New Jersey TRECs: What you need to know

New Jersey has always been one of the best states for solar: Higher-than-average electricity rates and strong solar incentives have helped thousands of New Jerseyans achieve quick payback periods on their solar investments. Above all, the state's renewable portfolio standard and associated solar renewable energy certificate (SREC) market have been instrumental in growing solar throughout the state.

However, in June 2018, the state decided to phase out SRECs in favor of a new yet-to-be-established successor solar program. To bridge the gap between SRECs and the next phase of solar incentives, the Garden State implemented an intermediate transition solar incentive, TRECs.

New Jersey has a renewable portfolio standard (RPS) that requires electric utility companies within the state to source 50% of their electricity from renewable technologies by 2030. Many states have an RPS, but New Jersey is among the few with a solar carve-out; this requires a set portion of this renewable electricity to come specifically from solar technologies. The Garden State set its solar carve-out to 5.1% of electricity sales by 2021.

To meet past RPS and solar carve-out targets, New Jersey implemented a solar renewable energy certificate (SREC) market. SRECs are performance-based incentives awarded to people generating solar electricity. Utilities buy SRECs from solar panel system owners to meet the state RPS requirements. If they don't meet the criteria, utilities must pay a compliance fee (which costs more than they would pay for an SREC).

In June 2018, the New Jersey legislature passed an ambitious clean energy bill: aside from increasing the state's RPS and solar carve-out to the targets stated above, the bill also set a plan to overhaul the state's SREC program. They agreed to phase out the SREC program by June 2021 and develop an entirely new framework to support solar development throughout the state.

However, the state reached its 5.1% solar carve-out role faster than anticipated, and the New Jersey Board of Public Utilities (NJ BPU) could not implement SREC's replacement program before meeting that target. To ease the transition between NJ's SREC market and its successor solar incentive, the state announced a temporary intermediate incentive: Transition Renewable Energy Certificates (TRECs). New Jersey officially closed its SREC program in June 2020.

In December 2019, the NJ BPU approved a transition incentive for solar projects that go live after the solar carve-out is reached, known as Transition Renewable Energy Certificates (TRECs), which it implemented in April 2020 when the state reached its 5.1% solar carve-out role.

At their core, TRECs are very similar to SRECs: both incentives are based on the production of your solar panel system, and you receive certificates based on megawatt-hours (MWh) of solar production. However, SRECs and TRECs vary in two important ways: fixed versus variable pricing and factorization.

Fixed vs. variable pricing

The primary difference between the two credits is their pricing structure: SREC prices are variable, and the value of the incentive depends on supply and demand in the market when you sell it. TRECs, on the other hand, will have set pricing for the duration of the program, making it easier to predict precisely how much incentive money you'll receive from the program.

Factorization

Another big difference between SRECs and TRECs is factorization. With SRECs, the value you receive for a single SREC is the same regardless of the type of solar panel system you install: An SREC generated by a residential rooftop system is worth the same as an SREC generated on a large carport installation, so long as they're sold at the same time. However, with TRECs, the value of your incentive varies depending on the type of installation.

The NJ BPU has assigned varying factors for individual solar projects; solar projects located in landfills have a higher TREC factor than residential solar installations.

Below are various project types and the factor assigned to each:

What do these factors mean in regard to TRECs? Projects with a factor of one receive the full TREC value, while those with less than one receive a specified fraction; for lower-factor projects, you need to generate more solar electricity to earn the full value TREC.

For every 1,000 kWh you generate with a residential rooftop solar panel system, you only generate 60% of a TREC's price value. In other words, to earn the same amount as one full-value TREC, you need to generate 1,667 kWh worth of solar electricity.

The value of a full TREC is fixed at $152 for 15 years. What do these prices mean for a standard residential solar panel system? On the EnergySage Marketplace, the average residential solar panel system size quoted in New Jersey was 12.1 kW in the second half of 2020. Given conservative production estimates, you can expect a system of that size to generate 13,310 kWh during its first year of production. If this is a traditional, net-metered rooftop system, it will generate about 13 TRECs a year:

13,310 kWh / 1,000 kWh = 13.3 = 13 TRECs

At a fixed rate of $152 per TREC for all 15 years, 13 TRECs at $152 each means an additional $1,976 in solar savings; however, since residential projects only receive a fraction of the incentive, you need to multiply that value by the residential project factor (0.6) to receive an estimated savings of $1,186:

$152 per TREC x 13 TRECs x 0.6 = $1,186

Importantly, these are rough estimates that don't consider your system's annual degradation. Additionally, solar energy production varies from system to system, and how much you can earn with TRECs will depend on your system size, the quality of your solar equipment, how much sunlight hits your solar panels, and more. The best way to get an accurate estimate for estimated TREC benefit is to compare multiple custom options to your property.

All projects installed after October 29th, 2018, and didn't begin receiving SREC payments before the program hit the 5.1% cap (in April 2020) were placed into the TRECs program.

It's never too soon to go solar. On EnergySage, you can compare multiple options from local New Jersey installers that consider the current incentives available. Sign up on the EnergySage Marketplace today to start receiving free solar quotes. Alternatively, if you want to start your process with an estimate of what solar would cost you, try our Solar Calculator.