A new solar energy law signed on July 23, 2012 will not only advance sustainability but will also reenergize the declining solar energy business. It might also serve as a much-needed boost for the redevelopment of brownfields and landfills since it incentivizes the construction and operation of Solar Renewable Energy Projects (SREP) on certain contaminated properties. In short, the new law sets forth three initiatives, as follows: it increases the utilities’ solar energy mandate, decreases the utilities’ payment for failing to meet the mandate, and as indicated above, requires the Board of Public Utilities (BPU) to establish certain financial incentives for owners of solar projects which are built on brownfields or sanitary landfills. It is expected that each of these measures will fortify the State’s commitment to the generation of clean, renewable energy. Below is a summary of the new law’s critical points.

SRECs and the Increased Solar Energy Mandate

Under New Jersey’s Renewable Portfolio Standards (RPS), utilities are required to invest in renewable energy. Such an investment includes not only the independent production of solar energy but also the purchase of Solar Renewable Energy Credits (SRECs) generated by other solar energy producers. SRECs are tradable certificates which represent the amount of energy generated by a solar renewable energy system. The price of a SREC fluctuates and is dependent upon the traditional notion of supply and demand: stated simply, the higher the supply, the less the demand, the lower the price, and vice versa. Over the past year or so, the generation of SRECs has been abundant. While this trend positively demonstrates New Jersey’s commitment to sustainability, it also negatively impacts the value of SRECs which, in turn, diminishes the incentive to build SREPs thus, diminishing the generation and utilization of clean, renewable energy. The value of SRECs over the past year plus has decreased from a high of over $600 per SREC to a low of under $100 per SREC.

In an effort to address the SREC crash and to stimulate the solar energy market, the new law requires utilities to make a more significant investment in solar energy by increasing the solar energy mandate. The requirement for utilities to produce solar energy will rise by .5% to a total of 2.05% next year and by 2028, the requirement will have incrementally risen even further to 4.1%. This increase is expected to have a positive ripple effect. In order to meet the mandate, there will be a greater demand for SRECs and a greater demand for SRECs will result in the increased value of a SREC thereby making investment in a SREP more palatable to a property owner.

Decreased Payment for Failure to Meet the Solar Energy Mandate

Utilities that are unable to comply with the solar energy mandate are required to make a Solar Alternative Compliance Payment (SACP). The financial burden of SACPs are, like many commercial costs, passed along to the utilities’ customers vis a vis their rates. The new law decreases that burden and the reduction is expected to ultimately bring a savings to utility customers. Additionally, the reduction of the SACP obligation is an accommodation to the utilities and a tip of the hat to the anticipated increased price of a SREC following the implementation of the new law.

Additional Financial Incentives for Certain SREPs

The new law also calls for the Board of Public Utilities (BPU), in consultation with the New Jersey Department of Environmental Protection (DEP) and the New Jersey Economic Development Authority (EDA), to establish a program under which owners of certified SREPs which are built on brownfields, closed landfills or historic fill will be entitled to additional financial incentives which are “designed to supplement the SRECs generated by the facility.” This program must be established by January 23, 2013. The purpose of the additional financial incentives is to cover the additional costs associated with building on brownfields, landfills or historic fill such as excavation, remediation, and/or implementation of engineering and institutional controls.

Only time will tell whether this new law will effectively stimulate the solar energy industry. It certainly appears to have covered all considerations for increasing motivation to build and/or operate a SREP, particularly one that is built on contaminated property.

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