You asked how New Jersey's renewable portfolio standard (RPS) differs from the RPS in Connecticut and how this has affected the financing of solar projects.

NEW JERSEY'S RENEWABLE PORTFOLIO STANDARD

New Jersey, like Connecticut, has an RPS that requires electric companies and other suppliers to get part of their power from renewable resources. New Jersey's RPS is more aggressive than Connecticut's, requiring that 30% of the power sold in the state in 2020 come from renewable resources, compared to 23% by this date in Connecticut.

Unlike Connecticut, New Jersey specifically requires that the supplier get 0.22% of its power from solar photovoltaic resources located in the state. By June 1, 2020, the requirement will increase to 2.12%. The New Jersey Board of Public Utilities (BPU) estimates that 1,500 megawatts (MW) of solar capacity will be needed by 2020 to meet the solar RPS requirements. A megawatt is the generating capacity needed to serve approximately 900 homes. The separate solar RPS, and the requirement that the solar facilities be located in the state, create an environment that is particularly favorable for solar projects.

Suppliers typically meet the requirements of the solar RPS by purchasing solar renewable energy credits (SRECs). Each time a solar electric system generates 1,000 kilowatt-hours (1 megawatt-hour or mwh) of electricity, its owner is issued an SREC that can then be sold or traded separately from the power. The owner receives SRECs for the facility's first 15 years of operation.

If a supplier does not meet its RPS requirement, it must make an alternative compliance payment (ACP). The ACP is effectively the ceiling for the market price of SRECs. The ACP for the solar RPS is currently $693 per mwh (just under 70 cents per kilowatt-hour). These payments will decrease over time to $594 per mwh (just under 60 cents per kwh) starting in 2015.

FINANCING SOLAR ENERGY PROJECTS

New Jersey has about 63 MW of installed solar electric capacity which makes it second only to California. The BPU believes that this is due to New Jersey's solar financing model which relies on its RPS, smart interconnection regulations, and attractive incentives.

Historically, New Jersey relied on rebates to homeowners and businesses installing solar electric systems to ensure that there would be sufficient capacity to meet the solar RPS. The rebates are funded by the Societal Benefit Charge on electric bills. Between May 2001 and August 2007, 40 MW of solar generating capacity was installed in New Jersey, assisted by more than $170 million in rebates, or about $4.25 million per megawatt. In 2007, the BPU estimated that if the rebate levels were to remain unchanged, achieving the solar RPS requirement would require an estimated $9.6 billion in rebates in 2021, increasing rates by about 7.5%. In addition, strong interest in the rebates had led to the program being over-subscribed, resulting in queues for applicants awaiting rebate funding.

In 2007, the BPU began to seek a more efficient and sustainable means of providing the incentives needed to achieve the solar RPS. It limited rebates to small and medium size systems of less than 50 kilowatts (a typical residential solar system is about 10 kilowatts). It directed that the solar incentive program move from one dependent on rebates to a market-based incentive program relying predominantly on the value of SREC's. For residential systems, the SRECs reduce the payback period from 25 to 10 years. The SRECs, which are paid out over the life of the system, provide about $2,400 a year for a 10-kilowatt system.

In December 2007 the BPU issued on order that noted the importance of “securitization,” in financing larger solar electric generation projects from the cash flow expected from the project's ability to generate and sell SRECs. In July 2008, the BPU found that SREC-based financing should be based on a competitive contract model, under which electric

companies would periodically enter into long-term (15-year) contracts to purchase SRECs at flat rates, with the contracts awarded based on the price at which the seller offers to sell SRECs over the contract term.

The BPU required the electric companies to periodically conduct solicitations for SRECs. In 2009, the electric companies held their first solicitation with an average price of $409 per mwh. BPU staff note that these long-term contracts are important for financing solar energy projects. The results of the 2010 solicitation will be announced shortly.

Further information about New Jersey's RPS and its financing model can be found at www.njcleanenergy.com.

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