Drop in energy prices stalls New Jersey’s solar energy sector

In December, preliminary figures from the state Office of Clean Energy indicate that just nine megawatts of new arrays were installed in New Jersey that month, a significant drop-off from the rapid pace of previous months, when 42 megawatts were developed in October 2011 alone.

The decline reflects a steep drop in the prices that owners of solar systems earn for the electricity their arrays produce, which have fallen from a high in the mid-$600 range 18 months ago to as low as $70 in recent days. That collapse has dried up investment in New Jersey’s solar market, once second behind only California in the number of solar installations.

“Everyone I talk to says the money has left New Jersey,” said Fred DeSanti, a lobbyist who represents a number of solar and renewable energy businesses. “It’s absolutely dead.”

Dennis Wilson, president of the Mid-Atlantic Solar Energy Industries Association, agreed. “It has been a major slowdown; there’s no question about that,” Wilson said.

The slowdown spurred lawmakers and the Christie administration last year to ramp up how much solar power electricity suppliers must purchase — a move intended to stabilize what had once been one of the few flourishing segments of the New Jersey economy. The market stalled when lucrative state and federal incentives created an oversupply of solar credits, the primary means of financing solar installations in the state.

So far, the state’s efforts have failed to produce the desired results. In a meeting last week in Trenton, state officials and industry observers failed to agree on steps to reduce volatility in the sector.

With the state pursuing aggressive goals to promote solar power — a cleaner but much more expensive way of producing electricity — the issue has important implications for customers who pay electric and gas bills.

Here’s why: part of the state’s efforts to increase the use of solar power has been to require its four electric utilities to promote the effort by installing systems under long-term contracts with residents and businesses. With the precipitous drop in prices those arrays earn, the ultimate cost for paying off those contracts rests with utility ratepayers.

According to Alpha Inception, LLC, a Houston, Texas-based firm, the total losses ratepayers are likely to suffer as a result of the current market structure and volatility could be approximately $160 million.

Here’s how the math works, according to the Texas firm. In the past few years, the state’s electric distribution companies have purchased so-called Solar Renewable Energy Credits (SRECs) at prices of up to $350 for 10 years. The same program requires the utilities to sell the SRECs at auction each quarter. The oversaturation of credits has resulted in a significant loss of up to $200 per SREC sold.

How the state plans to stabilize the market remains uncertain. Some observers, like DeSanti, say the rapid ramp-up in the requirement for power suppliers to purchase more of their electricity from solar systems might work to eliminate the supply of solar credits.

At the end of the year, New Jersey has installed 959 megawatts of new solar capacity, according to Charlie Garrison, a consultant to the Office of Clean Energy. That total may rise by about 3 megawatts when final numbers are available, according to Garrison, who attributed some of the decline to the impact of Hurricane Sandy.

Still, the state also witnessed a slight decline in the number of solar projects in the pipeline, falling to 741 megawatts from the previous month’s total of 750 megawatts, according to Garrison.

NJ Spotlight, an independent online news service on issues critical to New Jersey, makes its in-depth reporting available to NewsWorks.