Thread by @ScipioAcheronus

Recent articles (from great journos) noted NJ bill raising RPS to 35% by 2025 and 50% by 2030:

Vox @drvox : vox.com/energy-and-env…
Utility Dive @GavinBade: utilitydive.com/news/new-jerse…
NYT @bradplumer: nytimes.com/2018/04/12/nyr…

No one mentioned the new cost cap. It's important.
1/

Under existing law, assuming flat prices/ load, by 2028 NJ will spend $839m on Class I REC & SREC programs.

If this law is signed, in 2028 NJ can spend no more than $753 on Class I REC & SREC programs.

Story's more complicated. But "RPS ambitious b/c it says 50%" = misleading.

I'm not going to talk too much about existing law, but suffice to say that because there are currently no fixed caps on NJ's RPS program, the current 2028 RPS targets (capping at 17.880% REC and 4.1% SREC) would be subsidized (at 2017 prices) at more than the $ cap this law sets.

The cap looks generous. 9% of total annual retail electricity ($10B) cost until 2021, 7% after. $900m & $700m, respectively. Big $!

Unfortunately, the 9% cap will quickly be hit in 2020. And once that happens, it's a zero sum game for growth b/w different aspects of the RPS.

Look at NJ's 2017 RPS compliance report, & you see that NJ's current RPS, at less than 14%, already costs 5.9% of total retail sales. By 2030, it's supposed to be at 50% and cost no more than 7%. Ambitious to say the least...
njcleanenergy.com/files/file/rps…

So how do you raise RE's percentage of generation by 36% while raising RE's percentage of cost by no more than 1.1%?

Partly, through NJ's 3500 MW offshore wind target, which gets you 14% of generation & is exempt from cost caps.

Partly through phasing out the solar program.

The cost cap limits subsidies for two things: the core RPS, Class I RECs, and the solar carveout, SRECs.

RECs get the big headline % mandate numbers, but SRECs eat the cost. 2017 RPS targets: 10.485% RECs, cost $95m ($12.12 each); 3% SRECs, cost $496m ($220.35 each).

NJ is able to achieve its 2030 50% targets b/c the SREC program, costing 18x more /MWh than its REC program, is mostly phased out by then, allowing the available subsidy to be spent on cheaper REs. By 2030, if REC prices remain the same, the 50% target can be met under the cap.

The problem is, in the short term, the SREC program grows, becoming ungodly expensive...

If REC & SREC prices stay flat, NJ hits its 9% cap in 2020, In 2022, when cap falls to 7%, NJ has to start making tough choices b/c subsidies needed to meet its RPS targets are 41% higher than its cost cap ($1.016b needed, $717m allowed). 2023 subsidy needed is 146% of the cap.

To avoid hitting the cap, SREC prices would have to fall 40% by 2023. This isn't as simple as solar costs falling. From 2013 to 2017, installed cost of residential solar fell by 29%, while SRECs rose by 23%! So, not unreasonable to assume flat SREC costs.
nrel.gov/docs/fy17osti/…

Once caps are hit, NJ law allows the "NJ Board of Public Utilities" to lower the NJ RPS targets. I don't know what the BPU will do in a BAU scenario where the caps are hit soon. They could try to save SRECs, the core RPS, or split the difference. But there are no good options...

It's possible, given the concentrated interests & political power of solar, that the BPU elects to save the SRECs and for whatever reason the NJ legislature can't or won't change the law. Even with a successful offshore wind program, this would dramatically upset core RPS growth

I modeled future w/ flat electricity load, & NJ adds 3600 MW of cap-exempt OSW by 2030: 400 in 2022 & 800 MW in 2024, 2026, 2028, and 2030. OSW = 3000 MWh per MW; levelized cost = $106.80/MWh, replacing $36.08/MWh FF plants (being generous). Cap +'s dynamically w/subsidies & OSW.

In an SREC-protected scenario, there is $0 to subsidize the core RPS program from 2022-2025. RPS grows from 13% to 19% in 2020, before falling to under 6% in 2022 (mandates only able to support OSW/SRECs). Once SREC phases out, RPS grows at 9%/year from 2025-2029 & 50% by 2030.

You might think that's no big deal. All's well that end's well, right? But this is no way to run a railroad. Reducing & eliminating all subsidies for the core of your RPS target & then rapidly ramping them back up within 4 years is not how you build a strong RE industry.

Much less damaging to the headline RPS numbers would be to simply let the caps eat into the SREC program. But that would entail adding $300m to the annual solar subsidy over the next few years and then suddenly eliminating all that growth it in a single year from 2021 to 2022.

My understanding is the NJ bill tweaked the solar program to prevent just such a crash to local solar industry. Not that I think protecting one industry is more important than ensuring strong clean growth in general, but such a move would be contrary to the bill's apparent intent

It's understandable that cited articles glossed over the caps, given the topic's complexity. No one knows what will happen with costs, or what BPU will do if the caps are hit. But it's too bad, because while the targets are meant to grab headlines, the caps are the real policy.

An RPS is not truly a mandate. It's just a subsidy program. And when you set a relatively fixed (and tight) cap on that subsidy, your target numbers are really just aspirational goals without teeth. As I said on a thread discussing this earlier:

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Even once NJ's SREC program is scrapped, keep in mind that the 35.6% non-offshore wind target will only be hit if the mostly onshore solar/wind needed can be built with an average subsidy of $28.6/MWh. I hope deep decarbonization will be that cheap, but...
theenergycollective.com/jessejenkins/2…

In sum:
Headline = "NJ mandates 50% RE by 2030!"
Reality = "NJ's current $600m Class I subsidy was going to turn into $850m, but now is capped at $750m. Offset by boosting OSW & exempting it from caps. Target %s are mentioned, but real %s will likely need to be sorted out by BPU"