Summary:

California is home to the U.S. solar industry, and it will continue to be. Of the roughly 2 gigawatts of installed domestic solar photovoltaic capacity, half of it is in California. But the industry is spreading out. — to the other coast.

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California is home to the U.S. solar industry, and it will continue to be. Of the roughly two gigawatts (GW) of installed domestic solar photovoltaic (PV) capacity, half of it is in California. But the industry is spreading out — to the other coast.

California claimed less than 30 percent of the U.S. PV market in 2010, for two reasons. First, the California Solar Initiative — the state incentive policy that, more than any other, turned U.S. solar from a niche industry into “Big Sun,” as one PV executive wryly puts it — is nearing its end. Second, East Coast states, particularly New Jersey, are rolling out incentive policies, as more and more state governments seek to diversify their energy resources and capture the local economic benefits.

State policy makes all the difference in a state’s solar success. The federal incentive structure is the same across the U.S., and whereas states’ wind resources can vary dramatically, the difference between the solar resource in our sunniest and least sunny state is only about a third. Simply put, states that put public money behind solar create a viable market, and states that don’t, don’t.

State policy is why California took off first, why New Jersey took off second, and why many other states, primarily in the Northeast and the Southwest, are taking off now. Let’s take a quick look at which Northeast states are poised for a boom, and why:

1. New Jersey: Hitting Its Stride

New Jersey’s solar market really hit the accelerator in 2010, installing more than 25 MW per quarter in the first three quarters, then ballooning to more than 50 MW in the last quarter.  They’re keeping up the strong pace, for now, with as much as 15-20 MW of new capacity each month. This growth is the main reason California’s market share has declined.

However, the first big test for an East Coast market that is incented by solar renewable energy credits (state credits that can be bought and sold on a market) is coming. The idea behind a SREC incentive policy is that it is supposed to be able to weather the storms caused by fluctuation in the supply-demand relationship, and is eventually supposed to settle on a consistent SREC price that reflects the minimum subsidy necessary to get the desired amount of solar built. But with such rapid growth, the market will be over-supplied and saturated with SRECs in the coming compliance year.

Whether New Jersey market participants – and policy-makers – can stay cool as the large N.J. SREC market encounters a major patch of turbulence is an open question. The answer to which will certainly reverberate throughout the east coast SREC markets.

2. Quieter East Coast Markets Catching On

After New Jersey comes a parade of other eastern state governments that, through policies that are related to New Jersey’s, are calling for rapidly increasing solar demand over the next 10 years. Last year, these six states combined had policy-mandated demand for about 100 MW of solar; by 2021, their policies call for a combined 3.5 GW (5.5 GW if you count NJ). If these states are serious about their policy goals, there are going to be a lot of green jobs in the Northeast this decade.

3. New York and Connecticut: Joining the Party

Both the New York and Connecticut legislatures are considering major solar policies as of this writing. Connecticut’s program is meaningful but modest, mandating about 350 MW over the next 10 years. New York’s could be transformative; it’s a program that could rival New Jersey’s, calling for about two GW over 10 years and four GW over just a few more. If both those bills pass into law, the Northeast region will have policies in place that set a goal of more than 10 GW of installed capacity by the early 2020’s. Big Sun indeed.

The Future of Solar Incentives

For the most part, those goals are being implemented with SREC programs. At Borrego Solar, we believe SREC programs are the best state-based incentive form going on right now, because of their potential to uniquely combine efficiency, flexibility, and the political appeal of a market-based instrument.  That’s part of why we’re bullish on the region, and working to expand our business in the major SREC states like New Jersey, Massachusetts, Pennsylvania, Maryland, and others.

But all these programs are either infants or challenging adolescents, and how stakeholders navigate the problems and pitfalls they encounter in the next couple of years will determine how successful the east coast states are in reaching their solar goals.

Perhaps the largest issue is uncertainty in the future price of SRECs. Remember, the cost of generating solar electricity is mostly in the up-front capital expense; solar customers are sometimes making a million-dollar investment decision based on the revenue that they expect the system to generate over time. When there is uncertainty around that revenue  – as there is in all SREC markets, because the value of the commodity can change a lot for a range of reasons –investors will make conservative assumptions and use high discount rates.

In the best case, this issue leads to inefficiency; in the worst case, it leads to policy failure. This problem can be addressed through various tools of policy design and long-term contracting requirements, but so far no SREC policy has done a great job of addressing it.

Also important will be the ongoing balancing act that solar stakeholders — both policy makers and private-sector participants — have to pull off. That balance needs to occur between taking the kind of hands-off approach that is necessary for a policy-created market to function properly over time, and the practical and political reality that there will be pressure to intervene in these markets, when they are especially volatile or unexpectedly problematic.

No incentive program is perfect by design, and market participants will undoubtedly continuously ask for policy changes that fall in the gray area between technical fixes and market-making.

Likewise, many future policy-makers will certainly look at SREC payments that are going to projects that were built a decade ago and ask themselves “why are we still paying for that?”  The development and entrenchment of norms around this generation of SREC programs will be a key piece of their stable development.

Given the opportunities and challenges that companies like ours face in growing our businesses in the east coast SREC markets, it should be an exciting two to three years.

Dan Berwick is Borrego Solar’s Director of Policy and Business Development based out of the New England regional headquarters.  Dan’s primary focus is on shaping Borrego Solar’s unique business strategies and product offerings across various geographic markets and solar incentive jurisdictions.

Image courtesy Abi Skipp, US Army Environmental Command, The National Guard, Egan Snow.

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