The Nation’s and New Jersey’s Increased Focus on Renewables

Client Alert

Renewable Energy Alert

February 11, 2021

Clean energy stands to gain a more focused and important role in federal and state policymaking as the Biden administration commits to an aggressive program of renewable energy initiatives.

Federal Initiatives

President Biden has already taken action by reversing several environmental and energy regulations issued by the Trump administration, rejoining the Paris Climate Change Agreement, and rescinding federal permits for the Keystone XL pipeline project on day one in the White House. The new administration’s ambitious plan to increase renewable energy output and capacity is likely to include stronger greenhouse gas emissions regulations for power plants, vehicles, and oil and gas infrastructure. A proposed $2 trillion clean energy and infrastructure investment plan will increase development of and reliance on solar panels, distributed energy grids, and wind turbines.

The initial actions by President Biden are only the beginning of many anticipated and ambitious policies in reversing the actions of the Trump administration with a new “whole government” approach to climate change. We anticipate new and stricter regulations in automotive, power generation, and other industrial sectors, including a likely reassessing of national standards imposed by the Environmental Protection Agency and Department of Transportation. These will include a greater emphasis on the environment and environmental enforcement, including a higher profile for “environmental justice” that may include opportunities for private party actions and greater community activism.

Decarbonization will be a centerpiece of the new federal strategy, with more active roles in electrical grid planning and creation of energy efficiency standards for a broad range of commercial and industrial products. The goal is not just decarbonization of electric power and transportation, but also a net-zero carbon economy. The Department of Energy already has $40 billion in available loan funds on its books from the Obama administration for projects such as R&D in zero carbon and electric vehicle technologies and the increase of renewable energy’s access to the U.S. electricity grid. Private oil and gas projects will face more stringent climate requirements as electricity markets will shift to being opened up for aggregated distributed energy resources, including rooftop and other solar project panels.

The President’s plans follow Congress’ recent decision in December to extend existing renewable energy tax credits. The solar investment tax credit (ITC), which was scheduled to decrease from 26 percent to 22 percent in 2021, will stay at 26 percent for two more years. The wind industry also received a limited extension of its production tax credit. In simple terms, this means that solar projects in all market segments – residential, commercial, industrial, utility-scale, and community – that begin construction in 2021 and 2022 will continue to receive the ITC at 26 percent.

State Initiatives

While federal legislation and initiatives will be crucial to achieving the country’s climate and clean energy goals, continued action at state levels remains important, as states remain the primary actors in regulating investor-owned utilities and setting clean energy targets at local levels.

New Jersey

As a national leader in enacting clean energy legislation, New Jersey is expected to pursue an even more ambitious program to combat climate change. Last year, Governor Phil Murphy unveiled New Jersey’s Energy Master Plan, which provides key strategies for the production, distribution, and consumption of energy that will help to achieve the Murphy administration’s goal of 100 percent clean energy by 2050.

To incentivize compliance by electric utility companies with the strategies and regulations envisaged by the state’s Energy Master Plan, the Renewable Portfolio Standards (RPS) establish a minimum renewable generation percentage for all electric utility companies in the State and introduce penalties for noncompliance. Today, New Jersey’s RPS has become one of the most aggressive in the nation, requiring that each electricity supplier serving retail customers in the State procure 35 percent of the electricity it sells in New Jersey from qualified renewable energy resources by 2025 and 50 percent by 2030. The RPS helps drive the market deployment of new clean energy technologies and the expansion of renewable energy generation that provides significant economic development and environmental benefits.

The ambitious RPS targets previously included the establishment of a target of 5.1 percent of electricity sales from qualifying solar electric generation facilities by 2021 (known as the solar carve-out). New Jersey initially established the Solar Renewable Energy Credit (SREC) market to achieve both the RPS and solar carve-out targets. These legacy SRECs are market based incentives that have been allotted to solar energy consumers based on the amount of energy that they generate. In simple terms, the state’s utility companies buy SRECs from solar panel system owners to meet their RPS requirements. Utility companies that fall short of meeting their RPS targets must then pay a fee that is higher than the cost of an SREC.

