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UPDATED Solar Power Financing Options for New Jersey Local Governments and School Districts
Despite the economic turndown, local public entities remain committed to energy management, consumption control and an expanded use of renewable energy generation. The State Board of Public Utilities (the “BPU”) through the New Jersey Clean Energy Program has encouraged this interest through a statewide program that subsidizes both private and public installers of renewable energy resources in order to meet the state goal of 20% of the state’s electrical power to come from renewal resources by 2020.
The BPU requires utility companies operating in the state to allow for “net metering” which permits an electric customer with on-site renewal electrical generation ability to push the electric meter backwards, if the on-site energy produced is more than is needed, allowing the electric customer to earn the retail value of the electricity generated. Additionally the State has recently amended its incentive programs for renewable energy, bolstering the value of Solar Renewable Energy Certificates, (“SRECS”) in which solar energy credits, generated per each megawatt-hour of energy produced from photovoltaic systems, are publicly traded by the on-site energy producer, often more than doubling the savings from the generated electricity itself. The State is also exploring ways of guaranteeing a threshold value for SRECS going forward, most likely through agreements with utility companies which will agree to purchase SRECS on a forward basis from solar energy producers.
Additionally, federal incentives have been in place including Clean Renewable Energy Bond (“CREB”) allotments, essentially interest free loans, and other incentives for private entities. The CREB program offers federal tax credits to bond purchasers, the proceeds of which finance solar and other renewable production systems for public entities. The program was recently re-authorized and will allocate $2.4 billion in loans to local governments and school districts. Applications for CREB allotments will probably be due this summer. For school districts, the CREB program offers an enhanced subsidy to state support via either a ROD grant or debt service aid, resulting in a 60% payback of principal only, although a referendum would be required. CFA assisted several municipal and school district entities in successful CREB sales in the autumn of 2008, the first in the state.
Two recently passed bills A844 and A1185 may give municipalities and school districts another opportunity to procure solar power for their facilities either through a power purchase agreement or as part of an energy conservation contract, the latter to be funded either by a 15 year energy lease, or bond issue. Regulations are currently being developed by the State and are expected to be complete this spring.
Despite the obstacles, we believe that renewable energy systems, particularly solar, can be of great use to local public entities in managing their utility costs, and given the aggressive BPU stance on renewable energy standards and the bevy of potential financial incentives, it is important to work through the questions to allow local entities to economically finance these systems. In particular, schools, including K-12 and county colleges, often have ideal building structures and usage patterns for solar applications – large roof areas, in un-shaded locations, with limited electrical use in the summer when the grid cost of electricity is at its highest.
As the cost of electricity increases, the incentives will decrease, and have, in fact, already diminished as BPU has essentially eliminated the CORE rebate program. The ceiling value of the SRECS themselves is also set to decline annually, with a maximum 15 year term per project for SRECS sold for the purposes of New Jersey utility compliance with the State’s renewable resources requirements.
Other complementary support may become available going forward however, with regard to energy conservation efforts that dovetail with renewable energy usage. Please see the other article listed on this website entitled Financing Energy Conservation for New Jersey Local Governments and School Districts or contact us for further information if interested.