Archive for July, 2010

Solar Capacity in the SREC States in 2010

Posted July 28th, 2010 by SRECTrade.

SRECTrade’s State of the SREC Markets in 2010
The New Jersey, Pennsylvania and Delaware Energy Years came to a close on May 31, 2010.  The following is a report of the solar capacity in megawatts (MW) certified and registered to create SRECs in all states at that time.

Solar generators by state located: This table is based solely on the location of the facility and does not include multiple state listings. All facilities must have been registered by May 31st, 2010.
Volume by state

As you can see New Jersey has by far the largest amount of solar installed and eligible for SRECs with 146 MW. Pennsylvania is a distant second at 17 MW.  Meanwhile, Ohio and Illinois are third and fourth respectively, however of the 16 MW in Ohio, 12 come from one facility and of the 10.1 MW in Illinois, 10 come from one facility. Delaware and Maryland both have sizable markets at around 6 MW each. Volumes in other state are much smaller since there is no local SREC market.

Solar generators by size: Projects certified for SREC markets range in size from as small as 0.5 kW to as large as 12 MW, however, only 20 out of the 7,700 projects are over 1 MW.  Of those 20 projects all are well below 5 MW, with the exception of a 10 MW facility in Illinois and 12 MW facility in Ohio. The lack of multi-MW facilities in the SREC markets is a function of both the complexity involved and constraints on demand. The only state SREC market today with any legitimate appetite for multi-MW facilities is New Jersey.

Solar generators by state eligibility: Because some states accept out-of-state SRECs, the in-state supply listed above differs from the total supply available to buyers in that state.  For instance, Ohio’s market also includes facilities located in PA, WV, KY, IN, and MI.  The table below lists the total solar capacity in megawatts eligible for each SREC market, along with the percent of the market that is sourced in-state.  Note: many facilities will be counted multiple times in this table since they are eligible in several states. For example, the 10 MW facility in Illinois is eligible in both DC and PA.

Thurs Table 2 final cropped

In Ohio 89.6% of the market is in-state SRECs. Some of our customers have asked why in-state Ohio SRECs do not sell at a premium because of the 50% in-state requirement. The reason is that, as you can see, buyers are not having difficulty meeting the 50% requirement with the large supply of in-state SRECs. In the future as the requirements increase, in-state SRECs could be harder to come by and may indeed sell for more than out-of-state SRECs.

Interpreting the data: One important thing to notice is that the 2010 Capacity Requirement column details the capacity required to be sustained throughout the entire energy year. The Volume column shows the capacity registered through May 2010. For example, New Jersey needed approximately 160 MW of capacity running on average from June 2009 through May 2010 in order to meet the 2010 SREC requirement. The state is actually farther away from the 160 MW capacity mark than the 145.69 MW volume would suggest.  Capacity in New Jersey grew approximately 65 MW over the course of the year and so there were probably only enough SRECs created to meet approximately 110-115 MW of the 160 MW requirement. That requirement increases in the 2011 Energy Year to approximately 260 MW. For more information on the growth of the New Jersey market and any other state market, please visit our page devoted to State SREC Markets.

Assumptions used in calculations: Solar capacity required is based on 2007 Department of Energy electricity sales figures, assuming a 1.5% growth rate. The resulting solar megawatt-hours required (i.e. SRECs) are converted to megawatt capacity requirement at a rate of 1200 MWhs per MW.

Massachusetts Solar Credit Clearinghouse Auction Explained

Posted July 26th, 2010 by SRECTrade.

MA Energy Year: January 1st – December 31st.

SREC Life: Two years for compliance buyers who may bank up to 10% of their requirement but sellers must sell SRECs in the year they are generated or deposit them in the DOER Auction. So an SREC produced in 2010 can be counted towards the 2010 or 2011 Solar Carve-Out.

When is the last SRECTrade Auction of each Energy Year?

The final SRECTrade auctions will occur in May and June of the following year, immediately before the DOER Solar Credit Clearinghouse last chance auction which closes on June 15th of each year. SRECs are generated quarterly in Massachusetts on a 4-month delay.  SRECs for Q1 (January-March) are available on July 15th and can be sold in auction at the beginning of August. Q2 SRECs are available on October 15th and can be sold in the November auction, Q3 SRECs are available on January 15th and sold in the February auction and Q4 SRECs are available on April 15th and can be sold in the May auction. Any SRECs remaining after the final SRECTrade auction can be entered into the DOER auction.

