The market upon which municipalities were selling solar credits generated by the frenetic installation of solar panels in the past few years is now trading for less than 10 percent of what it was at its height.
That means that the boom times of borrowing money for solar panels, and envisioning that the sale of Solar Renewable Energy Certificates (SRECs) generated by the panels was going to pay for it all, is over.
The problem for taxpayers in towns like Woodbridge, where both the municipal government and to a larger extent, the Board of Education, borrowed deeply for solar panel generation projects means that residents will be stuck with the bill.
Michael Flett is the proprietor of the Flett Exchange, the stock market of SREC sales. He has seen the price of SRECs on the market at its height of $600 to $700 several years ago bottom out as more and more individuals, companies and municipalities jumped on the government-subsidized solar panel bandwagon.
SREC prices that once sold for $600 are now selling for a tenth of that price. Recent SREC prices on Flett's market are in the neighborhood of $60 to $70.
"So many people installed solar panels so quickly, it was unexpected. It took everyone by surprise," Flett said.
"There were a few factors that created the perfect storm for a price collapse."
The first, he said, is that solar panel installation costs significantly less today than it did even a year or two ago.
"No one in the industry expected panels out of China would be 60 cent a watt when two years ago they were $2 a watt."
So many people got onto the solar panel bandwagon, many of whom hoped to pay for the panels by selling SRECs at high prices, that the market collapsed from an oversupply, Flett said.
SRECs a government creation
SRECs are government creations in an effort to get utilities to stop relying on fossil fuels for energy generation and instead turn to earth-friendly solar panels and wind farms.
Utilities were forced to either generate the alternative energy themselves, buy it from others via the sale of SREC credits, or pay a fine. Most chose SRECs.
The thing is that the state laws mandating the utility purchase of SRECs also capped the amount utilities had to purchase at 700,000 a year.
New Jersey providers of SRECs were creating a million SRECs annually. Once utility companies purchased the amount required by law, they stopped buying, and the SREC market tumbled, Flett explained.
"If you invest in solar energy there's a risk, there's always a risk the price could fluctuate," Flett said.
Some individuals who purchased solar panels for their homes several years ago when the installation and purchase was much more expensive, and who hoped to profit by the sale of excess energy via SRECs have been hit hard.
"I bet some people were misrepresented by salesmen and told they could sell the SRECs for $600," Flett said. "If they did a little bit of homework, they should've known the price could also go to zero. They just didn't do their homework."
Propping up the price
In an effort to reform the system, Governor Chris Christie, along with the state legislature, reworked the SREC system earlier this year.
Utilities will be required stating in 2014 to purchase more than double the amount of SRECs, from 700,000 to 1.4 million; but the price on the SRECs will be capped at $339, about half of the price of SRECs at their market height.
"The solar incentive program had to be recalibrated. The amount of SRECs outstripped the state mandated needs and the market tumbled," Flett said.
"When the price of an SREC could've gone up to $600, now it's been changed to protect the ratepayer."
The reason why the price of SRECs is important is because utilities pass along the cost of their purchase to utility users. While solar panel owners sell excess energy in the form of SRECs to utilities, and themselves pay little to nothing for their solar-generated energy, traditional users of utilities have been paying for the SREC purchases.
The capped SREC price "supports the market for future development and protects the ratepayer from higher prices," Flett said, adding that the Ratepayer Advocate of NJ calculated $1 billion in savings for traditional utility users.
Taxpayers on the hook for SREC price collapse
Meanwhile, though, towns like Woodbridge which counted on selling SRECs to pay for the cost of the bonding to install solar panels are wincing at the tanked SREC prices.
Woodbridge, in fact, has stopped selling its SRECs on the market. Business Administrator Robert Landolfi said at the October 9 council meeting that the town has chosen to 'bank' its SRECs for up to 24 months. That's because SRECs now sell for $60 to $70, versus the sky-high $600 to $700 prices of just two years ago. The administration is hoping that the price will get out of the basement.
It's going to be a real headache for taxpayers who approved a $32.5 million bond referendum in 2010 to reroof the town's schools and install solar panels. Officials claimed the solar panels would reduce the school's energy bills, and combined with the SREC sales, the tax increase on an average home would be less than $7.
In the wake of the SREC market collapse, no one is saying what the cost of paying back that bond will be for taxpayers.
Mayor John McCormac came out in favor of the school bond by touting the township's experience with installing solar panels on the roofs of four buildings and the resultant SREC income in an opinion piece in the News Tribune.
After claiming that the township had made $1.6 million in SREC sales in the first three years up to 2010, McCormac said that from 2011 through 2013, he expected "to generate another $1.5 million from the sale of SRECs after accounting for slight reductions in the marketplace in both volume and price."
McCormac said that the Board of Education's estimate of a $6.89 per homeowner tax increase was based on an SREC price of $447 over a 15-year period. He called the $447 SREC price "significantly more conservative" than his own SREC figures.
'No cost to taxpayers'
"Very slight changes in these estimates would produce absolutely no annual cost to our taxpayers," McCormac said in the opinion piece. Using his own figures of the township's solar panel experience, he said the school board's project "would produce a financial model that would be cash positive for our residents for the entirety of the project.
"The bottom line is that the Board of Education was very conservative in their projections of the cost of the solar panel project. In all likelihood, the project will be fully paid for by state aid, the sale of SRECs, and considerable energy savings."
No one is saying what the cost is going to be for taxpayers in the wake of the SREC price collapse. McCormac did not return calls for comment.
Could things have been done differently?
"There could've been hedging mechanisms locking in the SREC price," said Flett.
"I don't want to say 'I told you so' to a lot of people. If you step back, maybe the timing was a little bit off for the installation of solar panels. If customers had waited a year, they could've installed them cheaper."
"Some of the towns might be in a less than desirable situation at this point," he added. "But I think solar legislation that was passed this summer will be a help when it kicks in."