Navigant Research Blog

A Case Study in Solar Leadership from an Unlikely Source—New Jersey

— May 11, 2016

Rooftop SolarWhen thinking of solar energy here in the United States, what one place comes to mind? Sun-laden states such as California and Arizona are often conjured up when envisioning solar energy across the country. While countries like Germany have broken this generalization, there’s another case study here in the United States that is proving the viability of solar nationwide—New Jersey. This unexpected leader in solar energy has taken advantage of its open lands, brownfields, and vast amount of rooftop space to spur solar energy generation across the state.

REC Programs

New Jersey’s movement toward the adoption of solar began in 2005 with the initiation of the country’s first solar-exclusive renewable energy certificate (REC) program. Under this system, solar energy generators are allocated credits dubbed SRECs (Solar Renewable Energy Certificates) for every 1,000 kWh of generation. These credits in turn can be bought and sold in an open marketplace. This has led to a mix of utility-scale projects as well as an influx of residential and commercial properties (retailers, self-storage facilities, sports complexes, grocery stores, government buildings, etc.) installing solar. Since the inception of this program, New Jersey businesses and citizens alike have demonstrated the environmental and monetary benefits that come along with the early adoption of solar energy systems.

This isn’t to say that the program hasn’t had its bumps in the road. There was a need for policy adjustment in 2012 after falling technology costs and federal incentives led to a surplus in the supply of solar energy. This outpacing of demand caused SREC prices to plunge, decreasing overall demand for solar energy installations and investment. The state adjusted its strategy with the signing of the solar resurrection bill. This legislation improved marketplace volatility by adjusting the state’s renewable portfolio standard/solar carve-out framework and promoting the development of solar installations at landfills and brownfields.

Expanding Adoption

States with solar carve-outs and SREC markets now include New Jersey, Massachusetts, Pennsylvania, Ohio, Maryland, and the District of Columbia. Expanding beyond this Northeastern territory would greatly improve the potential for solar energy to make its next leap toward wide-scale acceptance. The adoption of solar energy within large corporations should be highlighted, as it not only creates a valuable source of energy but can also provide retailers and their stakeholders with a business case for solar. With companies such as Walmart and Kohl’s prescribing to this solar energy program in New Jersey, it not only proves the viability of solar within these organizations but also enhances the legitimacy of the technology as a whole. Brownfields and landfills are also worth mentioning as they can inject value into otherwise forgotten properties.

While the thought of brownfields and superfund sites often evoke imagery of pollution, outdated technologies, and shameful practices, New Jersey has chosen to redefine these wasteful properties by putting them back to work for their communities rather than detracting from them. The United States has come a long way since the early days of solar but more progress is needed to reach industry maturity. The next big leap may lie in other states looking to New Jersey’s example of how long-term renewable energy planning can provide benefits to its constituents and communities alike. 

 

The Role of Renewable Energy Certificates in Community Solar

— January 12, 2016

solar panels and wind turbines under blue skyWhen community solar subscribers sign up for project shares, they will likely feel proud to be getting solar, even if the project itself is far from home. The question for utilities is this: are customers really getting solar? If their project share includes something less than a renewable energy certificate (REC)-bundled kilowatt-hour, how should the community solar program be marketed? Ever since the advent of RECs in the late 1990s, confusion has surrounded these questions, because according to widely held guidelines, electricity is only renewable if the RECs are included and retired.

Yet, policymakers and program designers know that most solar supporters are eager to get the REC value and would gladly trade away this distinction. Should the utility use REC purchases to sweeten the community solar offer or not? Navigant Consulting is currently collaborating on the Community Solar Value Project (CSVP), one of 15 community solar projects chosen for funding in 2015 by the U.S. Department of Energy’s SunShot Initiative under its Solar Market Pathways Program. The project just released a new factsheet, Understanding Renewable Energy Credits, to address this issue.

RECs in Concept

The REC, defined as the renewable energy attributes of 1 MWh of renewable electricity generated and delivered to the grid, is a concept originally developed for three main reasons. These include federal agency, business, and industry interest in purchasing green power; state-sanctioned accounting to meet renewable energy mandates; and added economic benefits in negotiating power purchase agreements to cover renewable energy project costs.

