On May 23, New Jersey Gov. Phil Murphy signed the sweeping clean energy bill S.2314, enacting a law that will transform the renewable energy landscape in New Jersey.

The law will provide New Jersey’s solar program with a much-needed boost by increasing the state’s solar renewable energy portfolio standards (SRPS) – which dictate the number of solar renewable energy certificates (SRECs) that New Jersey’s electric suppliers must retire – to 5.1% of retail sales in energy year 2021. (An energy year runs from June 1 to the following May 31.)

This increase will add approximately 650 MW of new capacity to New Jersey’s SRPS. The law also increases the net metering cap to 5.8% of retail sales, providing much-needed headroom for new projects. (The net metering cap limits the amount of net metered solar energy capacity that can be installed in New Jersey.)

As a trade-off for the increase in the SRPS and the net metering cap, the solar alternative compliance payment (SACP) – the penalty for an electric supplier’s failure to retire the requisite number of SRECs – will be decreased from $300 to $268 per SREC for energy year 2019. The penalty will gradually decrease each energy year thereafter until energy year 2033, when it will be reduced from $239 to $128.

This reduction in the SACP may result in a reduction in the value of an SREC, as the SACP serves as a de facto cap on SREC value. In addition, solar facilities that submit their SREC registration following the effective date of the law will have their SREC generation life reduced from 15 years to 10 years.

In addition, the law directs the board of public utilities (BPU) to adopt rules and regulations to close the current SREC program to new applications upon the earlier of (i) the date the amount of solar energy produced in New Jersey reaches 5.1% of retail sales, or (ii) June 1, 2021.

To facilitate the closure of the current SREC program, the SRPS will decrease to 4.9% of retail sales in energy year 2024 and will gradually decrease until eliminated in energy year 2034. The reason for the decline in the SRPS is that solar facilities in New Jersey are limited to 15 years of SREC generation (10 years for projects that register after the effective date of the law), so once the market closes to new facilities, the supply of SRECs will gradually decrease and eventually be eliminated.

Although the current SREC program is coming to an end, the law directs the BPU to complete a study within 24 months that evaluates how to modify or replace the existing SREC program to encourage continued efficient and orderly development of solar energy. Many feel the current New Jersey SREC program has become too expensive for ratepayers and that there may be a less expensive way to incentivize solar development in New Jersey. The law will phase out the current SREC program over the next few years while the BPU and various stakeholders examine alternatives to the current SREC program in an effort to have the new program ready to go by the time the current program closes to new projects.

Recognizing the emergence of energy storage technology and its importance to intermittent renewable resources – particularly, solar energy – the law directs the BPU to establish a process and mechanism for achieving a goal of 600 MW of energy storage by 2021 and 2,000 MW of energy storage by 2030.

In addition, beginning on Jan. 1, 2020, 21% of the electricity sold in New Jersey
must be from Class 1 renewable sources, which are solar, wind, geothermal, tidal,
wave and under-3 MW hydroelectric facilities, as well as biomass and methane gas. This will benefit solar in New Jersey because solar facilities will stop generating SRECs after 15 years (10 years for solar facilities that register after the effective date of the law) but will continue to generate Class 1 renewable energy credits (RECs) thereafter. As such, Class 1 RECs will be an alternate source of income for solar facility owners far into the future.

The law also directs the BPU to establish a community solar energy pilot program to permit utility customers to participate in a solar energy project that is remotely located from their properties, as long as it is in the service territory of the utility which is serving the customer. The pilot program will allow customers to obtain a credit to their utility bill equal to the electricity generated by the project that is attributable to the customer’s participation. Once established, the law directs that the pilot program be converted to a permanent program no later than 36 months following the effective date of the law, with a goal of developing at least 50 MW of projects annually.

Finally, the law directs the BPU to establish a process to certify public entities to act as a host customer for remote net metering. A public entity certified to act as a host customer may allocate credits to other public entities within the same service territory.

Aside from solar energy, the law increases the goal of the existing directive to the BPU
to create an offshore wind renewable energy credit (OREC) program from 1,100 MW to 3,500 MW. The OREC requirement will offset a corresponding portion of the Class 1 REC requirement.

The BPU is also directed to adopt electric and gas energy efficiency programs to ensure investment in cost-effective energy efficiency measures. Each gas public utility is directed to achieve annual reductions in the use of natural gas within their respective territories equal to 0.75% of the average annual usage for the prior three years, and each electric public utility is directed to achieve annual reductions in the use of electricity within their respective territories equal to 2% of the average annual usage for the prior three years.

From a solar perspective, the law provides orderly closure of the existing SREC program over the next two years with little risk of another market crash. During the next two years, all stakeholders – along with the BPU – will examine the various programs being used across the country and work to devise a successor program that will keep the New Jersey solar energy market robust with as limited an impact on ratepayers as possible.

Regarding the remainder of the law, it is evidence of New Jersey’s continued support of energy efficiency and renewable energy, and it mandates the further examination of all aspects of New Jersey’s renewable energy sector in an attempt to keep the state’s renewable energy sector on the cutting edge without undue impact on ratepayers.

Stephen Kisker serves as chair of the renewable energy and sustainability group with West Orange, N.J.-based law firm Chiesa Shahinian & Giantomasi. He can be reached at skisker@csglaw.com or (973) 530-2074.

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