Tapping Free Sunlight Will Cost New Jersey Utility $774 Million

By Jim Efstathiou Jr.

Feb. 10 (Bloomberg) -- Public Service Enterprise Group Inc. plans to spend $774 million over five years to install solar panels on power poles and government buildings in New Jersey to meet the Garden State’s requirement for more renewable energy.

The owner of New Jersey’s largest utility will add 120 megawatts of non-polluting generating capacity, enough to power about 100,000 homes, Alfred Matos, vice president for renewable energy, said in an interview. The cost will be recovered by raising rates 10 to 35 cents a month on all customers’ bills.

Regulated utilities, from Newark-based Public Service to Spain’s Iberdrola SA, are taking the lead in developing clean energy as the global financial crisis crimps private investment. PSEG will be guaranteed a 10.3 percent return on equity provided the project wins approval from state utility regulators this year.

“If we as a country are serious about meeting a national or state renewable-portfolio standard, this is a model,” Public Service President Ralph LaRossa said in an interview.

LaRossa must help meet New Jersey’s requirement for 22.5 percent of the state’s electricity to come from renewable generation by 2021, with about one-fifth of that from solar.

That means 1,800 megawatts of new solar capacity is needed, Matos said, enough power for 1.45 million average homes when operating with full sunlight.

“The private sector is not going to fill the amount that we would need,” LaRossa said. The biggest utility in the state of 8.7 million people will borrow half of the project’s cost and finance the rest internally.

Solar Slowdown

The financial crisis has led to private projects being canceled as it swallowed up some of the largest alternative-energy investors such as Lehman Brothers Holdings Inc., now bankrupt, and American Insurance Group., which was taken over by the U.S. government.

“Solar has become a victim of the economic downturn,” Rhone Resch, president of the Washington-based Solar Energy Industries Association, a trade group, said in a January interview.

In Spain, Bilbao-based Iberdrola has about 13,500 megawatts of renewable-energy projects planned or in development that will recover costs with surcharges for clean energy that all customers must pay. The utility is the world’s largest owner of wind farms.

Public Service will be eligible for a 30 percent federal tax credit for its solar investment, which will triple New Jersey’s solar-generating capacity. The credit was offered to utilities for the first time in October’s bank rescue bill.

The effect would be to lower the company’s tax bill by an amount equal to 30 percent of the program’s costs.

Obama’s Goal

President Barack Obama has called for U.S. renewable generating capacity to double in three years and asked Congress for new tax credits for green-energy investments.

Government incentives are opening green-power opportunities for regulated utilities, LaRossa said. “What we’re trying to figure out as we move forward is what’s the utility’s role in this new world.”

One-third of Public Service’s added energy will come from solar panels attached to 200,000 utility poles statewide, Matos said. Another third will be installed on government buildings that will lease space to the utility.

Solar panels funded through the program, including $264 million worth of five-foot by three-foot (1 meter) units on utility poles, will provide power directly to the grid, Matos said. Some solar farms will also be financed by the utility.

The project will create renewable-energy credits for generating solar power, Matos said. The credits, worth about $670 each, are required by power generators to meet state clean-energy mandates.

More than 2 million credits will be created through the program, and profits from their sale will be returned to customers in lower rates, Matos said. The total investment will be recovered in electricity rates over 10 to 15 years.

The New Jersey Board of Public Utilities has 180 days to take action on Public Service’s request.

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net