SRECs are those credits purchased by power companies for the production of solar energy. Given that solar energy facility production has exceeded expectations, creating a glut of SRECs available for purchase, the value of the SRECs have dropped to less than half of the pre-glut value.
 

The newly adopted New Jersey Energy Master Plan proposes to accelerate the purchasing obligation of utilities, or take other actions to stabilize the SREC market, and therefore may improve the value of SRECs and increase the ability to finance solar energy facilities. That, along with ongoing federal tax credits, create the opportunity for New Jersey to continue to be one of the national leaders in solar energy production, currently second only to California.
 

However, one significant component of solar energy facilities is the cost of the solar panels themselves. A recent report conducted by Science Daily concludes that the cost of solar panels has dropped by 70% since 2009, significantly enhancing opportunities to make solar energy production a more attractive investment for those producing and selling energy as well as those building net-metered energy facilities, providing energy for on-site use.
 

For the foregoing reasons, opportunities and profitability of solar energy continues to increase and should be considered by most property owners, including those that might have declined to pursue solar energy as recently as a few months ago. Below is the link to the Science Daily article discussing the huge drop is the cost of solar panels.

The drive by commercial establishments and property owners to offset conventional power sources with solar energy certainly comports with current State and federal energy policies.  However, the construction and operation of a solar energy facility may involve a myriad of legal issues for which the advice and counsel of a knowledgeable attorney is essential.
 

Broadly speaking, businesses and individuals interested in hosting a solar energy facility on their premises may do so either by purchasing the solar panels and related equipment outright from a solar developer pursuant to an engineering, procurement and construction contract (EPC) or by leasing the facility long-term (usually 15 to 20 years) pursuant to a power purchase agreement (PPA).  Under both types of agreements, the solar developer may offer to design, build and maintain the solar facility.
 

One threshold matter that applies equally to EPC and PPA contracts is whether to obtain a solar feasibility study for the subject property and the proposed system equipment from an independent technical professional in consultation with an attorney. A solar developer will often perform a property and equipment analysis prior to installing the facility. However, the solar developer’s feasibility study may not include everything that a commercial enterprise or property owner may want to know before committing to the purchase or rental of a solar energy facility. For example, in order for a solar energy facility to operate efficiently and productively the owner or lessee of the system may need to prune or remove trees on site or may need to secure a solar easement from a neighboring property owner to restrict the location and/or height of a building addition, landscaping or other improvements (which might otherwise block access to sunlight).
 

A solar feasibility study should also gauge whether the proposed system size will adequately serve current energy needs (as well as any anticipated change thereto that might occur in the future) and whether the roof of the existing building where the proposed facility is to be constructed and all other structural components and the electrical system can handle the load of the proposed facility. In this regard, by way of further due diligence following receipt of a solar feasibility study, a prospective owner or lessee of a solar energy system should (1) verify with its insurance agent that the proposed facility will not require an insurance upgrade; and (2) contact all companies that have supplied warranties for the roof or other building components that the proposed facility will not require any special inspections to avoid invalidation of any such warranties.
 

Another consideration integral to both EPC and PPA contracts is the procurement of land development approvals and permits for the solar installation.  Indeed, it should not be assumed that the solar developer will obtain any required land development approvals, such as site plan or variance relief (although often they will secure the building permit) or that any failure to acquire such approvals will operate to terminate an agreement with a solar developer.  Therefore, during contract negotiations, a prospective purchaser or lessee should discuss with the solar developer and resolve such matters as which party will be responsible to make application and pay for approvals or permits and whether a failure to obtain any such approvals or permits after making a good faith effort shall operate to terminate the contract.
 

The foregoing represents just a handful of the issues that may come into play when considering whether to install and operate a solar energy system.  If you are interested in learning more about EPC or PPA contracts or have a legal issue relating to solar installations that you would like to discuss, do not hesitate to contact Vincent J. Mangini, Shareholder and LEED Accredited Professional BD+C, here in our Lawrenceville, New Jersey office.

What is NJR Clean Energy Ventures? from Stark & Stark on Vimeo.

Recent Trends in the Solar Industry from Stark & Stark on Vimeo.

What is needed in order to make a solar project work? from Stark & Stark on Vimeo.

What are the different types of solar projects? from Stark & Stark on Vimeo.

A complete description of the entire 2011 Draft EMP and its potential implications is well beyond the scope of this blog. However, one topic treated by the 2011 Draft EMP that warrants brief discussion is biomass and waste-to-energy (“WTE”) production. This is a significant alternative source of fuel, which deserves to be reevaluated by the Legislature in meeting the goals and objectives of the Energy Master Plan. “New Jersey . . . has abundant ‘home grown’ biomass potential[, which] includes both agriculturally-derived fuel, as defined by statute, as well as residential and industrial waste material that is used to produce energy, either directly or indirectly.” Indeed, the Garden State is one of the largest producers of garbage per capita within the United States. However, “[o]nly 17% of that waste is converted into energy by the State’s five municipal solid waste incinerators, leaving the rest as an untapped energy resource.”