What happens if at the end of the year I still haven’t sold my SREC(s)?

If you are an SRECTrade client and you have any SRECs that were not sold then SRECTrade will automatically transfer your SRECs to the  DOER Solar Credit Clearinghouse auction.  You do not need to tell SRECTrade to transfer your SRECs if SRECTrade manages your SREC account. SRECs entered into the auction are “Re-Minted” meaning the eligibility of the SREC is adjusted. For example, a 2010 SREC is originally eligible for compliance in 2010 and 2011. If it enters into the DOER auction, the SREC is Re-Minted to be eligible for compliance in 2011 and 2012. It is no longer eligible for compliance in 2010. Buyers may then bid to purchase the SREC to get a start on meeting their requirements for 2011. The DOER auction will be open May 16th to June 15th each year.  SRECs will be sold at a gross fixed price of $300 less a 5% fee resulting in a net price of $285 to any sellers.

Am I guaranteed to sell my SRECs in the DOER Solar Credit Clearinghouse auction?

No, you are not guaranteed to sell your SRECs in the DOER auction. However, it is unlikely that the SRECs don’t sell. If there is an oversupply of SRECs in the DOER auction, the SRECs will all be granted a third year of eligibility and a second auction will be held. So, in our example, the 2010 SREC will now be eligible in 2011, 2012 and 2013. If there still aren’t enough bids to clear all of the SRECs, DOER will increase the requirements to the buyers by the number of SRECs that are available. The buyers bidding in the auction will now be required to purchase more SRECs in 2011. If after this third attempt, there still aren’t enough bids, the SRECs are returned to the owner as Re-Minted SRECs. These SRECs will be more valuable in the open market than any new SRECs that are created. Going back to our example, the original SREC was a 2010 SREC, eligible in 2010 and 2011 before the auction. Once it was entered in the DOER auction, it became eligible in 2011 and 2012. After an unsuccessful DOER auction it was released back to the owner as an SREC eligible in 2011, 2012 and 2013. This SREC now has a 3-year useful life, making it more valuable to a buyer than the new SRECs created in 2011 which only have a 2-year useful life.

If I’m unsuccessful in the DOER auction, how can I be assured that my SREC will still sell above $300?

Following the DOER last chance auction, SRECTrade will resume its monthly competitive auctions. If there was a surplus of SRECs in the DOER auction, they can be immediately listed in the SRECTrade auction the following month and made available to buyers who are now looking to meet their requirements – which have now been increased by the DOER. At this point, buyers will likely resume buying SRECs in the competitive market in order to ensure that they are able to meet their new requirement and avoid the $600 SACP. SREC prices should stay above $300 in the SRECTrade auctions since the DOER auction at the end of the year will guarantee that price.

Why would a buyer of SRECs ever pay more than $300 when they could just wait to buy their SRECs in the Solar Credit Clearinghouse?

Buyers cannot wait for the DOER auction to buy their SRECs for 2010. When an SREC enters the DOER auction, it is stripped of its 2010 eligibility and cannot be used to meet the requirement for the year in which it was generated. The 2010 SRECs placed in the DOER auction can therefore only be used to meet the 2011 or 2012 requirements. Meanwhile, buyers will want to purchase their 2010 SRECs in the competitive market prior to the DOER auction – otherwise they face the $600 fine.

Australia Creates Separate Target for Small-scale Renewables

Posted July 26th, 2010 by SRECTrade.

On June 28th, the Australian government decided to split the REC trading environment within the country into two parts: one REC market for large-scale technologies like wind (LRECs) and one market for small-scale technologies like solar (SRECs). The law will go into effect on January 1, 2011. Of the original Australian target—45,000 GWh by 2020—LRECs are to account for 41,000 GWh and SRECs 4,000 GWh. This separation is theoretically akin to the “carve out” for solar energy development seen in several US states, but has been created with the opposite intention: to aid large-scale renewable energy development that would otherwise be dampened by a tendency toward small-scale systems.

The original Australian Renewable Energy Target law was passed last year with a target of 20% renewable electricity generation by 2020, along with a system for requiring utilities to buy all Renewable Energy Certificates (RECs – equivalent to 1 megawatt-hour, like in the US) created within the country.

