New Jersey added more solar panels than any other state last quarter, marking the first time that another state swiped California's crown for the most new installations.
In the first three months of 2012, New Jersey installed just under 16,000 solar projects totaling 174 megawatts, according to a new report by the Solar Energy Industries Association and consulting firm GTM Research, enough to power roughly 26,000 homes. California came in second, at 148 new megawatts.
A third of the solar power installed in the United States in the first quarter was installed in New Jersey.
But according to the report, the Garden State's lead as the fastest-growing solar market could be short-lived. "We're expecting to see a downturn in the New Jersey market" starting in 2013, Shayle Kann, vice president of research at GTM Research, told reporters on a conference call.
Most experts agree on the culprit: New Jersey's incentives system, called the Solar Renewable Energy Credit (SREC) program, encouraged a brief solar gold rush. Today, the program can no longer guarantee investors sizable profits and is in need of repair, with lessons for other states where similar programs are under way.
At the same time, Massachusetts, New York and Hawaii, have launched new incentives that could help ignite a burst of installations, Kann said. Together, those three states are expected to install about 100 megawatts of commercial-scale solar capacity in 2012, a 40 percent increase over last year.
The rise of solar in those states reflects a larger trend. In the first quarter this year, U.S. installations almost doubled compared to last year at this time, thanks largely to cheap panel prices—which have fallen nearly 50 percent since 2011—and the installation boom in New Jersey's commercial sector, the study found.
New Jersey's SREC Problems
The roots of New Jersey's solar expansion lie in 2005, when it launched its SREC program, then the first such program in the world.
The scheme works like this: For every megawatt-hour of electricity that solar owners generate, they earn a certificate, called an SREC (prounced es-reck). Owners can choose to sell those credits on an exchange market, usually for hundreds of dollars a pop. The state's utilities are obligated to buy a set number of SRECs each year.
The goal was to jump-start the state's solar industry by helping developers earn a profit from setting up the systems.
Before long, a gold-rush mentality took over. The country's solar developers moved to New Jersey in hopes of getting top-dollar for their solar electricity. Solar installations grew from almost nothing in 2005 to about 730 megawatts today.
But by late 2011, the boom created a glut of new projects, souring the economics. The SREC market became flooded with credits, so much so that there are now more credits than utilities are required to buy.
Credits that went for $685 a piece in April 2011 are now selling for $155, after going for less than $100 earlier this year. "This is substantially altering the returns that investors can expect to see from projects in New Jersey," said Andrew Krulewitz, a solar analyst at GTM Research, in an interview.
New Jersey isn't the only state with SREC troubles. Pennsylvania's market, which started shortly after New Jersey's, has faced an oversupply of credits in recent years, with prices dipping to as low as $20. Other states with SREC programs are: California, Delaware, Maryland, Massachusetts, North Carolina and Ohio, along with the District of Columbia.
In the near term, the outlook is good for New Jersey, Krulewitz said, because there are hundreds of megawatts under construction. "It's too late to stop these projects from going online." But low SREC prices will make its solar market less of a draw. The State Senate and Assembly are floating "solar rescue" bills that would boost the price of credits, though they differ on how to do so.
Kann, GTM's vice president of research, asked: "If we're losing demand in New Jersey, where are we going to see the markets pick up?"
A Crystal Ball for Solar: The Rising Trio
Massachusetts' SREC program sought to avoid the mistakes of New Jersey and Pennsylvania by creating market-balancing safeguards. If developers rush to build projects and the number of credits multiplies, then legislators can require utilities to buy more SRECs. If there aren't enough credits available, then that requirement will shrink.
"On the whole it's a better system," Krulewitz, the solar analyst, said. "It ties demand to supply."
The state launched its SREC program in 2010, but developers are only now completing their projects and starting to generate credits. As a result, "we expect [solar] to grow significantly in 2012," he said, adding that he expects the state's SREC market to remain "relatively stable" through 2020.
Massachusetts added 20 megawatts of new solar projects in the first three months of this year, bringing its total solar capacity to 87 megawatts—about 12 percent of New Jersey's total.