The Christie Administration stops short of proposing or advocating any substantial new incentives for biomass or WTE. However, it recommends possibly revisiting how sustainable biomass and waste-to-energy are classified under the State’s Renewable Portfolio Standard (“RPS”) in light of price discrepancies between solar renewable energy certificates (“SRECs”) and renewable energy certificates (“RECs”) for other Class 1 and Class 2 renewable energy resources in order to make their development more marketable. 

Certainly, our State government has already taken sizable steps to create a market for bio-energy. For example, just prior to leaving office as Governor, Jon Corzine signed legislation (P.L. 2009, c. 213), which is referred to as the “solar farm” bill, that (1) authorizes the installation and operation of biomass (as well as solar and wind) energy generation facilities on preserved farmland for the purpose of generating power or heat, (2) adds to the list of activities protected under the Right to Farm Act, N.J.S.A. 4:1C-1, et seq., the generation of power or heat from biomass (as well as solar and wind) and (3) qualifies biomass (along with solar and wind) energy generation as an “agricultural or horticultural use” under the Farmland Assessment Act of 1964, N.J.S.A. 54:4-23.1, et seq. Although the term “biomass” is not defined consistently throughout the solar farm bill, it essentially refers to “an agricultural crop, crop residue, or agricultural byproduct that is cultivated, harvested, or produced . . . and which can be used to generate energy in a sustainable manner.” 

More recently, Governor Christie approved Assembly bill A1052 as P.L. 2010, c.101, which supplements Title 52 of the Revised Statutes, requiring State entities generally to “consider the use of biofuels to replace the use of petroleum-based fossil fuels” and specifically to make such purchases “for heating equipment, or other similar combustion systems, motor vehicles, or other motorized equipment[]” provided that the State entity determines that (1) the cost of using biofuels is either the same or less than the cost of using fossil fuels and (2) the use of biofuels for the purpose in question is reasonable, prudent and cost effective. The term “biofuel” is defined under this new law as “liquid or gaseous fuels produced from organic sources such as sustainably grown and harvested crops including native noninvasive energy crops, agricultural residues and non-recycled organic waste including waste cooking oil, grease and food wastes, sewage and algae.” 

The first of these two enactments is noted in the 2011 Draft EMP as a statutory achievement promoting the use of renewable energy. 

A complete copy of the 2011 Draft EMP is accessible online. The Board of Public Utilities (“BPU”) has already held two hearings on the 2011 Draft EMP, which took place on July 26 and August 3, 2011, and is scheduled to hold one more on August 11, 2011, at the Richard Stockton College of New Jersey. The BPU will also accept comments on the 2011 Draft EMP through August 25, 2011.

How Does Solar Energy Production Work? from Stark & Stark on Vimeo.

The article provides an overview of the the Federal Trade Commission's (FTC) proposed revisions to the guide for the use of environmental marketing claims (the "Green Guides") and evaluates the FTC's decision not to include in the proposed amended and supplemental Green Guides specific guidance for sustainability claims. The article goes on to discuss legal protections afforded to corporate image advertising.

You can read the full article online here. (PDF)

 

First, Assembly bill A3680, directs the Department of Environmental Protection, among other things, to adopt regulations requiring “any new development to incorporate blue roof or green roof technologies to limit the release rate of stormwater runoff[]” and to give priority consideration to any application for a permit, grant, loan or any other authorization filed with the DEP that involves a blue roof or a green roof. The term “development” is defined broadly under the bill to include any subdivision of lands, new construction or alteration of existing structures, mining excavation or landfill and any use or change in use of any building or other structure or extension of use of land for which permission is required under the Municipal Land Use Law. Only agricultural development is expressly excluded from this definition. The “blue roof” and “green roof” concepts are also specifically defined under the bill.
 

The remaining two bills from the package that we selected for discussion here relate to financing. One of these, Assembly bill A3681, requires any new building, facility or structure receiving financial assistance from either the Economic Development Authority or the State, which is to be constructed after the bill’s effective date, “shall be designed, constructed, and managed to include a functioning green roof or blue roof.” The effective date of this bill is proposed to occur on the first day of the thirteenth month following the date of enactment.
 

