The pace of solar installations in New Jersey and Pennsylvania is ironically destroying the incentives that make such installations possible.

Solar Renewable Energy Credits (SRECs), existing in states that have Renewable Portfolio Standard (RPS), represent the environmental attributes from a solar facility, and are produced each time a solar system produces one megawatt-hour (MWh) of production. More importantly, they are a critical mechanism to help finance the cost of a solar system.

As background, most RPS requirements demand that energy suppliers or utilities procure a certain percentage of electricity from qualified solar renewable energy resources in a state. These energy suppliers and/or utilities can meet these RPS requirements by procuring SRECs from homeowners and businesses who own solar systems and produce SRECs.

Until recently, Pennsylvania SREC’s were selling for approximately $300 a piece, providing an important on-going mechanism to finance the cost of solar. Now, they are selling for around $100 per SREC. The same trend is bearing out in New Jersey as well. New Jersey SRECs last year sold for $600 each, however, prices are already declining to around $500 this year and are heading below $400 next year, according to Michael Flett, head of the Flett Exchange, a Jersey City online broker.

Why? In Pennsylvania, about 71 megawatts of solar capacity is now online, however the state RPS mandates that utility providers only provide around 42 megawatts. As a result, utility providers have no economic incentive to purchase any more SRECs at a premium price to fulfill their RPS mandates as they have already been fulfilled. In essence, SREC programs have been so successful (maybe too successful) at promoting solar adoption that they have dramatically reduced the potential financial benefits going forward.

While there are other incentives beyond SREC’s to help finance solar power, they have become critical to the economic viability of solar in states with SREC’s. In fact, the drop in SREC is already impacting the market. Companies like Mercury Solar Systems who operate in the Mid-Atlantic and Northeast regions, is already beginning to pull resources out of Pennsylvania in favor of other solar states like Maryland and Massachusetts where demand is better and do not rely so heavily on market credits as a financial incentive. In addition, according to Vadim Polikov, chief executive officer of Astrum Solar Inc., a Maryland solar company, "[t]here's going to be hundreds and hundreds of people whose SREC checks this year will go down, and they're going to call up their installer, who may very well be out of business."

Unfortunately, solar industry experts say that the SREC market may remain over-saturated for years unless state governments step in to accelerate the annual increases for solar-power mandates. In addition, other measures, such as in Pennsylvania, like banning out-of-state projects from selling their credits to Pennsylvania utilities are being debated as well to help prop up the state SREC market. This may be easier that it sounds as conventional power producers and big industrial electrical customers, are expect to resist and campaign against any efforts to boost solar markets particularly at their expense. However, without government help, Pennsylvania and New Jersey solar may end up being a victim of their own success and set back the rise of solar power in these states for years to come.

Photo by jbolhuis.