Following is a 6- part series exploring Union County’s $45 million solar initiative that originally ran on www.njvoices.com:
I. The Power Chart
I’ve asked in Cranford and Summit. I’ve called in to the mayors of Linden and Clark. I’ve investigated and reported back yet I still have questions about solar panels coming to Union County. Hence this series where I will take this project in steps.
First, the brochure.
From which you learn nothing. The first diptych consists of pictures of the freeholders and a glossy cover page, followed by an introduction to those pushing this project, a brief blurb on solar energy and, presumably as all the explanation you would dare ask for, a chart.
I like charts. They make comprehension easier. But, not this one. A line labeled Solar Energy goes from the Local Unit to the UCIA when you would think it would be the Local Unit receiving Solar Energy. Project Capital has a line with two arrows. Savings seems to flow from the Power Provider through the UCIA to the Local Unit with no indication of how the Provider is able to provide those savings.
After what I’ve seen, this chart makes far more sense.
II. The Pushers
It needn’t have been solar power. It could have been some combination of windmills, wheels, and hamsters; anything that would get bonding done through the Union County Improvement Authority (UCIA) to benefit the pushers of this project:
DeCotiis, Fitzpatrick: General Counsel to the UCIA with a hand (over $6.6 million worth since 2004) in the till of every project run through the UCIA.
PMK/BSG Group: Of course they’re big-time campaign donors but they also have an ex-county employee, who happens to go on treks with the county manager and his wife spearheading this deal.
Bond Underwriter: Financing through an Improvement Authority allows for the negotiated sale of the bonds, which is considered an advantage, though not necessarily for taxpayers.
III. The Morris Model
The Morris County Improvement Authority began their Renewable Energy initiative, as spearheaded by DeCotiis, Fitzpatrick, earlier this year. Based on what I can tell so far, those buildings that took the panels will be paying a little less for electricity but New Jersey taxpayers and, possibly bondholders, will take a bath.
Here is the Official Statement for the bonding which includes the repayment schedule (page 24) and where those repayments will come from (page 16).
In steps:
1) On February 1, 2010 $21.6 million was bonded of which $313,360 will be the cost of issuance and $436,640 will be for administrative expenses. The remainder will pay to have some Company install solar panels on 17 buildings by February 18, 2011.
2) Solar will provide about 10% of the power for those buildings. That 10% will indeed cost less, maybe 30% less, so total savings would be about 3%. Here is the Feasibility Report with the anticipated savings for each project charted in the last few pages.
3) The bonds will be repaid over 15 years starting on August 15, 2011 with a payment of $2,682,145. Total debt service through 2025 will be $29,803,465.
4) Those debt payments will be made by the Company that put up the panels who will get that money from 3 sources:
a) Set electricity fees from the buildings (22.22%)
b) Tax Credits/Benefits (20.40%)
c) SREC Revenue (57.38%).
IV. SRECs
They’re Solar Renewable Energy Certificates which are supposed to pay off 57.38% of the debt accumulated to put solar panels at 17 sites in Morris County which are projected to save 2.36% ($84,355) off of electricity bills at those sites in 2011. Here’s the deal:
After the solar panels are put up there will be two bills those sites will be paying for electricity - about $3 million to their current fossil-fuel provider and $500 thousand to their new solar provider who will use that money to repay debt. However, $500 thousand won’t cover that first $2,682,145.44 debt payment due on August 15, 2011. So where is the rest of the money to come from?
Another half a million dollars is expected from ‘Tax Credits/Benefits’* that the solar company receives and the rest from ‘SREC Revenue’.
An SREC is a tradable certificate that represents all the clean energy benefits of electricity generated from the solar electric system and can be sold or traded separately from the power. It is issued once a solar facility has generated 1000kWh (1MWh), through either estimated or actual metered production, and can be listed on the bulletin board at the SREC website.
