How to use New Jersey’s Transition Incentive Program (TI) to pay for solar for no more than you now pay for electricity

On April 30, 2020 the New Jersey Board of Public Utilities (NJBPU) ended the SREC program after the milestone of 5.1% of retail electricity sales from solar was reached.  The Transition Incentive Program (TI) began on May 1, 2020 and will remain in place until an as-yet-to-be-determined successor program is put into place.  Under the TI program transition renewable energy certificates (TREC’s) will be earned at a fixed price for every 1000 kWh = 1 MHh.  The value of the TREC’s are calculated by multiplying the base compensation rate ($152/MWh) by the following factors:

Project Type	Factor
Subsection (t): landfill, brownfield, areas of historic fill	1.0
Grid supply (Subsection (r)) rooftop	1.0
Net metered non-residential rooftop and carport	1.0
Community solar	0.85
Grid supply (Subsection (r)) ground mount	0.6
Net metered residential ground mount	0.6
Net metered residential rooftop and carport	0.6
Net metered non-residential ground mount	0.6

For residential or commercial, ground-mounted projects, TREC’s are worth $152 x 0.6 = $91.20. Non-residential rooftop solar arrays receive the full TREC valve of $152.  Here’s how to use New Jersey’s TREC program and the federal 26% solar tax credit (22% in 2021) to purchase a solar array in 2020 for less than you now pay for electricity.  Let’s use the example of a 6.8 kW array for $20,000.  Two convenient options for financing this purchase are a 15-year home equity loan or a 15-year solar loan.  

A.  Paying with a 15-year home equity loan:

You borrow the $20K with a 15-year home equity loan at 4.25% with monthly payments of $150.46.  Let’s assume your electricity usage is similar to mine, and you paid $1124.21 (uncorrected for inflation, this was my 2017 annual cost) for electrical costs in the previous year (ave. monthly rate = $93.68).  Assume that the solar system would generate 8 TREC’s per year (8 x $91.20 = $729.60).  Dividing this into 12 payments of $60.80 that can be used to offset the monthly HEL payment of $150.46 gives a net payment of $150.46 - $60.80 = $89.66.  The monthly fee for remaining connected to the grid at my electric utility is $2.78.  Adding that to the net $89.66 that is being paid for the solar array yields an estimated final monthly cost of $92.44 for electricity, slightly less than the $93.68 being paid before.

In addition, if the solar system becomes operational by the end of 2020, the federal solar tax credit of 26% will result in a tax savings of $5200.  In 2021, this credit becomes 22%, so the amount of the refund would be $4400.  This money can be used to pay for the solar system or saved in case of any needed repairs.  I’m in the third year of solar ownership and so far, my solar panels have been completely maintenance-free.  The squirrel guard installed around them contributes considerably to my peace of mind.

In New Jersey, solar panels cannot be used to increase your property taxes.  I found the increase in my home insurance to be negligible ($23/year).  There are also the more intangible benefits of increasing the value of your home and knowing you are doing your part to remediate the effects of climate change by switching to renewable energy.  In addition, your electrical cost is fixed during the repayment period, while the electricity bills of non-solar users will gradually increase due to inflation.  After the solar system is paid off, the only cost is the small amount to remain connected to the grid (e.g. $2.78 x 12 = $33.36).  That’s a savings of at least a thousand a year and adds up over time.

B.  Paying with a 15-year solar loan:

If taking out a home equity loan is not an option for you, you can still finance a solar array with a solar loan, assuming you have a decent credit score.  Let’s assume you take out a 15-year solar loan with a 6.25% interest rate.  Your monthly payments will be $171.48. Subtracting an average monthly TREC amount of $60.80 from that, gives a net monthly repayment of $110.68. Adding $2.78 for the monthly connection fee gives a total electricity cost of $113.46.  That’s more than your previous electricity bill.  The large federal tax credit will give a refund amount that is more than enough to offset this increase in electricity costs.  In this case, you have to decide if you feel comfortable not having all of the refund $$ available as a cash reserve to draw on if you would have to make some type of repair to your solar array.  As a homeowner, you are taking on the responsibility of maintaining what is basically a tiny electrical facility.  Personally speaking, having that financial cushion was integral to my decision to undertake this major structural project to my home.

Another option is to see if you can find a loan with a low enough interest rate to make the financing reach the break-even point.