Dreaming the Impossible Dream:
A Regional SREC Market for the Northeast
While it would be natural to think of strong solar resources as being the major driver for the installation of solar, that is not the case. The major drivers are: (1) high electricity rates; and (2) strong policy incentives. Which is why Germany is the world’s solar leader, despite solar resources that are about as dismal as Alaska’s.
It’s also why the Northeast could become a national solar powerhouse. As a region, the Northeast (including the nine New England and five Middle Atlantic states) has some of the nation’s highest electricity rates and many of its states have enacted — or are in the process of enacting — innovative solar incentives. New Jersey, in particular, has become a national solar leader as a result of its widely imitated solar program, which rewards businesses and homeowners that generate solar energy with Solar Renewable Energy Certificates (SRECS), performance-based financial instruments representing the environmental benefits of solar that are purchased by utilities in order to meet state-mandated requirements for solar electricity generation.
These state-mandated requirements, called Renewable Portfolio Standards (RPSs), when implemented in connection with SREC markets, are the most effective incentive for solar. In order to promote the implementation of solar, the RPS in many states includes a “solar carve-out,” which stipulates that a certain amount of electricity be generated from solar. In the Northeast, five states — Delaware, New Jersey, Maryland, Massachusetts and Pennsylvania — have implemented SREC markets as a means of meeting solar carve-outs; two others, Connecticut and New York, are considering them. While still a relatively new concept, SREC markets are expected to grow nationwide from approximately 520 MW in 2011 to nearly 7,300 MW in 2025, according to the National Renewable Energy Laboratory.
The major reason behind this anticipated growth is that the states recognize that solar is good for business. Solar helps businesses compete by reducing operating costs. Many businesses that install solar are able to offset most, if not all, of their electricity load, resulting in savings of tens or even hundreds of thousands of dollars annually. Solar also serves as a hedge against future rate increases, which are a given considering the Northeast’s overburdened distribution systems and outdated generation facilities. The financial benefits of solar have spurred the installation of commercial solar in states with strong incentives. New Jersey, for instance, has surpassed sunny California as the nation’s leader in commercial solar installations. Also, because solar production is greatest during periods of peak demand — i.e. during the day — the widespread installation of solar also helps utilities cope with increased demand during these periods, thus contributing to grid reliability.
The Northeast needs the economic shot in the arm that solar can provide. Since the loss of its industrial base in the mid-20th century, the region has lagged behind the rest of the nation in economic development as a result of its older demographics, high cost of doing business and inadequate and congested infrastructure. The widespread implementation of solar could give the region a competitive edge, not only nationally, but globally as well. Just as Germany is betting on its commitment to solar to stimulate economic development, so can the Northeast. German Chancellor Angela Merkel believes her country’s transition to a renewable energy economy will bring opportunities in the form of “exports, developing new technologies and jobs.” Similarly, solar could become the catalyst that turns the Northeast into a renewable energy powerhouse. The Northeast could become the nation’s “renewable energy belt,” just as the energy-rich states that supply the nation’s gas and oil are its “energy belt.”
In order for this to occur, however, there has to be long-term stability and transparency in the SREC markets: businesses and investors are discouraged by incentives that are here one day and gone the next, or SREC values that bounce all over the place. Innovative new policies also need to be implemented to promote solar in sectors ignored by existing policy initiatives. Finally, holdouts such as Maine and New Hampshire have to get on board. Much of this is already happening. Recognizing the need to iron out the kinks in New Jersey’s groundbreaking solar legislation, policymakers recently enacted a solar “resurrection bill” to address some of the problems. New policy initiatives such as virtual net metering, which promotes solar in the public, multi-family and other sectors, are also being enacted. Finally, the holdout states will soon have stronger incentives to implement SREC-type incentives once electricity rate hikes associated with upgrading the grid that are now in the works take effect.
Although these achievements are commendable, it will take regional cooperation to get to the next level. The Northeast needs to promote a regional SREC market by doing away with fractured, state-specific regulations and replacing them with a single, unified SREC market. Eliminating geographic barriers to SREC trading will create a consistent, long-term SREC market that will accelerate regional investment in solar. While this might seem as daunting a task as getting the European Union countries on board with regard to fiscal policy, the major requirement — the commitment of many of the region’s states to an SREC market — has already been accomplished. Moreover, the precedent for such a regional initiative exists in the form of the Regional Greenhouse Gas Initiative, a cooperative cap-and-trade effort to reduce greenhouse gas emissions among nine of the 11 New England and Middle Atlantic states.
Those who may consider a regional SREC market an impossible dream should look back at how far we have come. As of Aug. 31, 2012 my home state of New Jersey had nearly 18,000 solar installations, compared to only 3 in 2001. In Germany, renewables now supply more than 25 percent of the nation’s energy. In order to get where you are going, you have to have a destination in mind. If we don’t look ahead to establishing a regional SREC market, we will never get there. — Stefanie Matteson