July 11, 2008


New Jersey’s Experiment With Solar Energy Is Watched by the Nation

Source:  Copyright 2008, New York Times
Date:  June 25, 2008
Byline:  Anthony DePALMA
Original URL

With oil prices skyrocketing, demand for solar power is booming. And New Jersey, which has used a rebate program to help install more solar panels than any other state but California, is getting burned by its own success.

There is a backlog of more than 700 applications for the rebates, and property owners have to wait months, even years, to get solar panels installed. The program, which is paid for by surcharges on all utility bills, has been shut down several times over the last three years because applications far outpaced rebate money. Some solar installation companies have had to lay off workers while they waited for rebate checks to be sent.

All this has convinced New Jersey regulators that it is time to wean solar energy from public subsidies altogether. The state plans to replace rebates with energy credits that can be bought and sold on the open market.

As it works out the details of the transition, New Jersey — not the place most people associate with solar innovations — finds itself at the forefront of a growing national debate about the role of government in helping stimulate this sector of the energy economy.

New York, Colorado, Maryland and several other states with incentive programs are considering whether to scale back public subsidies so solar power can compete more extensively in an open market. And they are confronting another difficult question: Is that best done by turning to a few large companies, or sticking with smaller businesses that can create more local jobs?

“Obviously, big systems get us to our goals much faster, but we want everybody to participate,” said Jeanne M. Fox, president of New Jersey’s Board of Public Utilities, which proposed the changes and is expected to give them final approval next month.

Ms. Fox said she believes it will be possible to phase out rebates, create a secure market for trading energy credits, welcome large solar system operators and still protect many — if not all — small installers.

But some of those smaller operators think the proposed transition will replace a proven success with an untested experiment from which they — the entrepreneurs who started the solar boom with the help of rebates — will be excluded.

“The state wants to build a market to suit big companies that have access to huge sources of capital,” said Bill Hoey, managing member of N.J. Solar Power L.L.C., a $10 million company. “They could just crush the mid- and small-size market.”

At SunEdison, one of the largest installers in the state and the nation, Mark R. Culpepper, the vice president for strategic marketing, enthusiastically supports New Jersey’s transition. He called it “a pretty normal market evolution” in which “very small players will probably go away, while small to mid-sized companies will be acquired by others or go into specific niche markets where they can specialize.”

Similar conflicts are arising all over the country, but the battle is most clearly drawn in New Jersey, where state officials feel compelled to act decisively.

Under a state energy master plan, solar power should account for 2.12 percent of New Jersey’s electricity by 2020. But even though more than 3,100 residential and commercial solar systems have been installed during the six years the state has offered rebates, they generate only 0.07 percent of current energy needs.

To reach even that, New Jersey has handed out more than $170 million in rebates. The Board of Public Utilities has estimated that if rebate rates remained unchanged, it would cost nearly $11 billion to get to the 2020 goal. According to state calculations, that would add about 7.5 percent to New Jersey electricity rates, which are already among the highest in the country.

“We need to do things differently because ratepayers can’t keep paying for rebates indefinitely,” Ms. Fox said.

Rebates, which have averaged $20,000 for residential projects and more than $1 million for large commercial installations, would virtually end this year under the state’s plan. A limited number for small residential projects producing less than 10 kilowatts would be phased out over the next four years.

In their place, the state would turn to a program it started several years ago that issues energy credits. The concept is simple: Solar projects generate energy credits every year, and the state requires utility companies like PSE&G to buy them to offset carbon emissions from their power plants and to help meet renewable-energy targets. By purchasing credits, the utilities do not actually generate solar power, but they offset the cost of installing and operating solar equipment.

New Jersey plans to greatly expand the program by allowing the credits to be bought and sold like commodities, with long-term contracts and prices set by the open market.

Regulators say that will be fairer to ratepayers and help the state reach its renewable-energy goals faster. They also say the plan provides safeguards for small installers and ensures competition by prohibiting any company from capturing more than 20 percent of a utility’s yearly credits.

But the small companies fear that large businesses are poised to take particular advantage of the credit system. Being bigger, they can handle more credits, cover more long-term commitments and secure more advantageous financing than mom-and-pop operations.

SunEdison, based in Maryland, has already made inroads in New Jersey using a new approach — called power purchase agreements — that smaller companies do not have the capital to duplicate.

Under those agreements, which the state first allowed in 2004, property owners do not have to buy or operate their solar projects, or handle the sale of energy credits. Instead, they avoid all up-front costs by contracting with SunEdison or other large companies, and bill property owners at fixed rates that are lower than utility company rates.

SunEdison has put up more than 22 solar systems in New Jersey, along with dozens in others states, mostly for large retail companies like Kohl’s.

Experts say these purchase agreements can promote the move to solar power. And regulators hope that a vibrant market for energy credits will speed that growth to the point where solar power can compete with conventionally generated electricity.

But Lyle K. Rawlings, president of Advanced Solar Products, in Hopewell N.J., and vice president of the Mid-Atlantic Solar Energy Industries Association, a trade group, said those attempts to make the solar market more competitive could backfire, actually hindering competition by squeezing out smaller companies.

He said that the state’s proposed safeguards did not go nearly far enough. While a portion of new projects would be subject for a few years to caps on how many credits one company can control, he said, those caps would not apply to existing solar installations.

“The model they’re creating is overcomplicated, fraught with uncertainty and really doesn’t protect the small installers who’ve created this industry,” Mr. Rawlings said. He said his own company had laid off 4 of its 15 workers in the last few months, and several New Jersey solar companies had gone out of business. “This is going to lead to a kind of unhealthy market concentration and chaos, like what’s already happened in other states.”

Blake Jones, president of Namaste Solar Electric, in Boulder, Colo., and a board member of the Colorado Solar Energy Industries Association, said his state was considering changes similar to New Jersey’s.

He said a major goal of solar incentive programs is creating green jobs. “On a per-kilowatt basis, more jobs, more local business and more rural economic development is created by small projects and small businesses than medium or large ones,” he said.

In Maryland, installers hope to persuade regulators to raise the value of energy credits in order to provide more income for small companies.

New York is several steps behind the other states in developing its solar market because of regulations that have limited solar installations to small-scale residential projects. Installers there are watching what happens in New Jersey because they expect to enter a similar debate in the next few years.

To learn more about solar opportunities in NJ email george@hbsadvantage.com . Ask about our free proforma.

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