Why are lawmakers closing the book on the NJ SREC program?

The Solar Transition program is required by the Clean Energy Act of 2018 to assist the state in moving away from a volatile SREC market to a yet-to-be-determined successor program. The state wanted to replace the NJ SREC program in an effort to reduce costs to ratepayers and because the state’s SREC market is too unpredictable.

Governor Phil Murphy signing the death certificate for SRECs, AKA the Clean Energy Act of 2018

The transition program began in April 2020, after the state produced 5.1% of its total electricity from solar. In October 2019, the BPU released a proposal for how the Solar Transition Program should be organized.

The October Transition Program proposal introduced transition renewable energy credits (TRECs). Like SRECs, TRECs are awarded to solar system owners for every megawatt hour (MWh) of solar electricity their solar system produces.

Just like with the NJ SREC program, utilities can purchase TRECs in order to reach their solar carve out quota that is outlined in the state’s renewable portfolio standard (RPS).

There were two main differences between SRECs and TRECs in the October proposal:

  1. TRECs are factorized, meaning that different types of solar panel system projects receive different levels of subsidies; and
  2. TREC prices are lower than SREC prices, thereby lowering savings for NJ solar homeowners who fall into the TREC program.

Depending on which category a solar project belonged to, it would receive a certain percentage of the TREC value. The proposed TREC cap costs and the factorization were as follows:

Proposed TREC Cap Costs October 2019

Year Factorization 2021 2022 2023 2024-2036
TREC price (per MW produced)   $65 $59 $53 $189
Preferred site (i.e carports, landfills, brownfields, etc.) 1.0 $65 $59 $53 $189
Community solar 0.85 $55.25 $50.15 $45.05 $160.65
Ground mounted systems > 25 kW

0.50

$32.50  $29.50  $26.50  $94.50 
Net metered systems < 25 kW 0.50 $32.50  $29.50  $26.50  $94.50 

The proposal also suggested that TRECs prices could be determined either by a supply-and-demand market, like SRECs, or they could have a fixed price.

The final transition from NJ’s SREC program is underway

After taking comments from shareholders and members of the public into consideration, the BPU released their approved set of guidelines for the Solar Transition Program. The final framework, which was released on December 6, 2019, establishes that the TREC program will consist of factorized, fixed-price TRECs.

This means that the price of TRECs will remain the same throughout a given year and will not be influenced by market factors.

However, because the TRECs will be factorized, different projects will be assigned varying incentive levels, depending on the type of solar project it is.

Ground mounted solar panels installed at a former landfill in Brick Township, NJ. This type of project would receive the full TREC value under the Solar Transition Program. Image source: Shorebeat

Projects that registered for the NJ SREC program after October 29, 2018 and were not operational by the time the state reached the 5.1% cap have been placed in the TREC program.

Solar system owners who have been receiving SRECs will continue to do so for 10 years from the date their system became operational. New solar panel system owners will receive TRECs for 15 years.

The approved program outlines 8 different categories that systems can be a part of and which factor of a TREC each system type is eligible for.

The project types and factorization are as follows:

Project type Factor
Landfill, brownfield, areas of historic fill 1.0
Grid supply rooftop 1.0
Net metered non-residential rooftops and carports 1.0
Community solar

0.85

Grid supply ground mount 0.6
Net metered residential ground mount 0.6
Net metered residential rooftop and carport 0.6
Net metered non-residential ground mount 0.6

How much are TRECs worth?

On March 9, 2020, the BPU officially released the price of TRECs. TRECs are valued at a flat, 15-year price of $152 per MWh of solar produced. 

Because TRECs are factorized, residential net metered systems will not receive the full $152 per MWh. Instead, they will receive 60% of the base TREC cost. This comes out to $91.20 for each MWh of solar energy produced.

See how much you can save on solar with NJ incentives

How much will NJ solar customers save with TRECs?

Solar homeowners will save less with TRECs than they did under SRECs. 

The following example illustrates how much a homeowner will save with TRECs.

If your home solar panel system produced 7 MWh of solar energy per year, you would receive $638.40 per year from TRECs. Over the course of the 15-year TREC program, you would receive $9,576. 

That’s a pretty good deal, however, it is less than what homeowners would potentially earn from the previous SREC program. SRECs are currently valued at $231. However, the price of SRECs fluctuates, so they could end up being worth less than what TRECs are worth in a few years.

What does the TREC program mean for the solar industry?

The idea of losing one of the most significant incentive programs available in the state shook up the solar industry in New Jersey in a big way.

To top it off, the October proposal introduced the idea of extremely low incentive prices, especially for residential rooftop solar systems. Some installers feared that the low TREC prices might discourage people from installing solar in NJ.

The expiration of the federal tax credit will come shortly after the TREC program begins. With no tax credit and lower TREC prices, installers have every right to worry about the future of New Jersey’s solar industry.

Luckily, the final framework makes it easier for installers to plan for the future.

Installation team at Green Power Energy, a solar installation company in New Jersey, whose livelihood depends on the success of New Jersey’s solar industry. Image source: Green Power Energy

The fixed price of TRECs will allow solar installers to accurately figure out the payback period for future solar systems. This will allow installers to adjust their prices so solar remains attractive to new customers, while also keeping their business afloat. If TRECs were market-based, like they had been proposed to be in October, installers wouldn’t have been able to prepare for the future nearly as well.

Also, the final Transition Program TRECs have a higher value than the value proposed back in October.

Although the TREC price is still lower than the NJ SREC program price, the final set of rules approved in early December will save customers over $1,000 more than the original proposal would have.

So, solar will be a little more affordable than it previously seemed.

The BPU will begin discussing the Successor Program in early 2020.