In the U.S., domestic developments have made New Jersey the third leading state in solar energy. This reflects a changing energy landscape in which sustainability has become a global policy consideration. The long-term trend is towards the adoption of renewable energy as the answer to energy security and climate change.  But this has been a huge challenge in a landscape where fossil fuels constitute over 80 percent of worldwide energy demand. Countries have had to experiment with Renewable Portfolio Standards (RPSs) and Feed-In Tariffs (FITs) to achieve this, with mixed results. While Germany’s FIT scheme made it the leading country in the world for solar energy, Spain’s FIT scheme caused its solar markets to collapse due to defects in the system that placed a tremendous financial burden on taxpayers. Across the Atlantic, the U.S. has experimented with RPSs, resulting in a modest expansion of renewable energy. But inertia on the federal level has placed the burden of renewable energy development on the states, leading to geographically disparate development. The leading states for solar energy are California and Arizona, both of which are rich in solar resources. The fact that New Jersey is the third leading state would bewilder most when considering its modest solar resources.

States can learn from the Garden State’s experience to induce solar renaissances of their own. While states must be creative in their approach and consider their regulatory and geographical climates, there are three mechanisms that every state should implement. The first policy is an RPS. 29 states have RPSs in place while eight have adopted renewable energy goals. States wishing to promote solar energy should adopt a solar carve-out, as 16 states have enacted within their RPS.  These mechanisms are crucial, as market forces alone cannot stimulate the widespread expansion of renewable energy. Put simply, no RPS means no renewable energy demand. The next mechanism is one that works in conjunction with an RPS to compensate solar energy producers. FITs – which guarantee fixed payments to renewable energy producers – are the most employed mechanism in Europe and most of the world. RECS – which employ market forces to cost-effectively allocate the development of renewable energy– have been employed in the U.S.; states have had issues implementing FITs, as only the federal government has the power to regulate wholesale electricity prices. Badly designed FITs can also place a huge financial burden on ratepayers, which is only the case for RECS when prices fall extensively. But that is not to say that RECS are without their faults, with government having to continually adjust solar energy demand through the RPS to maintain the value of the payment formula. Government must be creative and prudent in the implementation of these policies, as Spain and Pennsylvania proved that both FITs and RECS have their defects when they are badly designed. The final mechanism is constructive Net Energy Metering (NEM) policies. NEM best practices include guaranteeing solar energy users access to the grid as well as fair compensation for their Net Excess Generation (NEG). These three policy mechanisms are the groundwork of any state renewable energy policy.

While this formula for success is the foundation of New Jersey’s solar energy policy, it does not answer the question of how the state managed to become third in the country in solar energy. What makes New Jersey exceptional when there are other states with similar policies? One factor is the state’s particularly aggressive RPS and solar carve-out, compared to the eight states with voluntary RPS goals.  Another factor is the distribution of renewable energy resources in the state. New Jersey does not have major onshore wind resources, and offshore wind projects are expensive. Thus, solar energy remains the priority for the state’s efforts. Another factor is New Jersey’s willingness to mobilize all stakeholders and assets to solar energy development. Under New Jersey’s Energy Master Plan, utilities are encouraged to develop solar energy capacity on underutilized land – landfills and brownfields – instead of agricultural land. Without this, solar projects such as the Gloucester Marine Terminal – a Superfund site – and the FedEx hub – a brownfield – could not have been developed due to the legal and technical issues in converting these sites. In talking to PSE&G, we learned that aside from being practical, the policy is a symbolic redress of the state’s industrial past, with New Jersey having the most Superfund sites in the country. PSE&G also demonstrates New Jersey’s ingenuity in the way that it leverages its public utilities. This contrasts heavily with states such as California and Arizona, which have focused on encouraging residential-level solar energy development. This has caused rancor with utilities, which assert that this threatens their business model. New Jersey, meanwhile, recognized that leveraging PSE&G, with its strong balance sheet, would stimulate solar energy at a lower cost, benefitting both the state and the utility. The final factor that allowed New Jersey to succeed success in solar energy development is the political will of the government.

Renewable energy has not been politicized in the Garden State, a far cry from states still contemplating whether or not they should implement a policy as basic as an RPS. New Jersey was also the state that crafted the SREC Marketplace, which other states have used as a model for their own frameworks. The government also reformed the system when necessary, in particular when prices collapsed, demonstrating that bipartisan action can prevail. The path to sustainability is still a work in progress for New Jersey, and it will have to continue assessing its developmental incentives and refining them accordingly. However, New Jersey proves that bipartisanship and policy initiative are possible even with political gridlock in Washington.

As the state continues to succeed in this sector, it may likely be a model for the rest of the U.S. to follow.  In fact, we note that this past month on the biggest Sunday of the year for the US, the Super Bowl was fueled by both the solar panels on the MetLife Stadium, and biofuels from the Renewable Energy Group.  There was no power outage similar to the one sustained in 2013.  New Jersey has given us a glimpse of the future of energy in the U.S.

Richard Bookbinder is the Managing Member of TerraVerde Capital Management LLC, a New York-based investment management firm. He manages TerraVerde Capital Partners LP, a hedge fund of funds, launched in July 2009. The investment strategy capitalizes on global trends in population growth, resource volatility, and climate change to achieve absolute returns through a diversified fund investing in sustainable infrastructure including power, water, water resources, agriculture, transportation, telecom, and waste management.