The government also created a “Solar Credits Multiplier” which effectively multiplied by 5 the number of RECs produced by solar installations less than 1.5kW. This program, however, quickly flooded the market with RECs from small household solar thermal heaters and pumps. These government-discounted systems ultimately lead to a steep decline in REC prices. At values as low as $29 per REC (~$25 USD) large-scale renewable technology developers could no longer take on the financial risk of new projects. The Australian government, aware that larger wind and solar projects have greater potential to provide baseload power, decided to reinvigorate incentives for investment in large-scale renewable energy technologies.

Under the amended law, small-scale SRECs can be sold at a fixed price of $40 per MWh in a clearinghouse set up by the government. These SRECs will be sold quarterly in the order that they are produced. If supply of SRECs is greater than demand, then the government can lower this fixed price or reduce the Multiplier. Yet, if demand outpaces supply, then the government can sell “advance” SRECs to keep the price stable at $40.

The government does allow for SRECs to be traded outside of this clearinghouse, but this will most likely only attract sellers who do not want to wait if their SRECs are too far down the “first-come, first-served” list. Their SRECs will not be purchased for more than the fixed price clearinghouse, as utilities will be able to buy “advanced” SRECs at $40 if necessary. Without a true market for these SRECs, an efficient market price in Australia will be impossible to establish.

In the other market, LRECs will be sold and purchased annually, but it is important to note that those RECs that are produced from small-scale systems before January 1, 2011 will still be eligible. Critics have pointed out that the oversupply of RECs from 2010 will keep prices in both markets low until around 2014 when utilities will need to replenish their supply.

This decision was an important step for the Australian government in creating a more balanced mix of renewable energy technologies within the country. Nonetheless, one of the most pervasive elements of the initial law was the Solar Credits Multiplier. This policy instrument, coinciding with high rebates for solar thermal systems that were also eligible to create RECs, created too much overcapacity in the market. This multiplier provided the overwhelming incentive to install small solar installations. With a REC market flooded by credits that did not accurately represent the electricity produced from small systems, REC prices faced continued downward pressure. With both large- and small- scale renewable developers looking to this same pool of RECs as a means of financing their projects, most large projects (solar and wind alike) were pushed aside.

Multipliers have also been utilized within the United States as well, yet nearly always create an imbalanced mix of renewable technologies within the state’s portfolio. For Australia, it was small-scale solar that overtook the market. The government was forced to amend the law to create a “carve out” for larger-scale projects such as wind. This “carve out” mechanism has worked in the United States to provide the necessary developmental period for high-value, nascent technologies to become competitive in an otherwise hostile market. Yet, Australia may soon find that it’s support will simply create a new dominant technology. The Australian government has opted to favor large-scale projects in proposing that they should inhabit 90% of the total renewable target. These projects, given the current economic superiority of large-wind in a separated LREC market, will most likely be filled entirely with wind power.

California Sues Fannie Mae and Freddie Mac

Posted July 22nd, 2010 by SRECTrade.

Last week, the state of California filed a lawsuit against mortgage giants Fannie Mae and Freddie Mac. California’s Attorney General, Jerry Brown, hopes the legal action will realign the momentum of the Property Assessed Clean Energy (PACE) financing program. Earlier this month the Federal Housing Finance Agency (FHFA) instructed the mortgage lenders to avoid homes or tighten lending standards in geographies with PACE financing in place.

The lawsuit filed claims that the FHFA violates California law, which approved the PACE programs, and “severely hampers California’s efforts to assist thousands of California homeowners to reduce their energy and water use, help drive the state’s green economy, and create significant numbers of skilled, stable and well-paying jobs.”

Additionally, the lawsuit states, “the actions of these government-sponsored, shareholder-owned private corporations have placed California’s PACE programs – and the hundreds of millions of dollars in federal stimulus money supporting them – at immediate risk while benefiting their own pecuniary interests.”

The FHFA’s response focused on the additional credit risks PACE programs could impose in the event of a mortgage default. The PACE financing structure puts the clean energy loans in a position ahead of the home mortgage. If a property were to go through a foreclosure process, the PACE loan would be paid off prior to the home mortgage.

In addition to the California lawsuit, representatives from the California Public Utilities Commission and the U.S. House of Representatives took action against the FHFA’s decision. Click here to see the full blog post from the New York Times.

Importing and Exporting SRECs across Registries

Posted July 21st, 2010 by SRECTrade.

