“As we move into the start of the warm weather season, now is a great time to take a fresh look at ways to save money on heating and electricity.”

The stunning collapse of SREC prices in New Jersey has revealed the speculative nature of photovoltaic solar systems for commercial property owners. Less than a year ago, SRECs ‘ the tradable certificates that solar operators are issued for generating 1,000 kWh of electricity ‘ were selling for over $650 each. At that level, the owner of a 50 kW system could comfortably recover an investment in solar in approximately 5 years, and enjoy a return on investment that would exceed the returns available from more traditional real estate investments.

It seemed too good to be true and many rushed into the market to capture their share of the SREC goldmine. So many rushed in, in fact, that the supply of SRECs surged and the price has dropped to under $100 per SREC. A 50 kW system that was once earning its owner over $30,000 a year in SREC revenues now produces less than $5,000. For those counting on that revenue stream to service debt, this is an extremely unfortunate development that has turned what seemed like a savvy financial move into a real financial burden. Without new legislation requiring energy companies to purchase additional SRECs, the oversupply of SRECs in the market will continue to suppress SREC pricing into the foreseeable future.

Commercial property owners looking for alternative ways to cut energy costs and create a greener building should explore Combined Heat and Power (CHP) systems. CHP (also known as cogeneration) offers a far less speculative investment with the potential for impressive returns. Unlike solar, CHP’s financial benefits are not derived from an artificial market of RECs manipulated by state regulators. Rather, the value of the CHP system comes from its ability to efficiently produce both hot water and electricity from a single fuel source.

The cost savings can be dramatic. A single 75kW CHP system can reduce energy costs for a 125 unit apartment building by 30%. This means an investment of approximately $225,000 can save about $50,000 per year in energy costs. This is a return that rivals solar during its heyday, without the speculative nature of the SREC market. Plus, reliability increases with CHP because property owners are less dependent on the grid for electricity. Some CHP models can even serve as backup generators.

Property owners with less than 100 apartments may find that they don’t have the domestic hot water requirements to justify a CHP system. In those cases, there are other investments to evaluate that will substantially reduce energy costs. If you’re running on oil, a burner conversion from oil to gas (or oil to dual fuel) should absolutely be considered. With the dramatic divergence in oil and gas prices over the past few years, fuel costs can be slashed. Surging natural gas supplies and rising global demand for oil by developing countries are likely to sustain the wide price differential in oil and gas prices. With a payback of less than two years, the financial risks involved in converting an oil burner are minimal.

If you’re already running on natural gas, and CHP is not a good fit, you may want to consider improving the efficiency of your boiler. Generous incentives in New Jersey allow property owners to upgrade to high efficiency boilers and have the State fund up to 70% of the cost. Property owners with boilers under 500,000 Btuh should research the Direct Install program, while larger commercial property owners should take a look at the Pay for Performance program. Both incentive programs are explained at www.njcleanenergy.com.

As we move into the start of the warm weather season, now is a great time to take a fresh look at ways to save money on heating and electricity. With the profitability of solar projects taking a nosedive, property owners should come down from their rooftops, and take a look around their boiler rooms for investments they can truly bank on.

Stuart Fox is the CFO of American Boiler Company, located in Hillside, NJ.

If you would like to read the original article in the Mid Atlantic Real Estate Journal you can view it here: Mid Atlantic Real Estate Journal ‘ NJAA Conference & Expo