In a nod to the success of the SREC program, the legacy program was closed to new registrations on April 30, 2020 upon achieving the 5.1 percent target milestone and has been replaced by the Transition Incentive Energy Certificate (TREC) program effective May 1, 2020. TRECs are much like SRECs in how they are awarded to solar energy system owners, but they have two significant differences. The first is that TRECs have a fixed price ($152) versus variable pricing. The second is that a TREC’s value is determined based on the type of installation. For example, commercial rooftop solar projects should receive the full $152 TREC value, whereas commercial ground-mount projects are likely to receive only 60 percent of the full $152. The Transition Incentive program remains open to new registrations until the establishment of a registration program for the to-be-determined “Successor Program.”

New Jersey continues to explore options for the long-term Successor Program to replace the existing RPS/SREC/TREC programs. A significant milestone was achieved last month when the Cadmus Group, which was retained by the New Jersey Board of Public Utilities (NJBPU) to conduct an extensive stakeholder-driven review of New Jersey’s solar policies, published its findings and recommendations. Key recommendations are:

  • Implementing an “always on” fixed-incentive program, comparable to the existing Transition Incentive program, to provide certainty, business visibility, and especially “finance-ability.”
  • Implementing a policy that differentiates between project customer classes, installation types, locations, and technologies in order to deploy a robust and diverse fleet of projects.
  • Aligning incentives with other policies on an ongoing basis, including utility interconnection procedures, net metering, and tax policies.
  • Evaluating emerging technologies and new solar business models (e.g., energy storage, dual-use solar agriculture, floating solar, building-integrated photovoltaics, and project repowering), and ensure that the Successor Program is sufficiently flexible to adapt to such potential opportunities for solar expansion.

The long-term Successor Program will have a significant impact on the viability of a solar energy economy in New Jersey.

As evidence of the success of recent solar innovation in New Jersey, the State’s Community Solar Program has further enabled greater access to solar energy to electric utility customers who have previously been unable to access the benefits of solar due to cost constraints, shaded property, or lack of roof control. Community members can now access solar renewable energy by subscribing to a community solar project in their utility service area and receiving a bill credit on their utility bill for their participation.

In 2019, the first year of the pilot program, the NJBPU awarded more than 75 MW to 45 projects based on their location, community engagement, and local benefits, particularly for low- and moderate-income (LMI) communities. All 45 projects are required to dedicate at least 51 percent of their capacity to LMI households. The second year of the pilot program, which opened in October 2020 with applications that were due by February 5, 2021, has increased the energy allocation to 150 MW, doubling the capacity of year one and ensuring at least 40 percent of awarded projects serve LMI communities.

How Gibbons Can Assist

Successfully funding, constructing, and operating energy projects, particularly solar and other renewable energy projects, is an increasingly dynamic and complex process involving many different stakeholders. Solar power stands out as an industry that has moved well beyond the “infancy stage” and into its current position as a practical, profitable option for many businesses. The renewed focus on solar and other renewable energy projects across the nation, and particularly in New Jersey, is likely to drive the industry even further; however, as incentives have grown increasingly complex, with some multiplying and others contracting, businesses may fail to take full advantage of opportunities to maximize the return on their renewable energy investments.

Gibbons leverages our many years of renewables experience across multiple practice groups, alongside our close relationships in the business, banking, and government communities, to help our clients structure, finance, and close these complicated transactions, and to provide a quality life of the project service to developers, investors, end users, and other industry participants.

We work with businesses covering the full spectrum of today’s solar energy industry on many types of projects. We provide cross-disciplinary legal counsel in the following areas:

  • Structuring of solar transactions to optimize tax credits and benefit from other federal and state incentive programs, including TRECs and SRECs
  • Financing of solar projects, including debt financing, sale-leaseback arrangements, and equity and tax-equity investments
  • All real estate considerations and issues, including purchases and sales, leases and licenses, permitting, zoning, environmental matters, and regulatory compliance
  • Due diligence and structuring of transactions, including mergers, acquisitions, and joint ventures; partnership, LLC operating, and shareholders’ agreements; and accounting and financial reporting requirements
  • Engineering, Procurement, and Construction (EPC) contracts and supply and vendor contracts, including interconnection, off-taker, and power purchase agreements
  • Disputes and litigation relating to solar projects, including lien and construction-related disputes

The Gibbons Renewable Energy Practice stands ready to assist you in navigating the continually evolving energy industry and to answer initial questions on a complimentary basis. If you would like our assistance or simply have questions regarding energy issues, please contact Frank Cannone or Kevin Evans.