With the launch of the North Carolina Renewable Energy Tracking System (NC-RETS), North Carolina is paving the way for what could be the future for SREC markets. For the first time, an SREC created in one region’s registry will be transferable to a buyer in another region’s registry. This cooperation amongst registries could be the first step towards a permeable nationwide SREC market.

North Carolina is currently working with other renewable energy certificate tracking systems to approve a process for importing and exporting SRECs. The approval of exporting SRECs from other tracking systems and importing them into NC-RETS would allow solar system owners located in states without viable SREC markets to sell into the North Carolina SREC market. This is all possible because almost all of the registries were built with similar technology developed by APX.  More information on all of the registries can be found here: APX Primer on REC Registries.

NC-RETS is working with the parties responsible for maintaining the other regional registries to develop the importing and exporting process.  Here is a list of those registries and an update on the status of importing and exporting:

NARR: The North American Renewables Registry (NARR) was developed by APX to serve the needs of states and regions that have not implemented a REC tracking system.  This covers most of the Southeastern U.S., Alaska and Hawaii.  NARR has already established importing/exporting procedures with NC-RETS.

MRETS: The Midwest Renewable Energy Tracking System (M-RETS), the registry that tracks the generation of SRECs in 8 Midwest U.S. states and the Canadian province of Manitoba, has approved the exportation of SRECs and is implementing the necessary software upgrades.

GATS: Generation Attribute Tracking System covers the Mid-Atlantic states and currently tracks the majority of SREC volume due to member states like New Jersey, Pennsylvania and Maryland.  GATS is expected to allow importing/exporting soon.

WREGIS: The Western Renewable Energy Generation Information System (WREGIS), the registry that tracks the generation of SRECs in 14 Western U.S. states, Baja California, and the Canadian provinces of Alberta and British Columbia, is capable of managing exports and is in the process of making a policy decision to allow the system to export SRECs.

ERCOT: Texas, the sixth state to adopt an RPS in 1999, was the first to implement a procedure for meeting the RPS.  The Electric Reliability Council of Texas (ERCOT) was the first registry of its kind.  Unfortunately, it does not currently have the capability to export SRECs and it may require legislative approval to make the necessary changes to the system’s software. However, NC-RETS and APX are working with ERCOT to come up with a solution.

Florida Solar Industry Turns Attention To SRECs

Posted July 21st, 2010 by SRECTrade.

We often are asked about Florida SRECs and have decided to keep a static update of the opportunities for Florida solar owners on our Florida SREC page.  In addition, we will continue to update this blog as we learn more about the potential for selling SRECs in Florida.  Here is what we know now:

No renewable portfolio standard currently exists in Florida, but there have been significant efforts to bring one into existence.  In 2009, The Florida Public Services Commission sent a draft RPS plan to be considered by the Florida legislature.  The RPS has been considered but never ratified in the two legislative sessions since the draft was submitted.  New bills pertaining to renewables are expected to be submitted in the 2011 legislative session, or possibly sooner in a special session being called in September to address the economic and environmental impacts of the BP oil spill.  Whether new submissions will include a Renewable Portfolio Standard draft is unknown.

However, Florida solar facilities are eligible to register with the state of North Carolina and can sell generated SRECs into the new North Carolina market.  This would also require that the facility register and generate SRECs through either the NC-RETS or NARR tracking systems.  North Carolina energy suppliers are allowed to meet 25% of their compliance requirements with SRECs from out-of-state generators.  The prices on out-of-state SRECs are expected to be low as supply will flood the market pretty quickly, but this remains a possibility for Florida solar facilities and more importantly, perhaps, a sign of things to come in the southeastern states.

Although North Carolina offers some limited potential for solar owners in Florida, it is not a viable long-term solution for the industry.  The Sunshine State needs to implement its own solar RPS and establish an in-state SREC market before it can really live up to its nickname!  Perhaps the New York Solar Jobs Act could serve to be a blueprint for driving legislative change in the solar industry in Florida.

First Massachusetts SRECs created!

Posted July 21st, 2010 by SRECTrade.

The first set of SRECs eligible for the Massachusetts solar carve-out were created in the SRECTrade aggregation on July 15, 2010. These SRECs represent Q1 2010 generation and over 50% of the total share of SRECs created in NEPOOL GIS for Q1 2010 can be attributed to customers of SRECTrade.  With partners like SunBug Solar, Alteris Renewables, Sunlight Solar, My Generation Energy and more, the SRECTrade marketplace is quickly becoming the platform of  choice for installers searching for an efficient, transparent and cost-effective way to serve the SREC needs of their clients.

