Pennsylvania's solar-energy industry suffering from success
The Pennsylvania solar-energy industry is collapsing under the weight of its own good fortune. Spurred by hundreds of millions of dollars in federal and state incentives, solar developers have built so many projects in recent years that they have created an oversupply of solar-energy credits, the market instruments that provide the developers with a critical income stream.
The Pennsylvania solar-energy industry is collapsing under the weight of its own good fortune.
Spurred by hundreds of millions of dollars in federal and state incentives, solar developers have built so many projects in recent years that they have created an oversupply of solar-energy credits, the market instruments that provide the developers with a critical income stream.
The price of solar credits in the state has plummeted as much as 75 percent in the last year, dramatically shrinking the income-producing potential of new and existing solar projects.
"We're in some ways a victim of our own success," said Maureen Mulligan, a spokeswoman for the Pennsylvania Solar Energy Industries Association, which is predicting a crash.
"Anybody who's talking about putting up a new project now is thinking, 'Wow, there's no support anymore,' " said State Rep. Chris Ross (R., Chester County).
On Tuesday, Ross plans to introduce a legislative rescue for the industry that would increase the amount of solar energy that utilities must buy through 2015, propping up the price of solar credits.
The bill also would close Pennsylvania's solar markets to out-of-state producers. Developers here say cross-border imports of solar power are driving down prices in Pennsylvania.
"Everybody who knew anything about the market knew this was going to happen," said John F. Curtis III, chief executive of Green Energy Capital Partners L.L.C., a Whitemarsh developer. "Now, there's a big panic to do something about it."
The legislative rescue is likely to encounter resistance from traditional utilities and competing fossil-fuel power suppliers, which argue that renewable-energy mandates drive up consumer costs.
"The reality is, this is kind of what happens when you flood the market with solar," said Eugene Barr, spokesman for the Pennsylvania Chamber of Business and Industry.
Although they can legally recover the cost of renewable power by passing it on to customers, the utilities say they are worried that higher costs will tap out consumers and deprive the utilities of funding for improvements to the distribution system.
"Didn't the developers of these solar projects make a business decision and take a risk when they decided to build these projects?" asked Terrence J. Fitzpatrick, head of the Energy Association of Pennsylvania. "At what point do you just let market forces deal with it?"
The solar lobby, which failed for two years to persuade the legislature to increase the mandate for photovoltaic solar systems, characterized the Ross bill as a scaled-back effort to save a nascent green industry.
"People will lose jobs, and the market will stall," said Mulligan. Some solar-installation businesses will not survive, she added.
Solar power is dependent on subsidies to compete in electrical markets, where prices have been depressed since 2008 by a combination of the economic slowdown and low natural gas prices.
In an effort to stimulate the market, Pennsylvania and several other states enacted renewable-portfolio standards mandating that utilities buy a portion of their electricity from alternative sources.
Under a 2004 law, Pennsylvania utilities are required to gradually increase the amount of alternative energy in their portfolios to 18 percent by 2020. The solar-power portion is relatively small, 0.5 percent by 2020.
The renewable-energy mandate adds about 1.2 percent to the generation charge of a typical Peco Energy Co. residential customer. That cost is expected to increase as utilities boost purchases of renewable power to meet rising targets.
Although most states, New Jersey among them, allow only local solar producers to participate in the markets, Pennsylvania permitted any producers in the region to sell into the state's markets.
Currently, Pennsylvania has 71 megawatts of solar power installed and 100 megawatts more in approved projects. In addition, 24 megawatts of out-of-state solar generation is certified to serve in-state markets.
All told, that is far more solar power than the 42 megawatts needed in 2011-12 to satisfy the state mandate.
"You have enough solar already in the state to meet demand for three years," said Gary Lakritz, president of Knollwood Energy L.L.C., a New Jersey renewable-energy marketing company.
Solar-power producers earn the current market rate for any power they sell into the grid, but they make a far bigger income by selling Solar Renewable Energy Credits to utilities. A producer is allowed to sell one SREC for every 1,000 kilowatt hours of solar power produced.
A year ago, one Pennsylvania SREC sold for more than $300, half the price of SRECs in New Jersey's protected market. Pennsylvania solar credits now sell for less than $100, dramatically extending the payback time for a solar project.
Curtis said his firm may cancel four planned utility-scale solar farms.
"We're seriously considering moving operations to California because they have a more generous program," he said.