The Board of Public Utilities froze the amount of Class 1 RECs procured in energy year 2026 at 2025 levels starting June 1, 2025. The schedule for Class 1 compliance was scheduled from 35% to 38%.  The law calls for Class 1 compliance for New Jersey to increase to 50% by 2030.

 

Class 1 compliance is satisfied first by RECs from solar sited in NJ. This satisfies about 23%. The remaining 77% are RECs from landfill gas and wind of which 99.6% is procured from RECs from out-of-state. Out-of-state RECs are procured because New Jersey has poor wind resources on land to produce electricity.The majority of RECs are purchased from wind owners in Illinois, Indiana, Ohio and Pennsylvania. In recent years the out-of-state payments have been 300 to 400 million dollar as year. New Jersey ratepayers will pay approximatelly $800 million to $1 billion dollars ($35 to $40 Class 1 Rec Price) when the 50% requirement under law comes into effect in 2030.

 

Class 1 REC prices have dropped from $35 earlier this year to under $25 at the end of May. New Jersey's law requiring energy providers to produce Class 1 recs is much more stringent than other states in the PJM grid. This in turn has increased Class 1 prices for all other states in PJM especially ones with an RPS such as Maryland, DC Virginia and Pennsylvania. The surprise recommendation by the New Jersey BPU to freeze Class 1 compliance starting in June 2025 is the reason why Class 1 REC prices have dropped 28%.

 

 

The following is the part of the May 21, 2025 BPU report on page 17 that recommends freezing the class 1 compliance.

 

 

EY 2026 RPS Requirement 

 

Finally, Staff recommends a waiver of the provision of the Board’s rules increasing the RPS Class I REC requirement for EY 2026 from 35% to 38%. As set forth above, the Legislature has established as a goal for the State a 50% RPS by January 1, 2030, and the Board has codified in its rules a schedule of gradually increasing RPS percentages as steps on the path to that goal. However, recent developments have impacted both the supply and demand sides of New Jersey’s energy market. Although Staff’s conclusion that the Cost Cap will not be breached means that the Board is not statutorily required to adjust the RPS requirement or take other steps to prevent exceedance of the cap, Staff is concerned about the impacts on New Jersey ratepayers of recent increases in electricity prices and of the contribution of the RPS requirement and the cost of Class I RECs to those costs, and recommends the Board use all available levers to control these costs. The expansion of artificial intelligence and the data centers needed to support it has produced a sharp increase in the demand for energy across the country, including New Jersey. This jump in demand has come at a time when for several years the increase in energy supply, and in particular the increase in RE supply, has been severely constrained. Several factors contribute to this constraint, including in significant part the ongoing interconnection queue delays in PJM Interconnection, LLC (“PJM”).45 As a result of this delayed PJM interconnection process, there is currently a shortage of generation facilities creating energy eligible to serve as the basis for a Class I REC, which has sharply increased the cost of Class I RPS compliance. That cost is ultimately borne by ratepayers, who are also bearing increased costs based on the results of the latest PJM capacity market auction. Although PJM has been making some changes to address these issues following advocacy by the Board and other stakeholders, additional time is needed to see the results of the changes, and action to control costs for ratepayers is needed in the  immediate term. It is for this reason that Staff recommends a change to the RPS requirement. Specifically, Staff recommends that, in light of the sharp increase in the cost of Class I RECs and in the context of other energy cost increases, the Board waive its rule that increases the RPS requirement to 38% for EY 2026, allowing the RPS to remain at 35% for the coming energy year. The State would benefit from allowing Class I REC prices stabilize in the near term and take advantage of potentially lower prices closer to the 50% compliance date in 2030. In addition, Staff recommends that the Board direct Staff to conduct a public stakeholder proceeding to examine and, if necessary, recommend changes to the Board’s rules that establish the schedule of increases in the RPS for EY 2027 through 2031.

 

Solar owners in New Jersey who have already earned SRECs for 15 years generate class 1 RECs. They sell them on Flett Exchange to energy companies who need to procure them to satisfy the 30% Class 1 compliance. 

 

Most ratepayers in New Jersey procure their energy through the annual BGS auction. Each year energy companies compete to provide the lowest price of electricity in this auction. The renewable energy requirements have become a large part of this compliance. According to this BPU report New Jersey ratepayers will pay $1.67 billion dollars in environmental costs. The Class 1 freeze will have very little impact on the price that ratepayers pay for electricity in the next 3 years since these prices were already locked in on previous BGS auctions. The real beneficiaries are the energy companies who are required to purchase these Class 1 RECs. If the 28% drop in Class 1 RECs from the result of this freeze is maintained the energy companies will profit hundreds of millions of dollars. 28% of the 2026 cost as provided in the BPU report would equate to $195 million energy company added profits. 

 

It is expected that future cuts to the Class 1 will happen because it was stated in the BPU report:

 

New Jersey Class 1 REC prices are expected to continue to drop since buyers will wait for clarity on future requirements.