“The Spark”

(www.epa-mc.com 973) 285-3352 F (914) 381-6303 August 20, 2010

EPA MEMO-Cogen’s Energy Price Commentary & Technical Research

The State of the New Jersey Commercial Solar Market

Part 2

Continuing on our Solar theme from yesterday, we wanted to sketch out the four basic ways to implement and finance a
commercial Solar PV project in New Jersey. All renewable energy projects, and Solar PV in particular are eligible for both Federal
and State rebates. Rebates vary State to State, and that is the major reason why New Jersey has the second most Solar installations in
the country behind California. The current Federal rebate program for Solar PV is a 30% Investment Tax Credit (ITC) off the gross
cost of the project. As part of the ARRA Federal Stimulus plan of 2009 this 30% ITC can be opted to be taken as a cash grant for
projects who's construction starts in 2010. Cash grants are payable 60 days after the completion of the project. Solar PV also quali-
fies for accelerated depreciation under the MACRs program. The schedule for Solar PV is 5 years. New Jersey has been a pioneer in
the renewable field by offering some of the most compelling State incentives for Solar PV that exist in the United States. New Jer-
sey's leading role comes from it's Solar Renewable Energy Credit (SREC) program. This program rewards owners of Solar PV sys-
tems one SREC for every 1000 Kilowatt Hours (KWh) that their system generates, even if they consume the electricity. The rates
that New Jersey has set for these SRECs are the highest in the nation. When combined with the New Jersey Renewable Portfolio
Stand (RPS) New Jersey has created the most valuable SREC market in the United States. The RPS requires utility companies to
provide a certain percentage of the electric they resell from Solar sources. If the utility can not produce this Solar power themselves
(none are close) they can offset their requirement by purchasing and turning in SRECs from producers that have them. Hence, the
most lucrative and pure Cap and Trade Market in the United States. We believe this market is Cap and Trade because the utilities are
forced to comply, and they pass the costs along to you in the form of higher rates. (see part 1)

This simplest and most straight forward of all ownership forms is straight purchase. This is potentially the most financially
rewarding and most risky of all the ownership options. It potentially rewarding and risky because of the SREC market. After all the
math is done, payout on a Solar PV project comes down to SREC value. The rub in New Jersey, is that while the SRECs have the
highest value, there is no floor. Thus we have a pure market. The SREC levels also know as the Solar Alternative Compliance Pay-
ment (SACP) are on the books for the next 15 years, and can not be changed by the legislature for 5 years, (see the EPA MEMO-
Cogen website for full schedule www.epa-mc. com) but that says nothing to supply and demand. Most experts agree that for the next
5 years there will still be a supply demand imbalance in New Jersey. However, after 5 years know body knows. For an owner of a
Solar PV system the prices of SRECs are critical to a profitable venture.

The second and third options financing and leasing are fairly straightforward as well. Both involve less of a financial com-
mitment upfront, but both also involve substantial SREC risk. The fourth option, and the option that received about 95% of the atten-
tion at yesterday's conference is a structure called a Power Purchase Agreement. (PPA) A PPA involves a third party entity to own,
operate, maintain and have liability for a Solar PV system on a hosts roof or property. The host benefits from this arrangement by
leasing their property to the PPA provider and contracting with that provider to purchase all of the Solar energy produced by the sys-
tems at a substantial discount to what they would pay the local utility for the same electric. This arrangement allows the host to bene-
fit from cheap, green electric while having no capital expenditure and assuming none of the SREC risk. The PPA provider is a pro-
fessional who is comfortable taking on the SREC risk and can benefit from the Federal incentives. The host can also claim that they
are a Solar host and benefit from positive public relations.

The clear consensus from the conference was that PPA's are the preferred financing structure in the New Jersey commercial
market. As yesterday's conference was winding down there was a lot of excitement and also a lot of confusion in the room. We here
at "The Spark" have attempted to shed some light on this complex but yet attractive opportunity.

This Newsletter is authored by Michael E. Mollin. The information contained herein is believed to be reliable, however, Energy Portfolio Associates
("EPA") and Michael E. Mollin do not warrant it's completeness or accuracy. Quotes are estimates and are not guaranteed by either EPA or MEM. Neither
EPA or MEM is acting as your advisor and the decision to proceed with any transaction rest solely with you. Copyright 2010, M.E. Mollin & Company,
LLC