“Green” Energy Producing Red Ink
By Art Gallagher, Hat tip to the Linden Forum
Government entities and private enterprises that borrowed to install solar panels expecting the excess energy the panels produce to cover the debt service are in for a rude awakening. An oversupply of solar energy in New Jersey has lead to a 50% reduction in the price of Solar Renewable Energy Credits (SREC).
Rather than getting the “free” solar panels and free or cheap energy they were promised, taxpayers and businesses are faced with digging into other pockets to make the payments on their panels.
According to Michael Flett, founder of Flett Exchange, LLC, an energy exchange, brokerage and consulting firm located in Jersey City:
The Drop in prices is directly correlated to the potential of an oversupply of SRECs for the 2012 Energy year. There has just been too much solar installed too quickly compared to the mandates put on the electric producers. Electric Producers in New Jersey are required by law under the Renewable Portfolio Standard to purchase 442,000 SRECs from solar owners during the June 2011 to May 2012 time period (energy year 2012). There is currently almost enough solar installed to produce that amount of SRECs. The oversupply is coming from the rate that solar is being installed. In June of 2011 alone there was 40 Mw of solar installed in NJ. This was more than 10% of all the solar ever installed since the inception of the program in 2004. At this rate there may be more than a 100,000 oversupply of energy year 2012 SRECs.
John Burry of TheCountyWatchers, a Union County watchdog blog, saw this problem and many other problems with the solar scam coming a year ago.
Middletown Mayor Tony Fiore says the township has mitigated this risk in their solar program:
Our proposal will not be to put any capital money towards the project. It will be a pure PPA (power purchase agreement) whereas, providers will bid to install and maintain the project on their own dime and will sell us the power back at a much reduced rate from what we pay. The SREC risk will be born by the PPA provider, not the township. This is a main reason why we decided to go down this route vs putting up money ourselves (aside from the fact we can’t spend what we don’t have!).The couinty on the other hand is thinking about using MCIA money to help the PPA finance the project. They could see an impact.
Township Committeman Gerry Scharfenberger, a former mayor added:
I wish solar, biofuels, wind, plankton, goose crap, etc. all worked so we can let the Middle East self destruct and not have to worry about our energy supply. The fact is, it seems all of these alternative energies have to be subsidized up the wazoo to even have the appearance of being viable. In the meantime, we need cheap, efficient, reliable energy and we need it now if we have any hope of jumpstarting the economy and bringing the cost of government down
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I need to clarify some of the points raised by Mayor Fiore.
Under a solar PPA, which Middletown is planning, the developer, rather than the town, owns the system, maintains it, and would get all the revenue streams from it – the tax incentives, the SREC revenue, and the income from selling the electricity to the town. In this case, the developer should be responsible for insuring the system, as well. Under a “pure” PPA, as Mayor Fiore mentions, the developer obtains private financing and bears the risks.
Mr. Fiore mentions the county and the MCIA. To be clear, they are two separate entities.
The county entered into a pure PPA for several sites and construction is set to begin on a 1.5 MW job. The developer, DOBCO, obtained private financing. This represents a first phase for the county, which may seek to expand its solar installation in future phases.
The MCIA project is something different. The MCIA will issue bonds on behalf of multiple towns and public bodies that are entering into what’s called a “hybrid” PPA. Under a hybrid PPA, the developer makes the debt service payments. Like a pure PPA, the developer owns the system and sells the electricity to the host. Financing costs under the hybrid model are lower than the developer can obtain in the private market, and that reduced cost flows back to the public entities as a reduced price for the electricity.
At the Middletown town committee workshop meeting on August 1st, Committeeman Settembrino said that the town is looking to have the solar developer cover the cost of new roofs as part of the project, where the town would pay for the roof work as an increase in the solar electric rate. He said that the developer would need to obtain private financing under this scenario because the inclusion of the roof work in the PPA would preclude the town from joining in the MCIA project (the MCIA’s RFP for the solar installation will not include new roofs).
How much more will Middletown pay per kilowatt hour of solar elecricity to cover the roof work? Mr. Settembrino mentioned two cents as an example – that is, 7 cents would become 9 cents, for example. Even as a rough estimate, it doesn’t appear much thought was put into the 2 cent figure. Based on a 3.5 MW system (down from 4.1 MW originally), a panel degradation rate of 0.5% annually, and a 3% annual escalation rate in the solar electric price, that 2 cents equals $1.5 million dollars over the 15-year PPA contract. The bids for the roof work were only about $260,000.
Linda Baum
Middletown resident
Thank you Ms. Baum. I’m just not sure what point you are trying to make or what question you are trying to ask. Whether the Township goes to a “pure PPA” or enters the MCIA “hybrid PPA” the Township will not be making a capital outlay and will not be taking on SREC risks. At the end of the day, the only thing that matters to me is which model will save the taxpayers of Middletown the most money. That’s where my vote will go.
My comments were intended to clarify the town’s options. I see you have now opened the door again to joining the MCIA project, while your initial comment seemed to rule it out. And I’m pleased that you want to save taxpayers as much money as possible. In order to know how, you have to check the math. Now would you like to respond to the potentially excessive outlay for the roof work?
My initial comments on solar, which go back to January of this year, have always favored a PPA. However, I was not aware at that time that MCIA was offering an option until the Twp was invited to a presentation by MCIA. No decision has been made on which way the Township will go yet. Roof replacement factors are an important determination that will help shape our decision as to what direction and avenue to take. It is a factor that we are not overlooking.
once again, the road to environmental nirvana is paved with good, but expensive intentions- the worst thing you can do is nail/attach panels to a structurally-unsound and/or poorly-maintained roof, in the name of “savings”.. is my understanding that many companies are reluctant to even put them on public bldgs., due to the liabilities incurred and the guarrantees demanded.. again, am all for efficiencies and attempts to reduce costs, but all factors, including proven track-records, need to be considered, when entering into these agreements at our collective experience level,thus far..the main question is, how much will actually be spent now, and how long will it take, before realizing the payback/savings?