The other, Assembly bill A3682, amends and supplements N.J.S.A. 26:2C-45, et seq. - the law that authorizes New Jersey’s participation in the Regional Greenhouse Gas Initiative (RGGI) and establishes the Global Warming Solutions Fund (GWSF). Under this bill, the conservation of water and the improvement of stormwater management through the construction and acquisition or installation of green roofs are added to the list of items for which monies contained in the GWSF may be utilized. In this regard, the State Treasurer is authorized under the bill to establish a new account within the GWSF known as the “Blue and Green Roof Revolving Loan Account” from which annual appropriations may be made to finance, among other things, the blue roofs and green roofs loan programs created by the bill. Specifically, under Section 3a of Assembly bill 3682, the DEP in consultation with the DCA is directed to set up “a program to provide loans to owners of single family residences to assist them in financing the cost of . . . a blue roof or green roof on the residence.” Section 3b of the bill requires the DEP to work with the EDA to institute a similar loan program for commercial, institutional and industrial entities.
 

All three of the above-referenced blue roof and green roof bills were reported out of the Assembly Environment and Solid Waste Committee with amendments and referred to the Assembly Appropriations Committee on February 10, 2011. Each of these bills has also been introduced in the Senate.  Should Assembly bills A3680 and A3681 pass both houses of the Legislature and be signed into law, they will likely make building, renovating or using just about anything in connection with real estate more expensive. Therefore, in the event that occurs, hopefully the Legislature will also enact Assembly bill A3682, so that developers may have an easier time underwriting compliance with any ensuing blue roof or green roof design and installation requirements.

Under Section 401 of the Tax Relief Act, for example, Congress lengthened by two years the time period during which a taxpayer may receive a 50% bonus depreciation under the IRC’s accelerated cost recovery system regulations for the taxable year in which the taxpayer places any “qualified property” (as such term is defined by 26 U.S.C. § 168(k)) in service.  The term “qualified property” comprises a host of “energy property” (as such term is defined by 26 U.S.C. § 48( c)), including, for example, “combined heat and power system property” and “qualified small wind energy property.”  Section 401 of the Tax Relief Act also amends Section 168(k) of the IRC (1) to create a temporary provision that allows taxpayers to depreciate 100% of the adjusted basis of any “qualified property” acquired after September 8, 2010, and before January 1, 2012 (and, in some cases, January 1, 2013) and (2) to extend the time period during which a taxpayer may accelerate the alternative minimum tax (AMT) credit in lieu of bonus depreciation (and add special rules for taxpayers making this election).

Sections 709 and 710 of the Tax Relief Act, which respectively amend the Energy Efficient Appliance Credit (26 U.S.C. § 45M) and the Nonbusiness Energy Property Tax Credit (26 U.S.C. § 25C), merit some brief commentary, as well.  Respecting the former, the Tax Relief Act adds new tax credits for dishwashers, clothes washers and refrigerators that are manufactured in 2011 (all such prior tax credits having expired either in 2008, 2009 or 2010) and significantly reduces the aggregate amount that a taxpayer may take under the Energy Efficient Appliance Credit from $75,000,000 to $25,000,000 (although as a result of this amendment the starting point for measuring the aggregate amount was changed from taxable years beginning after December 31, “2007" to “2010").  Modifications to the Nonbusiness Energy Property Tax Credit effected by the Tax Relief Act were also substantial.  Among other changes, the Tax Relief Act (1) extends the Nonbusiness Energy Property Tax Credit through December 31, 2011, (2) reduces the allowable credit percentage from 30% of qualified energy efficiency improvements and residential energy property expenditures to 10% of all such costs and (3) institutes a number of credit limitations, such as the “Lifetime Limitation.”  Under the Lifetime Limitation, the amount a taxpayer may claim under the Nonbusiness Energy Property Tax Credit for any taxable year shall not exceed the excess of $500.00 over the aggregate credits allowed for all prior taxable years ending after December 31, 2005.

The foregoing discussion, along with my April 26th article, together provide a brief overview of some of the federal credit extensions and other tax law changes established by the Tax Relief Act.  A complete description of the entire Tax Relief Act is beyond the scope of this blog entry.  Please do not hesitate to contact my office to discuss in more detail any of the provisions highlighted above or any aspect of the Tax Relief Act that I have not addressed herein.

1. financing;
2. tax incentives; 
3. construction agreements; and               
4. leases with commercial tenants

Financial Incentives to Green Commercial Space
The Board of Public Utilities (BPU) through its Office of Clean Energy offers a host of financial incentives through the New Jersey Clean Energy Program. Among these is the Pay for Performance Program, which is funded by the societal benefits charge authorized by the New Jersey Electric Discount and Energy Competition Act.  Under this program, a qualifying utility customer may receive for the improvement of an existing building up to 50% of a facility’s annual energy cost (subject to a maximum of $50,000) to offset the cost an energy reduction plan and up to 50% of total project costs (subject to a maximum of $1 million per gas and electric account per building) provided that the implementation of the approved energy-efficient measures will achieve an energy savings of at least 15%.  

