The nationwide push for green energy has led to a rise in people trying to cash in on solar panels locally, and some hope the sun’s golden rays generate more than just a few dollars in energy savings.
In New Jersey, solar panel owners stand to profit from the sale and trade of renewable energy certificates, which the state requires energy providers to turn in every year. The market for those credits has its ups and downs, just like the stock market, according to experts.
Pohatcong Township Elementary School officials hope to profit from the sale of solar renewable energy certificates, known as SRECs, if they move forward with a controversial plan to install solar panels on about 2 acres of a field bordering the school.
The proposed $1.05 million solar panel development would produce about 94 percent of the school’s energy needs, said Dave Klockner, a consultant for the school. The cheaper energy costs make the project a good investment, regardless of profits from the energy certificate sales, said Klockner, vice president of Eneractive Solutions.
“Even if the SREC prices go down, this project still makes very good sense,” he said. “The energy savings is significant.”
Michael Flett, owner of an environmental brokerage and consulting firm, said the money investors save on their electricity bills is probably not enough to warrant purchasing solar panels. The energy certificates give people and businesses an extra cash incentive for buying into solar energy, he said.
Power companies selling electricity in New Jersey have to produce a certain amount of solar energy per year, Flett said. If they don’t generate it themselves, they buy the solar certificates. New Jersey law determines how many solar certificates the power companies have to turn in.
Power-purchase deals
Federal tax credits give private investors an additional incentive for solar development, but a school or municipality that builds the solar farm itself can’t take advantage, Flett said. Some government entities enter into power-purchase agreements with nongovernment investors. In that type of agreement, a school or municipality can give the investor access to its land to build and operate a solar farm. The school gets the benefit of cheaper electricity, and the investor can take advantage of the tax credits and SREC sales.
That’s the type of arrangement the Hackettstown Municipal Utilities Authorityhas with HelioSage Energy for the solar panels at its water treatment plant, authority Executive Director Bruce Smith said. HelioSage Energy owns and maintains the panels and trades the energy credits, Smith said. He said the authority sees about $4,700 a year in energy savings.
“It just turned out to be a good deal,” Smith said. “In our case, it worked out really well, because the SRECs went way down, and it didn’t really impact us at all.”
Klockner said the Pohatcong school board considered a similar power-purchase agreement, but the project is too small to attract a financier. Projects need to be bigger for firms to see returns, he said. With a power-purchase agreement, the school wouldn’t have to spend the money up front to build the solar development. It could, however, end up paying more for electricity over the long term, Klockner said.
Typically, investors in power-purchase agreements increase the cost per kilowatt hour each year throughout the life of the 15- to 20-year contract, he said. The panels the school plans to install and own will pay for themselves in about seven and a half years, Klockner said. After that, the electricity generated by the system is free for as long as the panels last. The panels come with a 25-year warranty.
The Pohatcong proposal remains a tough sell in the community, where township council last passed a resolution opposing the project. Mayor James Kern III has called it a "major financial risk" and said the school's investment could be better spent.
Solar market correction
According to the New Jersey Board of Public Utilities, 274 New Jersey public schools had solar photovoltaic systems by the end of March. Just like residents and businesses, school and municipalities can participate in the state’s SREC incentive program, according to the BPU.
The market for the SRECs, over time, goes through a sort of boom and bust cycle, said Frank Felder, director of the Center for Energy, Economic and Environmental Policy atRutgers University. But there would likely be a lot less solar energy in the state without the credits. SRECs make solar energy a good deal, especially if investors lock in at high prices, Felder said.
“The SRECs really shortened the payback period from a long time to a much shorter time,” he said.
The amount of solar renewable energy credits that power companies need to turn in will increase from 596,000 this year to about 1.5 million next year in New Jersey, according to Flett, the environmental broker and consultant. That’s because of state legislation passed last summer, Flett said.
Before, the market was significantly oversupplied. Without the state’s hike in demand, the energy credits would probably be selling for $20 to $30 each, Flett said. The energy credits currently sell for about $130, Flett said. Their price is meant to fluctuate as a way to protect consumers, because people who don’t generate solar energy are paying for the credits in their electric bills, he said.
The price of the energy credits ultimately depends on the supply, because the state is increasing the demand every year. If the cost of installing the panels stays low, the value of the energy certificates will drop, because people won’t need as much incentive to build, Flett said.
The cost of building solar power plants dropped “precipitously” during the last five to six years, said Daniel Van Clief, HelioSage Energy’s executive vice president of business development. The price of solar construction is leveling out, and the supply and demand of SRECs in the New Jersey market is re-balancing, he said.
“So much solar was built in New Jersey in the mid-2000s, because it was such a great market,” Van Clief said. “There has been and continues to be more SRECs for sale than there are buyers.”
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