Today, all claims of using renewable electricity depend on the associated RECs. Even if a renewable generator produces electricity onsite, the project owner is not considered to be using renewable energy if the RECs are not associated with the electricity and retired on behalf of the customer. RECs are a credible way to buy and sell renewable electricity because they can be uniquely numbered and tracked. The electricity associated with a REC may be kept bundled with the REC or sold separately. If it is kept bundled, then it is called renewable (or green) electricity. If the electricity is split from the REC, it is considered standard energy.

Standard vs. Renewable Electricity

Andrea REC Figure(Source: Engineered to Excel)

REC guidelines apply to all renewable energy, including community solar. The most common REC allocation options for community solar programs include:

  • Utility owns and uses the RECs for current or anticipated regulatory compliance.
  • Utility or customer sells the RECs into the local or regional REC market.
  • Utility retires RECs on behalf of the customer.

According to a September 2015 National Renewable Energy Laboratory report, RECs for community solar projects are most often used to meet Renewable Portfolio Standard compliance. Considerations affecting how specific programs treat RECs include program goals, regulatory orders, negotiations with solar developers, and program economics. Many utilities with community solar programs claim that customers either don’t understand or don’t care about the RECs. In some cases, RECs are retained by the utility and aren’t even explained to customers.

Xcel Energy’s Community Solar Garden program in Minnesota has taken an interesting approach, allowing third-party community solar project operators to decide whether to retire RECs on their customers’ behalf or to sell them to the utility for $0.02/kWh-$0.03/kWh. Initially, the Xcel managers thought most third-party project operators would sell the RECs to the utility to improve their economics, but subscribers have been more interested in retaining the RECs than originally assumed.

The jury is still out regarding how the Minnesota community solar market will develop. However, no matter what your utility decides to do with community solar program RECs, it is important to engage customers and stakeholders honestly in the discussion. Clearly explaining the concept and treatment of RECs to subscribers is an important component of marketing any community solar program.

 

Microsoft Taxes Itself on Carbon Emission

— June 4, 2012

Fueled by environmental and regulatory requirements, supply chain mandates, brand image, shareholder pressures, and consumer purchase preferences for “green” products, companies from every sector have adopted sustainability strategies that typically have included ambitious carbon emission reduction goals.  But Microsoft’s recent announcement of levying an internal carbon tax on all its business units goes a step further than any other company in achieving lower carbon emissions.  It’s an unusually aggressive approach to achieving carbon neutrality.

Beginning on July 1, 2012 (the start of the company’s fiscal year 2013), Microsoft business units will be held financially responsible for the cost to offset the carbon (CO2) emissions that they produce.  In other words, each group will be charged a fee for every ton of carbon it generates, specifically from electricity consumption and company flights.  Administered by the corporate finance department, the money collected will be used to purchase renewable energy certificates (RECs) and carbon offsets to make it possible for Microsoft to become “carbon neutral.”  To this end, the company has developed an accountability model that quantifies each group’s carbon impact and price, based on the cost of buying offsets and investing in renewable energy.  According to a Microsoft spokesman, “… the internal cost for electricity includes not only the price we pay the utility for electricity, but also the price we pay to offset the carbon emissions associated with our electricity use.  For air travel, the cost includes not only the price we pay the airline for the ticket, but also the price we pay to offset the carbon emissions associated with the flight.”

Why such a drastic step?  Microsoft has already been effective in meeting its fiscal 2012 goal of reducing emissions by 30% per unit of revenue from 2007 levels through, for example, energy efficiency measures, a PC power management program, and installation of 2,288 solar panels at its Mountain View, California campus.  It has even been recognized, according to the company, by the U.S. Environmental Protection Agency for its commitment to renewable energy.  But these measures have apparently not been considered sufficient.

It would seem that besides aiming for carbon neutrality, Microsoft is also seeking to achieve behavioral change throughout its organization by setting a carbon price to help individuals internalize the environmental impact of their daily business activities.  While pricing carbon emissions is an effective way to raise awareness about energy use, it can also change behavior.  Perhaps another and more obvious reason is that by creating this type of accountability, Microsoft forces its business units to take ownership of the emissions they produce, thereby empowering them to take any necessary mitigating action.

And, let’s not underestimate the media and consumer attention that this announcement has created.  Because an internal carbon tax is a unique idea, it has attracted renewed interest in and curiosity about the company – perhaps much more so than any new product release could have generated by the company.  Microsoft stands out in the marketplace as an innovative environmental leader, providing a role model for other companies.  Though it’s unlikely to motivate U.S. government officials to re-consider their position on a national carbon tax, it could certainly inspire other corporations to adopt a similar approach to achieve carbon neutrality.

 

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