Janus is the Roman God with faces that look backward and forward. With New Jersey having recently enacted a “solar resurrection bill,” Gaurav Naik, principal of GeoGenix, one of New Jersey’s oldest solar integrators, looks at where the state’s solar industry has been and where it is headed.
Q. First, please tell us a little about GeoGenix and about yourself.
A. GeoGenix is a solar integrator headquartered in Old Bridge, N.J. We’ve been in business for 11 years, which makes us one of the state’s oldest solar integrators. We serve residential, commercial and industrial customers. I’ve been involved in solar since 1996. I have two engineering degrees in photovoltaics and was involved in research and development for crystalline silicon solar cells for terrestrial applications as well as thin-film CIGS cells for space applications.
Q. New Jersey has become a national solar leader. To what do you attribute this success?
A. Mainly it’s the fact that state government and the Board of Public Utilities (BPU) have put in place — and continue to reinvent — pro growth, pro business policies to promote energy efficiency and renewable energy. These programs have won national accolades. We are a leader when it comes to energy efficiency in buildings. More recently, we’ve put ourselves on the global map as one of the world’s fastest-growing solar markets and the nation’s largest commercial solar market. As of the first quarter of 2012, we surpassed California to become the nation’s largest solar market overall.
Q. Haven’t federal incentives played a role as well?
A. Definitely. If you look back at the growth of New Jersey solar, you will see that a huge surge occurred in the mid-2010 as a result of a combination of factors. I call it “the perfect storm.” These included the federal Section 1603 Treasury Grant Program, which offered a cash grant covering 30 percent of the cost of solar; the federal 100 percent bonus depreciation allowance, which allowed businesses to depreciate 100 percent of a solar investment in the first year; and a robust, liquid Solar Renewable Energy Certificate (SREC) market. This combination of incentives was very attractive to stakeholders. As a result, the market has grown exponentially over the last eight quarters.
Q. Who are these stakeholders?
A. The stakeholders include businesses and building owners who were looking at options for making buildings more valuable. Because solar reduces electricity costs and serves as a hedge against future rate increases, a rooftop solar array makes a building more valuable in terms of both resale and attractiveness to tenants. The stakeholders also include third-party investors who were looking at renewable energy generation assets, and solar in particular. Because of the combination of incentives available in New Jersey, it was one of the most attractive markets in which to invest their dollars.
Q. As of the second quarter of 2012 the number of solar projects in New Jersey has decreased. To what do you attribute this?
A. Because of the large amount of solar that was built, the supply-demand curve that drives the SREC market crisscrossed around the end of 2011: as many SRECs were available from systems that were generating solar power as were required for that Energy Year under the state’s Renewable Portfolio Standard (RPS). After that, the equation reversed, with the supply of SRECs exceeding demand, which caused SREC pricing to crash. Since revenue from the sale of SRECs is one of the key drivers motivating investment in solar, the market pretty much came to a standstill in terms of project development and construction.
Of course, there’s a lead time preceding construction, which explains why the first quarter of 2012 was still so robust — many projects were still being funded under the Section 1603 cash grant, which expired at the end of 2011. But once it became evident that there were enough SRECs in the market, the value proposition vanished.
Q: What needs to be done to ensure a sustainable solar industry in New Jersey, and what is currently being done?
A. Once stakeholders saw the edge of the cliff early in 2011, they tried to get the market back on track. We knew we had to reexamine the policies that were in place and figure out how to adapt them to provide for a sustainable market. The key word is “sustainable.” Nobody likes to see markets grow for four or five years and then crash. That’s not a sustainable approach.
The first problem we needed to address was that the size of the RPS: the number of megawatt-hours required in Energy Years 2013 to 2016 was substantially lower than the current market activity. We also needed to look at SREC pricing. The original legislation was written at a time when solar panel prices were 60 percent higher, meaning that the hurdle for investment was very different. We didn’t need SREC values in the $600 range anymore, which made the value proposition for the policy changes a lot more attractive.
After doing a few models, we came up with a consensus for an SREC value in the $300 range. We also agreed that policies should allow for SREC contracts of more than five years in order to make solar more attractive to financial institutions, which look for a stable revenue stream from SRECS in order to minimize risk. These are some of the changes that we incorporated into the legislation that we drafted.
Q. How did you get from draft to enactment?
A. We then sat down with our supporters in Trenton. We’ve been extremely fortunate as an industry in that a lot of the people whom we’ve elected to Trenton understand the value that solar brings to the Garden State, and the economic benefits it brings to the local economy. Very early on we got a lot of traction on both sides, the Assembly and the Senate. But there wasn’t consensus as to what the overall cost of the program would be. That’s where we got into a lot of back-and-forths. We took almost 18 months to get to a platform that everybody could agree upon.
The result, which is essentially the legislation that the governor signed on July 23, addresses a lot of the issues that led to the contraction in the solar industry. Hopefully, it will put New Jersey’s solar industry back on track, allowing for a sustainable market over both the short and long terms.
Q. What do you predict for the future of New Jersey’s solar industry?
A crystal ball question! There’s going to be a time lag between the signing of the legislation and the reaction of the market to the programs that will come about as a result. The data for the third quarter of 2012 will definitely show a major dip compared to the previous eight quarters. But after that, I would say that we will see a reversing trend, with installations beginning to increase as the project development that is now in the beginning stages translates into closed contracts over the next couple of months, and those contracts in turn lead to the start of construction in the fourth quarter of 2012 and the first quarter of 2013. Over the next three years, I see a pretty robust market place returning to the Garden State.