New Jersey is evaluating a request by two solar companies to change state rules that bar out-of-state solar electricity generators and providers from participating in the program for Class 1 renewable energy certificates (REC).

The two companies — VC Renewables of Newark, a solar developer, and an affiliate, Vitol, an energy provider — say the change would allow 23.5 GW of already-installed out-of-state renewable resources to participate in the REC program and help the state fulfill its renewable portfolio standards (RPS) obligations. They say the rule change could save ratepayers hundreds of millions of dollars.

“Permitting competition from lower-cost out-of-state solar resources could generate New Jersey consumer savings of at least $200 million to $500 million per year while maintaining New Jersey’s ambitious clean energy goals as well as the economic and employment benefits of in-state solar development,” the companies argue in their petition.

Allowing out-of-state solar into the program would “increase competition to generate Class I RECs and thereby decrease the New Jersey ratepayer costs of compliance with the state’s ambitious RPS targets,” the petition argues. It also would enable third-party suppliers and basic generation service providers to “satisfy their renewable portfolio standards obligations,” the petition said.

The New Jersey Board of Public Utilities (BPU) voted Oct. 8 not to rule on the issue for 90 days while it considers the issue. “I think there is going to be a lot of stakeholder input on this matter,” so more time to deliberate would be helpful, said BPU President Christine Guhl-Sadovy.

Consumer Price Cutting

RPS programs lay out requirements for the amount of clean energy from low- or zero-carbon emission sources; all suppliers or providers that sell energy to retail customers must in the current energy year ensure that 35% of it is clean energy, rising to 50% clean energy by 2030.

As in some other states, New Jersey offers a REC — a payment for the generation of 1 MW of clean energy — to developers or generators as an incentive to encourage investment in clean energy generation

While wind, tidal, geothermal, methane, biomass and other types of energy generated outside of New Jersey are accepted in the Class 1 REC program, solar energy must be generated in-state to participate.

The New Jersey Class 1 REC program is a separate market from the similar — but more lucrative — incentive program that supports most residential solar and other solar facilities in New Jersey, the solar renewable energy credit (SREC) program. Having gone through several iterations, the program — known now as the solar renewable energy certificate II (SRECS-II) program — is part of the successor solar incentive program.

The petition filed by VC Renewables and Vitol, which provides energy in the state basic generation services (BGS) auction, argues that preventing out-of-state solar from taking part in the Class 1 REC program has contributed to a rise in Class 1 REC price from $13 in 2019 to $31 in 2024, which is passed on to New Jersey ratepayers.

Because the state limits supply, New Jersey Class 1 RECs are more expensive on the market than those from Pennsylvania and Maryland. Opening New Jersey to competition from out-of-state generators would push down New Jersey’s REC prices, the petition argues.

“Our petition offers a simple and potentially swift solution to the consumer affordability challenges facing New Jersey residents,” said Jason Barker, vice president for regulatory affairs at VC Renewables. He said it could mean every ratepayer gets the equivalent of an annual credit of $50 to $125.

The petitioners had hoped to have the new rules in place before the state’s next BGS auction in February, enabling providers such as Vitol to submit lower bids, because they will be delivering electricity supported by Class 1 RECs, he said. However, the BPU’s 90-day delay likely means the rule change — if accepted — would not be ready in time.

The change also could stimulate solar development, he said.

“By increasing the opportunities for REC sales, it certainly is an incentive and a motivator for project development throughout the PJM footprint,” he said. “And that helps investors to develop and finance their projects.”

“The RECs are a component of the income stream for a renewable project of any stripe,” he said. “So when a renewable energy developer is developing a project, they’re thinking about all of the potential income streams, whether it’s energy capacity or the clean energy attribute.”

The rule change, he said, is “simply expanding the market for the clean energy attribute for solar across the PJM footprint.”

Market Disruption

The debate comes as New Jersey, like other states, is searching for ways to create new generating capacity in preparation for an expected dramatic increase in demand, mainly driven by the need of data centers and artificial intelligence projects, and to curb the rise in utility rates. The average New Jersey residential electricity bill increased by 20% in June, a hike some industry analysts and state officials say was driven largely by the expected future supply shortage.

Abraham Silverman, a former BPU general counsel who now is a research scholar at Johns Hopkins University’s Ralph O’Connor Sustainable Energy Institute (ROSEI), said New Jersey likely limited out-of-state developers to protect New Jersey’s then-fledgling solar sector. But that protection is not needed now.

“At this point it’s just an administrative thing that probably simply increases costs for consumers and means that we buy more wind and less solar,” because out-of-state wind is allowed in the REC program, he said. “We have a very, very robust in-state solar market. … Given where we are today, it really does feel like New Jersey consumers are paying more than they need to.”

Fred DeSanti, executive director of the New Jersey Solar Energy Coalition, said he believes the rule changes would reduce ratepayer costs, calling it a “good thing in the current energy cost environment driven as you well know by a lack of new capacity.”

But Leeward Renewable Energy, a Dallas-based wind and solar energy developer, said in an Oct. 1 letter opposing the move that it would create a “regulatory disruption that fundamentally changes New Jersey’s REC market. “

The move would “undermine the original policy aims, disrupt market rules and jeopardize future investment in renewable energy to serve New Jersey,” the company said, noting that providers have signed long term supply or “off-taker” agreements based on existing rules.

“New Jersey’s REC market is the bellwether state for investors evaluating PJM’s market health. Market disruption in New Jersey cascades to investor uncertainty across the entire region,” the letter argued. “Unfortunately, the mere filing of the petition has already created market uncertainty and, in turn, eroded investor confidence in the market.”

LS Power, a New York-based developer, said the change would strand in-state facilities that were developed based on a revenue stream defined by existing rules, which then might face a reduced revenue stream, according to an Oct. 2 letter to the BPU. That would weaken “regulatory certainty” and reduce “investor confidence for future development,” the company said.

In addition, allowing out-of-state projects to take part in the REC program would mean funds flowing to “projects in neighboring states that bypass New Jersey’s permitting, agricultural preservation, and labor standards, creating a regulatory race to the bottom while forfeiting the local job creation, clean air benefits, and grid resilience that in-state projects deliver,” the letter said. Moreover, it added, the change would only minimally reduce New Jersey rates.