Last month the New Jersey Office of Clean Energy (NJ OCE) and the Christie Administration released data showing that over 1 gigawatt of solar had been installed in New Jersey. As of this writing, those numbers have increased to approximately 1.03 gigawatts. In 2012 alone, New Jersey was only surpassed by California and Arizona for installed solar capacity. See GTM’s public 2012 report for details and for access to the most recent NJ OCE data visit here. Additionally, our monthly capacity report of solar generators registered in PJM GATS shows that 973.8 MW of NJ solar is registered, following the expected lag between installed capacity announced by New Jersey and GATS registrations.

At face value, more solar is a good thing, right? Yes, if all you care about is the amount of solar installed and you disregard much of the complexity of state’s various different electricity policies and the wide spectrum of impact across stakeholder groups. Luckily, SREC markets are straightforward when it comes to the relationship of installed capacity to SREC price. In simple terms, when New Jersey’s installed capacity outstrips the state’s goal for installed capacity we see an over-supplied SREC market and depressed SREC pricing. In even simpler terms this means that photovoltaic facility owners make less money overall per SREC than they would have if New Jersey wasn’t consistently exceeding its solar goals.

So how does this happen? Why is solar getting installed even though SREC prices are trading in the low $100s? One blaring factor is that the cost of installing solar has dramatically decreased. Installers are getting more efficient at building projects and pure equipment costs have plummeted. Referencing the GTM report again we see that pricing blended across all solar sectors (utility, commercial and residential) has decreased from over $5/W on average to around $3/W. That’s a 40% drop in overall cost over two years and this doesn’t even take in to account financing innovations like solar leases and easier access to renewable energy loans.

Some industry participants point to New Jersey SREC legislation (SB 1925) passed in 2012 as a saving grace for the New Jersey SREC market. The legislation increased New Jersey’s solar goals beginning in June 2013 (the start of energy year 2014) and was hailed as a bill to save the New Jersey solar market. The legislation forces a dramatic increase in SREC requirements from approximately 596,000 SRECs for EY2013 to approximately 1,633,394 SRECs for EY2014. Unfortunately this is still not enough to push the NJ market in to under-supply. Going off of numbers from our Q4 2012 SREC Market Monitor report, New Jersey would need to install approximately less than 10 MW/month to push the market into under supply by the 2015 energy year. In the first quarter of 2013, NJ installed over 70 MW of solar capacity, surpassing the less than 10 MW/month by an average of 2.5 times each month. Given this activity, it’s not irrational to calculate an over-supplied market moving into EY2015 and beyond. The build rate of solar capacity in NJ must slow down for NJ solar asset owners to experience an under supplied market.

For detailed data on the SREC markets, purchase the SREC Market Monitor report.