Pennsylvania’s fast-growing solar industry could face massive layoffs if state policymakers fail to take immediate steps to bolster the market for solar credits, industry sources told a hearing of the House Consumer Affairs Committee in Harrisburg on January 11.
Solar Renewable Energy Credits (SRECs) serve as a critical source of financing for solar projects, but prices have plummeted over the last year due to oversupply.
At stake are more than 1,000 solar industry jobs and hundreds of businesses, which have flocked to Pennsylvania during the last three years to take advantage of its solar energy mandate and generous state and federal incentives, said Pennsylvania House Urban Affairs Committee Chair Rep. Chris Ross, who has sponsored legislation to bolster the market.
“The bill would allow for a reset of the marketplace,” said Rep. Ross, who also chairs the CSG/ERC Energy & Environment Committee. “If you want to continue to see solar operations here in Pennsylvania, we need to make an intervention at this point to save those jobs,” he said.
Pennsylvania’s 2004 Alternative Energy Portfolio Standards Act (AEPS) requires retail electricity suppliers to purchase gradually increasing amounts of alternative energy as part of their overall portfolios, including 0.5% from solar photovoltaic sources by 2021. They can fulfill that requirement by buying SRECs produced by solar systems owned by residents or businesses, with each SREC equal to one megawatt-hour of generation. Suppliers who fail to meet the state’s solar mandate must pay a fee known as an Alternative Compliance Payment (ACP).
Among other provisions, Rep. Ross’s bill would accelerate electricity suppliers’ SREC requirements between 2013 and 2015 by 4.5%, but leave the overall goal of 0.5% by 2021 unchanged.
Solar industry sources said that a combination of forces had caused the number of new installations in the state to soar but now threatened to send the industry over a cliff.
The market exploded starting in 2008, when the administration of former Gov. Ed Rendell set aside $180 million in grants, rebates and loans to support residential, small business and commercial solar projects. An additional $11 million was added from federal stimulus grants and other funding sources.
That money, coupled with a 30% federal investment tax credit, generated a flood of interest among businesses and homeowners in solar, and has led to the completion of more than 5,000 projects since 2009. Solar capacity in the state currently totals more than 100 MW, more than double the current AEPS requirement. In fact, there is already sufficient capacity built and planned to meet the requirements through 2015, according to a status report released last August from the state Public Utilities Commission.
With the bulk of the grants and rebates dried up, and a glut of credits, there is little demand for the market to grow. SREC prices have plunged from an average of around $300 to as low as $20 today, said industry sources. A provision in the AEPS legislation that allows out-of-state SRECs to be sold to in-state utilities has further depressed the market. Pennsylvania is the only Northeastern state that allows the practice; markets in Maryland, Delaware, New Jersey and New York are all closed to SRECs from other states.
Representatives of electric and natural gas distribution companies testified against the bill, calling the in-state requirement protectionism, and warning that it could violate the Commerce Clause of the U.S. Constitution.
The measure could cost ratepayers up to $2.3 billion between now and 2021, said Terry Fitzpatrick, president of the Energy Association of Pennsylvania. “We’re removing the investment risk from the solar industry investor and we’re placing it on the consumer,” he said.
Solar industry sources disputed the cost estimates produced by utilities as wildly elevated. The Pennsylvania Solar Energy Industries Association estimates the bill would increase ratepayer electricity bills by around $2.50 per year.
A source from Solar City, a national solar provider, said forecasts for dire rate hikes did not factor in expected increases in regular grid power going forward, or take into account declining solar installation costs, which have dropped by 40 percent in the last year alone. A solar panel that would cost $325 in 2008 costs less than $100 now, said the source.
Others argued that solar installations can actually lower overall electricity prices for customers and reduce costs for utilities by relieving grid congestion. For example, a solar photovoltaic installation near Allentown will save a school district there $3.8 million in electricity costs over 20 years, said Dean Musser, President of Tangent Energy Solutions, based in Kennett Square. In addition, the solar panels will send any excess electricity back into the grid, relieving demand bottlenecks and enabling the utility to avoid making costly upgrades on currently stressed distribution lines, he said.
In New Jersey, several county governments have implemented financing models for solar that are reducing costs by up to two thirds over 15 years.
But those who oppose efforts to aid Pennsylvania’s solar industry – the majority from fossil-fuel-generating companies – insisted that consumers would be better off by letting the fate of the solar industry play out at the hands of market forces.
“We believe that we need to give a market pull and not a government push or else we’re going to have skewed results like we see here today,” said Jacob G. Smeltz, Vice President of the Pennsylvania Electric Power Generation Association. “HB 1580 is an attempt to intervene in the law of supply and demand.”
But Rep. Ross said that it was precisely the decision by government in 2008 to flood the marketplace with grants and rebates that produced the imbalance threatening its viability today.
“We, the government, did change this marketplace,” said Rep. Ross. “I think we have to take responsibility for that, so that those who entered the marketplace in good faith won’t have to suffer as a result.”
Representative Ross is preparing amendments to reinforce his primary goal of correcting the market and not increasing costs for suppliers who would need to comply with the new requirements.
The amendment would offset the near-term 4.5% increase in the SREC requirement with a corresponding decrease in later years; establish a cap on SREC prices by placing a ceiling on the ACP that will decline over time; and allowing for solar thermal technology to qualify for SRECs.
“We want to send a clear signal that we are not trying to favor the solar industry, and that we want to correct a problem that we created,” he said.
— By Rona Cohen