Expiring Federal Incentives, SREC Pricing and Competitive Factors were Among Key Issues

HACKENSACK, N.J. – October 3, 2011 – (RealEstateRama) — With the federal Section 1603 Grant Program set to expire at year’s end, those interested in “going solar” may have a limited window to obtain the program’s benefits. Solar Renewable Energy Certificate (SREC) pricing, meanwhile, has been in a free-fall, dimming one key financial benefit for others. And competitive issues continue to factor into the solar equation. It all adds up to “Crunch Time for Solar,” the appropriate title for a solar energy seminar held at the Stony Hill Inn in Hackensack, N.J.

Despite the issues, “from an operating cost standpoint, solar provides a very real competitive business advantage for companies that utilize it,” said Adam Putter, president of Solar Roof Development of Fort Lee, N.J., a co-sponsor of the event. “New Jersey recognizes that solar provides a better business climate, and while the federal Section 1603 program is expiring, the state still has impressive incentives in place.

“There has been tremendous growth in solar in New Jersey,” Putter noted, “to the extent that the state has passed California and is now number one in solar installations.” Noting as well that, by law, New Jersey is required to generate specific levels of solar energy in the coming years, “that requirement is generating additional demand.”

And while the Section 1603 Grant Program is expiring, “an installation does not have to be in place by the end of the year,” Putter said. “One can ‘safe harbor’ the grant, so there is still time.” Other benefits include an Investment Tax Credit of up to 30 percent of a project’s cost and a modified depreciation schedule.

In terms of SRECs, Richard Weihe, managing partner of Karbone, termed recent market activity as “characterized by declining spot and forward SREC prices as a response to increasing monthly installation rates, much of that in response to the 1603 deadline and incentivized development. We’re in an oversupply situation.”

“There is not a likely catalyst for significant price upswing over the next year or more, unless there is a legislative change from Trenton,” Weihe said. “The math indicates that we’re well supplied.”

Financing solar projects is a key factor, of course, and to date, 1603 Grant Program funding has been accepted by many lenders as a down payment. Timothy Babjak, vice president of TD Bank, also a program co-sponsor, provided insight into what his institution and others take into account prior to lending for a solar installation. Typically, he noted, projects should be owner-occupied or have financially strong commercial property ownership. Typical terms are five to 10 years, “with the customer owning the system at loan or lease end.”

Key documents supporting a loan application should include a master lease, a 1603 Grant application (at least through year’s end), an interconnection agreement, local permits, a state clean energy inspection waiver, panel warranties, among others. “Insurance will make the bank a little more comfortable,” he said.

According to Anthony DiGiacinto, senior tax manager for Eisner Amper, another program co-sponsor, passive activity rules, under which investment in a solar partnership may result in passive loss for an investor, “have been a stumbling block for people who want to invest in solar.” Still, alternative energy and energy tax incentives are an important part of the solar equation.

Among other tax benefits, “the federal energy income tax credit amounts to 30 percent of the cost of equipment using solar energy to produce electricity or to heat or cool water, and equipment that uses solar energy to illuminate the interior of a structure,” DiGiacinto noted. “It also covers qualified small wind energy property and qualified fuel cell property.”

Among other trends, “third-party ownership has been a driving model for solar industry,” said Catherine Bostock, a member of the Environmental Law Department of Cole, Schotz, Meisel, Foreman & Leonard, also a co-sponsor of the event. Benefits, according to Bostock, include predictable energy costs for the portion of electricity produced by the solar system, and no up-front capital costs and low economic risk for users. One drawback: “The complexity and transaction costs,” she said.

There is also the specter of regulatory change. “Developers bear the risk of change affecting the return from the system but may want to pass this risk along to the host,” Bostock said. “Hosts need to avoid or cap regulatory risk.”

The concluding keynote address was presented by New Jersey State Assemblyman Upendra Chivukula, a champion of much of the solar-related legislation that has emanated from the Statehouse in Trenton. He conceded that, “these are very interesting times,” noting specifically demand for product and output, and SREC pricing. “There is serious concern in the industry about what actions to take regarding pricing,” he said, noting pending legislation mentioned earlier by Richard Weihe, that “could have a tremendous impact.

“We need to look at how we can stabilize SREC pricing without passing the cost on to RATEPAYERS, something we’re working on right now,” Chivukula said. “We also need to protect municipalities and counties that have invested in SRECS.”

And in terms of energy in general, “we have to figure out how to become self-sufficient in energy,” he said, noting that New Jersey is a net importer of power. “We have to become creative in terms of energy efficiency and conservation. In the process, New Jersey has become the hottest market for solar,” he concluded.


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