Yes…a bold statement, and maybe a little bit risky, but we believe, ultimately true. Many current and potential customers are concerned about NJ Solar Renewable Energy Credit pricing. And, they should be. New Jersey SRECs are an important (but not most important) part of a solar system’s overall return. But, looking at the current market dynamics, we believe that prices will improve. Here is why…
The NJ SREC Market
The NJ SREC market is indeed a market that functions with the laws of supply and demand. The legislated Renewable Portfolio Standard (RPS) sets the demand side of this market-based program. The supply side is generated by all of us who install solar systems in New Jersey.
Because of the incredible response of individuals and companies, for the first time since the beginning of the New Jersey SREC program, total installed solar capacity is on track to exceed the Energy Year 2012 RPS requirement. Prices have dropped considerably from last energy year’s highs.
Supply and Demand Always Win
After the initial panic, we are seeing some firming up of prices, trading between $200 and $250 with continued low trading volume. According to Jeff Chavkin, Geoscape Solar President with over 20 years of commodity floor trading experience, here is what we are experiencing and expect to happen in the coming months:
- Some NJ SREC owners will choose to hold onto their certificates – believing the demand for them will continue to rise. SRECS in New Jersey may be held for 3 years. In fact, Geoscape Solar is currently not trading SRECs for our Geoscape Solar owned systems or for our Solar Easy Trade™ customers
- At very low prices, power companies will buy all the SRECs they can get hold of, knowing they can use them to satisfy future years’ RPS goals and avoiding much higher future SACP payments.
- As SREC owners withhold their certificates, power companies will have to pay higher prices to motivate the sellers.
Ultimately, prices will rise when there is a stronger demand from increasing RPS goals in relation to installations and all of the “cheap” NJ SRECs are off the market. Not every project that has been registered will be built, as financing becomes more difficult. The market will reach an equilibrium that will entice New Jersey SRECs into the market at fair pricing.
NJ Needs Solar Jobs
NJ can not afford to destroy the solar industry…one of the only bright spots in the state’s job creation void. The state assembly recognizes this and in June passed S2371. Instead of energy providers purchasing 596,000 SRECs in 2013, S2371 would require the purchase of 772,000 SRECs—the amount allotted in 2014. The rest of the schedule would remain untouched out to 2026. By advancing the NJ SREC goals, this will increase demand and push SREC prices up. S2371 was passed in the State Senate on June 29, 2011, and remains in the hands of the Assembly Telecommunications and Utilities Committee. The bill would address the “problem” of solar being built-out too fast in the state.
Regardless…Solar is a Great Investment in New Jersey
As you assess NJ SREC’s impact on your solar investment, there are a few critical elements to keep in mind:
- SREC sales are not the only component of your solar cash flows – the 30% tax credit, depreciation for commercial solar systems and electricity savings that increase over time as utility rates inflate are all unaffected by SREC sale.
- Without receiving a penny from your SRECs – ever – you would still recover 100% of your solar investment in fewer than 15 years, with 10-15 more years of free electricity
- With NJ SREC prices as low as $100 per year for all 15 years, your rate of return on the solar investment would still be around 10% per year
- By permanently reducing your electric bill, you increase the value of your home or business
- By installing solar, you are doing your part to reduce carbon emissions, helping our environment now and for future generations
- Solar is the only investment where you have no risk of losing your money and can expect a rate of return ranging from 10% (if SREC prices stayed perpetually low) to 20%+ at more stable SREC prices
We like to look at New Jersey SRECs as the “icing on the cake”. The SREC program runs for 15 years. There will many ups and downs. Solar can provide a great return for you in energy savings and do good for our environment. SRECs are a bonus.