In the realm of renewable energy, the BPU offers New Jersey utility customers, who pay the societal benefits charge, access to the renewable energy certificate market and rebates for the installation of renewable energy systems, such as wind and sustainable biomass facilities at existing buildings and in connection with new construction located in Smart Growth areas (i.e. Planning Areas 1 and 2 and designated centers).

Planning is Key to Ensuring Profitability with Tenants
It is important to have a solid “green” plan in place, before seeking tenants to fill spaces in a renovated or newly constructed facility.  For example, a landlord may need to prepare and implement interior fit-out guidelines for incoming tenants to achieve and sustain energy efficiency goals and preserve building integrity.  Guidelines, such as these, might specify that construction in tenant spaces shall conform to the LEED protocols, contain product and material specifications, or require that tenants employ a construction manager who is a LEED accredited professional.

We note that under Section 3 of Assembly bill A2528, as proposed, only costs that would otherwise be eligible for incentives under programs funded by the societal benefits charge qualify for the credit.  Moreover, the credit against the societal benefits charge provided in this bill cannot exceed 100% of the amount that would otherwise be payable by the corporation during the calendar year when the credit may first be applied.  Fortunately, the proposed legislation also provides that should a corporation not be permitted to use the entire amount of the credit all at once, the excess may be carried over each year after the year in which the credit is first applied for a maximum of ten calendar years.
 

On December 13, 2010, the New Jersey State Assembly passed Assembly bill A2528 by a vote of 66-7-1 and, on the same date, the Senate received and referred the matter to the Senate Environment and Energy Committee.  It will be interesting to see how far this legislative proposal gets in the Senate.  If ultimately enacted and approved by Governor Christie, businesses will have an easier time of obtaining government subsidies earmarked for energy efficient improvements and infrastructure for renewable energy facilities.

In evaluating this issue, the court looked to past practices and found that “[n]otwithstanding the limitations the EDECA places upon the use of the money collected under the societal benefits charge, the Legislature has repeatedly included provisions in Appropriations Acts authorizing distributions from the Clean Energy Fund that are not provided by the EDECA, including transfers into the General Fund.”  Additionally, the court consulted case precedent and determined that the Appellate Division and the Supreme Court “[h]ave long recognized that the Legislature has the authority to change or suspend the operation of its prior enactments through an Appropriations Act.”  In light of these findings, the court upheld Section six of the 2010 Supplemental Appropriations Act as a legitimate exercise of legislative authority, which “[h]ad the same operative effect for the 2009-10 State fiscal year as an amendment to N.J.S.A. 48:3-60(a) to authorize appropriation of money collected thereunder for any purpose the Legislature might determine rather than solely the purposes originally set forth in this statute.”

The Appellate Division also rejected the plaintiff’s argument that the monies deposited into the Clean Energy Fund are private rather than public funds (since they are primarily generated by the imposition of the societal benefits charge upon public utility customers) and, therefore, may not be moved into the General Fund by the Legislature.  According to the court,

[i]f the characterization of the money in the Clean Energy Fund as ‘public’ were a prerequisite to upholding the Legislature’s authority to transfer a portion of it into the General Fund through an Appropriations Act, the pervasive role of the Legislature and the [Board of Public Utilities] in authorizing this charge and determining the uses of the money collected thereunder would warrant this characterization.

In any event, we do not view the characterization of the money collected under social benefits charge as ‘public’ or ‘private’ to be dispositive of the Legislature’s authority to authorize a transfer of some of that money into the General Fund.  However, this money may be characterized, the fact that the Legislature has authorized its collection and directed the purposes to which it may be allocated means that the Legislature retains the authority to change those permitted purposes.

By this case, the Appellate Division has reconfirmed that State government may transfer monies expressly reserved for clean energy programs (or for other specified purposes) to the General Fund and use them for any legitimate public function.  The court’s decision in Mid-Atlantic Solar Energy Industries Association v. Christie may be viewed on Westlaw at 2011 WL 744860 (N.J.Super. A.D.) and has been approved for publication.

For example, the Governor wants to eliminate the requirement that a resource extraction operation must be both “closed” and “operated pursuant to a resource extraction permit on or after December 31, 1985" in order to host a solar or photovoltaic energy facility or structure.  According to the Governor’s veto message these “technical changes” were recommended “by the Pinelands Commission and [the] primary sponsor of this legislation.”  As such, it is probably only a matter of time before the solar landfill bill becomes law.