Bringing solar power to the people

As rebates diminish and energy costs rise, the state is looking at alternative measures to help residents afford costly solar panels on their homes to generate electricity and lower their bills.

By David P. Willis • BUSINESS WRITER • July 20, 200 (Original Article)

More than two years ago, Mark Kotch got the idea to put solar panels on the roof to cut the electricity costs for his large Oceanport home.

The state was offering big rebates to help pay for it. In Kotch's words, it was a "no-brainer."

"Prices just keep going up in the state of New Jersey. Taxes keep going up in the state of New Jersey," he said as workers were busy installing the system last week. "This is like a no-brainer to put this on the roof and save some money."

He applied, and more than two years later, he received his $44,000 rebate which will help pay for his $80,000 system. He figures the solar electric system will power about half his home's electricity needs and cut his monthly bill.

The state's popular rebate program, paid for through a charge on electric bills, attracted Kotch and many others at the Jersey Shore to solar power. The money made the upfront costs of projects affordable for some residential customers. Electricity savings could pay back a system, after the rebate, in about 10 years or even less, officials said.

The days of a big rebate, which at one time covered 70 percent but decreased over time to 45 percent, to fuel solar power system sales are over. Applications are no longer being accepted and next year's proposed rebate levels are expected to be 30 to 35 percent.

Now the state Board of Public Utilities and its staff are looking at measures to keep solar electric systems, which can costs tens of thousands of dollars, affordable for residential customers.

Since mid-2003, a total of $27.2 million has been paid or will be paid to put panels on 746 homes in Monmouth and Ocean counties, according to BPU figures. The two counties were the most active in the rebate program.

The program was so popular that people were put in to a queue, and like Kotch, had to wait to get their rebates.

A budget of $140 million this year for residential, commercial and industrial solar projects should pay the rebates for just about everyone waiting in line, said Michael Winka, director of the BPU's office of clean energy. "It's just that there was so much demand for the rebates," Winka said.

It comes at a time when interest in solar energy is high, as residents are stung by rising costs of electricity as well as high gasoline and food prices. The average New Jersey electricity bill is expected to hit $1,682 by 2020, up from $1,053 in 2005, according to the New Jersey Energy Master Plan.

People "are afraid of where those prices are going," said BPU President Jeanne M. Fox. "What I'm personally concerned about are working-class people, middle-class people. . . . Their electricity prices are going up. Their natural gas prices are going up or their oil prices are going up and they are living hand to mouth now."

The state is making solar power one of its priorities. By 2020, 2 percent of the state's electricity is mandated to be generated by solar.

As originally envisioned, the state is ratcheting down rebates. Starting in 2009, the proposed funding for rebates will be $75 million spread out over four years for residential, commercial and industrial projects.

What's happening now? In the place of big rebates, the state is turning its attention to the value of the clean electricity produced by a solar electricity system.

This value is represented by Solar Renewable Energy Certificates. A so-called SREC is equal to one megawatt-hour of power generated by a home's or business' solar panels.

New Jersey's electricity suppliers are required to invest in solar power and can purchase these certificates, which can be traded like a commodity. In May, the value of a certificate, which can rise, averaged about $237, helping owners pay back their systems.

One possibility envisioned by the BPU's staff is a program involving the state's utilities that allows customers to finance their solar systems using these certificates.

Simply put, solar installers will compete for business with customers to build solar systems at the lowest price, Winka said. Homeowners will be able to enter into a contract with their local electric utility using the SRECs to pay off the system. The utility would be responsible for selling the certificates.

"I am giving you (the utility) all my RECs for the next 15 years," Winka said. "In return, you are getting a set amount every year to pay off your system for the next 15 years."

Last week, Public Service Electric & Gas Co., New Jersey's largest utility, expanded its solar loan pilot program to residential customers in its electric service territory, which in Monmouth County only includes parts of Allentown and Upper Freehold Township.

How does it work? The $105 million program provides a loan for 40 to 60 percent of the project's cost. The homeowner finances the rest. The SRECs produced by the system would pay off the loan in 15 years.

The utility will guarantee a minimum price of $465 each. If PSE&G is able to sell them for a higher amount, it would prepay the loan, said Alfredo Z. Matos, PSE&G's vice president for renewables and energy solutions.

"Once they understand the economics and see the payback being in such a short period of time, I think they are going to be very much intrigued and very rapidly looking to apply for these types of loans and projects," said Matos.

Atlantic City Electric, the utility that serves South Jersey including southern Ocean County, is proposing a solar loan program as well, said spokeswoman Sandra J. May. "At this point, we are waiting for final specific directions from the Board of Public Utilities in the form of an order so we can finish our evaluation and make any potential modifications."

Jersey Central Power & Light Co. is awaiting guidance from the BPU as well. "We support the board's exploration of creative ways to support solar project development," JCP&L spokesman Ron Morano said. "We are awaiting a board order regarding that."

A representative of the solar industry said the price of a certificate should be a fixed incentive, not a tradable commodity. The market system is complicated for residential customers and small installers, said Lyle Rawlings, vice president for New Jersey at the Mid Atlantic Solar Energy Industries Association.

"We are just hoping that these incentive system can be made in a way that homeowners can understand and handle it, or they are going to be a lot of disappointed people out there," Rawlings said.

Bill Hoey, managing member of N.J. Solar Power, a Beachwood engineering firm, said a tradable SREC is no assurance that a residential customer will get a guaranteed revenue stream to pay off their system.

"Unless they do something to make these SRECS more secure, where you know you have a defined revenue stream coming in, there will be much more uncertainty and a lot less systems being built," Hoey said.

A financing company has to be able to forecast the value of an SREC over a 10-year period, said Dan Lichtman, owner of Absolutely Energized Solar in Millstone. "If we could obtain this holy grail of solar, this market securitization of the SRECs, it will allow for a lot more creative financing strategy."

Rawlings said a tradable SREC will cost ratepayers more in the end and create monopolies by shutting out small installers.

Stefanie Brand, director of the state Office of Rate Counsel, disagreed. She said the goal is to create a market-based system.

"Previously it had been a rebate program almost exclusively," Brand said. "Now what they are trying to do is jump start the market so it will be basically funded by private investment, either utilities or others in the businesses, and the ratepayers won't have to foot the bill."

The PSE&G loan program is a start, she said. "I think we are going to see is there a way to make the residential market profitable through a loan program and are there other ways than rebates to do this."

Thomas Matulewicz, a partner at solar installer GeoGenix LLC in Rumson, said residential systems are more difficult to sell without the rebates. "They see their prices going through the roof," said Matulewicz, whose company installed Kotch's system. "Now they are coming back to us and saying, "I would like to get that 70 percent rebate."'

GeoGenix has partnered with solar cell manufacturer Sun Power to offer loans to help pay for the system. The loan is paid back with the SRECs and electricity savings, Matulewicz said. "It is a little harder of a sale now to bring them into the fold."

Kotch figures that with the growing value of the SRECs, he could recover the cost of his system in as little as four and a half years.

"It's like putting the cost of a car up on your roof with the state rebate," said Kotch.

David P. Willis: (732) 643-4039, or at dwillis@app.com