes that there are other options for New Jersey solar companies. “We participated in the Public Service Electric & Gas Company (PSE&G) loan program, which provides you with a floor on your SREC pricing so you’re not at risk if that market collapses. Any development we do will depend on that loan program, but there’s a wait list now. The other utilities — Jersey Central Power and Light (JCP&L) and Atlantic City Electric — have programs for SRECs too.”

“Each state utility company has had to come up with programs for the solar problem,” he says.

Solar Outside of New Jersey

Not all states have suffered the fate of New Jersey when it comes to incentive programs. For example, Massachusetts put a floor in place for its SREC market instead of allowing the value to fluctuate. “Massachusetts’ SREC market is more stable at this time [than New Jersey],” says Hranicka. And New York is implementing a number of rebate programs, hoping to create a more solar-friendly market.

“In New York, there are various rebate programs — ranging from 10 kilowatt max to 50 kilowatt max — but New York is not competitive in the rebate world right now with other states. They know that,” says Gessin. “The legislature right now is working on a bill that will bring into place some performance-based program.”

Then there are the federal solar incentives, which are currently a 30 percent invested tax credit — another change from last year.

“Last year, it was the 1603 Treasury Grant program, a federal grant that allowed solar developers and owners to get the money for solar installation up front. Now it’s a credit against your income taxes,” Gessin says.

The U.S. Senate recently had the option to reinstate the 1603 Treasury Grant program. On March 13, they voted against it.

“It’s going to take a bite out of solar,” says Gessin.

The Future of Solar

Even with the setbacks resulting from federal and state incentive programs, solar companies are still 100 percent behind the ultimate value of solar energy systems. The increasingly low price of solar equipment is making it that much easier for property owners to make the decision to go solar — with or without help from incentives.

“Price decline in solar equipment is critical to the growth of our industry,” Hranicka says. “Solar financial incentives are primarily in place to support solar technology until it can be cost effective on its own. The lower the cost of construction, the less dependent an investor is on financial incentives.”

Garb agrees to a point. “Pricing of systems continually drops, so the economics get a little better. And, ultimately, it’s supply and demand. As development slows, New Jersey’s Renewable Portfolio Standard will still require generators to buy more SRECs every year. We’re going to get to a point in the next 3 to 4 years where we’ll cross lines again.”

“Incentives will be less and less necessary for solar,” Gessin adds. “At a certain point it’s a good investment because it’s a good investment. For now, solar projects must be evaluated state by state, market by market, and utility by utility. But if module prices keep going down and retail electric prices keep going up, solar will soon be a good investment with or without rebates.”

Hartz Mountain Begins Operation of Ground-Based Solar Installation Hartz Mountain Industries operates an 8.5-megawatt ground-based solar array in Hamilton, New Jersey. Hartz Mountain Industries is no stranger to large solar installations, and, last year, the Secaucus, New Jersey-based company tackled its largest project to date. In December 2011, Hartz Mountain began operation of its largest installation and first ground-based array, an 8.5-megawatt (MW) field in Hamilton, New Jersey, comprising more than 30,000 solar modules. “We’re going produce about 10.5 million-kilowatt (KW) hours per year at the array,” says Lawrence Garb, executive vice president-administration with the company. “That’s the equivalent of powering 1,200 homes.” Hartz Mountain, which typically installs roof-based systems, saw the ground-based installation in Hamilton as a natural extension of what they were already doing. “The challenge with ground-based installation is land cost, but this one we bought shovel-ready,” Garb says. “The economics are different, too. The price for your electric is a little less, but you have to deal with other things, like real estate taxes.” “The ground-based array provided Hartz with a way to substantially increase the size of our solar portfolio in one project. Our largest rooftop prior to the ground array was 2MW. This project effectively doubled the size of our portfolio,” he notes. What does Garb recommend to companies researching solar? “Hire a qualified company that has experience designing and constructing the type of solar project you want to install. Ground-based arrays and rooftops systems are significantly different,” he says. “Establish a close working relationship with the local utility that will be providing your interconnection into the grid and make sure you understand your site. Unlike a flat roof, land has varying topography and geotechnical conditions that can challenge installation.” — Lindsey Marcec

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