Electric suppliers under New Jersey’s Renewable Portfolio Standards (RPS) — one of the most aggressive in the United States — must procure 22.5% of the electricity they sell in New Jersey from qualifying renewables, including 2.12% solar, by May 2021 (details). It’s a variation of cap-and-trade where the under-compliers buy credits from over-compliers to meet their obligations. The Morris Model anticipates the sale of 3,774 SRECs (currently priced in the $600 range) annually which should more than cover the debt payments. So what’s the problem?
Either (a) electricity will be a lot more expensive as providers of non-renewable energy pass on the substantial cost of having to purchase these SRECs to their customers or (b) energy providers will put up solar panels on their own to cover their RPS minimum requirements again passing on those costs but, at the same time, destroying the market for SRECs which would cause defaults of all those bonds sold to finance public purchase of solar panels.
Either way we pay more and, on top of that, are stuck with a bunch of ugly solar panels blocking out portions of God’s green earth.
V. The Numbers
Morris County was sold on a plan to bond $21.6 million to ‘go solar’ at 17 sites by talk of 30% savings in electricity at no cost. Here are the real numbers:
A) 2.36% savings on electricity. Instead of paying $3,571,857 those Morris County sites can expect to pay $3,487,502, an annual saving of $84,355.
B) 29,803,465.44 in debt service will be paid over the next 15 years by the Solar Provider who will get the money from various groups of taxpayers and electricity users.
C) 77.78% of debt service is expected to come from tax breaks and energy credits which translates into the general taxpayer and energy consumer.
D) 3,773,882 kilowatt hours (kW-h) expected from solar (16.8% of total kW-h) which would buy 3,773 SRECs.
E) $8,953,465 to be paid to bond investors and administrators who pushed this model.
The portion of electricity coming from solar might cost less (if it doesn’t snow too much) but that portion is projected to be 16.8%. The remainder will surely cost more as providers of ‘non-renewable’ energy pick up the costs of subsidizing renewable energy.
The bonds will either be paid off by the Solar Provider with 77.78% help from subsidies and tax credits or defaulted if the volatile SREC market tanks.
There were over 100 pages of tables, charts, and obfuscating language to go through to get to the real numbers. That appeared to be by design.
VI. The Risk
Union County officials have been told that there is no risk to spending $45 million to put up solar panels on some of their buildings. They have been told this by the ones who are pushing this project for whom there really is no risk since they get their money up front. However, for taxpayers and completely aside from the merits of solar energy, this scheme is doomed to failure simply because of the financing.
In the Morris Model 78% of the debt service is supposed to come from government subsidies including 58% from the sale of SRECs. The first payment Morris County’s solar provider must make is $2,682,145.44 on August 15, 2011 and over $1.5 million of that is supposed to come from the sale of SRECs. If the system generates 2,500 Megawatt hours of solar electricity and SRECs sell for $600 a MWh they’ll make it but……for how long?
SREC prices are artificially high compared to other states that have the program because New Jersey has set the cost of avoiding going solar very high ($693 for SACPs in 2010). If that price keeps coming down (it was $711 in 2009) so will the price of SRECs but there is a much more dangerous, and more likely, scenario looming.
The market for SRECs are Oil and Gas energy providers in New Jersey who would purchase them to avoid paying SACPs. However if Atlantic City Electric, JCP&L, Orange/Rockland Electric, Elizabethtown Gas, New Jersey Natural Gas, and PSE&G go solar voluntarily to meet their RPS requirements then they won’t need to buy SRECs since they’ll get them on their own.
That is happening. Without anyone to sell their SRECs to the Solar Providers won’t have that $1.5 million to service their debt and will go bankrupt. The county, which backed the bonds, will foist that cost onto taxpayers.
I brought this exact scenario up in public and the officials responding didn’t seem to have considered anything beyond what the DeCotiis people had assured them as if they were buying a subpirme, ninja ARM that looked too good to turn down. It seems like an obvious scam with significant financial perils, but then, I have the benefit of having read the fine print without blinders.