The shift from rebates to more creative performance-based incentives has been going on for many years, most notably in California and New Jersey. But with so many other state governments facing steep budget shortfalls, there is a collective recognition that new incentive options are necessary if larger amounts of solar are going to be deployed.
One by one, the monies for rebate programs around the U.S. have been obliterated because of high demand. In some cases, rebates are exhausted within weeks, leaving market players stranded until the next round of funds are approved.
“These programs always have substantial problems,” says Ed Merrick, vice president of marketing and business development at New Jersey-based Trinity Solar. “There’s always a finite amount of money set aside for solar — and to anyone’s surprise, they’re always running out of it.”
Most would say a shift away from rebate programs — especially for larger systems — is a necessary one. State governments are looking for a way to take taxpayer dollars off the table, especially during these tight economic times. And while industry professionals want to see a more sustainable way to handle the increase in demand for solar, as policy changes take place, many solar businesses are concerned about how new programs will affect the dynamics of the industry.
In Connecticut, many installers expressed outrage last fall when Clean Energy Fund administrators announced an end to the state’s already-used-up rebate program and a switch a solar lease program, thus changing the business model of many companies.
In Maryland, after blowing through a very small rebate program last year, some residential installers have raised concerns about a market-based solar renewable energy certificate (SREC) program that will eventually take its place.
“You’re seeing a move all over the country away from rebates,” says Trinity’s Merrick. “This is causing some pretty interesting changes in the market — they can be much different from what businesses are used to and they are feeling it.”
The SREC Market in New Jersey
New Jersey offers up one of the most dramatic examples of change. Back in December of 2005, funds in the state’s grant program were wiped out through 2008 because of high demand for rebates, which covered up to 60 percent of a system’s cost. As a result, rebates were lowered numerous times, projects were put on hold and installers started reporting layoffs due to a decline in market activity. The sudden shock to the industry forced program administrators and business-owners to look at different options for solar incentives.
“We looked at what was happening and it was pretty clear that the program was unsustainable. We just couldn’t fund — with taxpayer money — all of the demand we were seeing,” says Lance Miller, chief of policy and planning for the New Jersey Board of Public Utilities (BPU).
After a period of deliberation, the BPU finally decided upon an incentive structure based on SRECs. An SREC represents the environmental value of one megawatt-hour of solar electricity. Utilities in the state must purchase a certain number of these SRECs from owners of solar systems in order to meet their Renewable Portfolio Standard requirements. All states with a quota system require utilities to purchase renewable energy credits; however, New Jersey has taken a step further and designed a program based almost entirely on the credits. That makes SRECs a much more valuable commodity.
The program — as currently designed — makes SRECs a lot more risky as well. The structure is almost the exact opposite of a rebate program. Rather than a guaranteed payment up front, the payback period on a system is based on what players in the market are willing to pay.
With no floor price set for an SREC and no requirements for utilities to enter into long-term contracts, businesses are having a difficult time calculating the payback on a system. Without a long-term, stable incentive structure, financial institutions are hesitant to lend, says Bill Hoey, managing member of New Jersey Solar Power.
“What we’re seeing is a general lack of confidence in the market,” he says. “So the longest term that you can get an SREC contact today averages around five to seven years, and that’s not long enough to monetize the SREC revenue stream for the financiers.”
After listening to the concerns from installers in the state, the BPU has started working with utilities to craft 15-year contracts for SRECs. When the program is completed in the next year, it should give much more certainty to companies in the marketplace, says the BPU’s Miller.
“[Long-term contracts] became the critical factor that was missing….Once we get the solar financing in place with the utilities we will be able to catch up and get back on track,” Miller says.
With a projected shortfall of 60,000 SRECs for the 2009 reporting year, New Jersey has some work to do in order to get back on track and meet the state’s RPS goal of getting 2.12% of electricity from solar by 2021. In 2008, the industry was required to install 65 MW of capacity; only 18 MW were installed. In the 2009 reporting year, which ends in May, 129 MW are required; it looks like roughly 24 MW will be installed.
“When you look at the numbers, it’s clear that systems are getting installed,” says the BPU’s Miller. “Things are not exactly where they should be, but it’s better than having a rebate program that is continually running out of money. We’re still working on making this better.”
Most people would agree that a change to the program was needed because of the all-too-common problems with up-front rebates. But today, as regulators and businesses in New Jersey venture into the unknown and develop a program from scratch, they face a new set of challenges — some of them predicted, some of them unforeseen. What other states learn from those challenges will be an important part of the process, says Shaun Chapman, east coast campaigns director for the Vote Solar Initiative.
“New Jersey is certainly having some issues — that’s apparent. But they’ve done a great job in looking at creative alternatives that will get us beyond rebates,” says Chapman. “Is that any consolation to the business-owner who’s having trouble getting jobs done? Probably not. But it’s important to use that experience so others can move in a different direction.”
Florida Debates: Feed-in Tariff or SREC Market?
Down in Florida, a state which exhausted its $20 million grant program last year, a similar change is taking place. The state’s Public Service Commission approved an RPS of 20 percent renewable energy by 2020, with solar and wind making up 25 percent of that target. Now the legislature begins crafting the details of the solar program, which may look something like New Jersey’s SREC-based incentive structure. That has some people concerned about the stability of the market.
A group of advocates and business representatives in Florida have watched the process in New Jersey and are recommending a different path than SRECs. Using momentum from the recent decision to implement a feed-in tariff (FIT) in the city of Gainesville, the Florida Alliance for Renewable Energy (FARE) has been calling for a state-wide FIT, also called renewable energy payments.
FARE is part of a broader organization, the Alliance for Renewable Energy (ARE), which is pushing for renewable energy payments on the state level. Recognizing the opportunity in emerging states like Florida and transition states like New Jersey, ARE has been campaigning state legislatures and regulatory bodies around the country. To date, there are 14 U.S. states that have either adopted renewable energy payment legislation or are seriously looking at the policy.
At this point, it looks more likely that an SREC program will be implemented in Florida. But there’s still a long way to go before the details are fully worked out in the legislative process.
Gwen Rose, deputy director for the Vote Solar Initiative, has been helping shape Florida’s RPS for the last two years. She is less concerned about which policy is implemented as long it fulfills certain criteria such as long-term contracts and even-handed support for all sizes of systems.
“These projects need to be financeable,” says Rose. “And if they’re not, you can have all these great goals, but you’re not going to see projects happen…We’ve seen what’s happened in other states and we’re learning from those experiences.”
As states all over the country look beyond the limited taxpayer-funded rebate programs, experimentation will continue, causing hiccups, delays, disagreements and, hopefully, a whole lot of solar installations. The key in moving forward, says Rose, is for industry stakeholders to be more communicative during this transition period.
“Being focused on a single market, you don’t always get to hear the details of what’s happening in every other market. We all need to keep talking to each other, and to learn from each other. That’s how you make things better,” says Rose.