One key benefit of SRECTrade’s aggregation is that the customer owns and controls their SRECs until sold to a buyer in the auctions or the forwards market.  Each SREC created in the SRECTrade aggregation is attributed to a single facility. Other aggregations may require a contract that does not allow for flexibility because the generation from multiple facilities is lumped together to create a single SREC.  You don’t have your own SRECs, but your electricity gets counted toward a portion of the aggregate’s SRECs.  With SRECTrade’s aggregation, you own your SRECs until you tell us what to do with them. Our goal is to provide the most effective platform in Massachusetts along with the best customer service in the business.

Now that Q1 2010 SRECs are created, SRECTrade will close the first MA SREC auction on August 6, 2010. Auctions will be available monthly, but since SRECs are generated quarterly, the first auction after quarter-end will always have the most volume.  Q2 2010 SRECs will be available on October 15, 2010 and available starting with the November auction.

Diamond Castle’s equity-only approach to Solar

Posted July 20th, 2010 by SRECTrade.

A recent Wall Street Journal blog post highlighted a new approach to solar financing.  Diamond Castle Holdings LLC has committed up to $225 million of equity to KDC Solar LLC to develop solar projects in New Jersey. The company will finance the project completely with equity, which will give them increased freedom with their SRECs over the more traditional method of financing solar projects by taking out debt.

The genius behind this strategy from an SREC perspective is simple: most solar projects today are financed with debt. The off-taker of that debt requires an SREC contract with a suitable counter-party. Bilateral long-term contracts have been hard to come by and have traded at a significant discount to ACP levels. This is one reason we’ve seen such growth in our long-term SREC contract markets and Diamond Castle is solving the problem yet another way. Rather than giving up this value, it seems the private equity firm is forgoing the leverage and financing the projects with equity suggesting they believe the discount in a long-term SREC contracts wipes out the benefit of taking on leverage.

This groundbreaking strategy could prove influential in SREC markets moving forward, illustrating an alternative model for the financing of solar projects. It highlights the issues that many developers face in financing projects in the SREC market world. More importantly, it demonstrates that despite the challenges created by a market-based structure for subsidizing solar, private industry will always find a solution. This is at the core of why the U.S. favors SREC markets over the state-controlled Feed-In-Tariffs that are popular abroad. A fixed subsidy for solar energy may be a whole lot easier to implement on day one, but in the long-run, a successful market-based mechanism is an optimum solution (not to mention, far more American).

When New Jersey passed the 2010 version of its SREC program, the most important takeaway wasn’t the increasing of the requirements, the creation of a safety net or the extension of the program through 2026: it was the overall statement coming from the legislature that this program is here to stay and it is only getting stronger. Now it is time for the industry to come up with its own solutions for playing within the parameters of the SREC market. The companies that solve those solutions creatively will be successful while the rest wait around for something to change. Hopefully the banks will find a way to participate, but until they do, firms like Diamond Castle will lead the way.

For more information on this story in the Wall Street Journal blog, see here.

North Carolina Systems Able to Sell SRECs into DC

Posted July 20th, 2010 by SRECTrade.

The DC Public Service Commission is accepting applications for facilities in ALL of North Carolina.  This word comes after some initial confusion regarding the eligibility of areas adjacent to territories directly served by PJM.  The DC market provides an alternative means for selling SRECs for small commercial and residential facilities in North Carolina.

Although prices in the DC market are close to $300 per SREC, the market is small.  In 2010, a total of approximately 3 megawatts must be installed in order to meet the requirement.  That number grows to 15 megawatts in 5 years (dwarfed in comparison by North Carolina which grows from 23 MW to 85 MW in 5 years).  Considering that facilities in the entire PJM region are eligible for the DC market, it is quite possible that this market becomes oversubscribed in the future. We foresee the DC market as a viable option for smaller facilities (under 250 kW) for now, but in the long-run, it will be difficult for the solar industry in North Carolina to rely on DC legislation. The long-term solution for the North Carolina solar market hinges on the state making some changes to the current legislation that encourage the development of a real in-state SREC market.

In the meantime, SRECTrade is accepting applications from solar facilities in North Carolina.  We will register the facilities in both DC and NC.  SRECs will be sold in the market with the best pricing.  To get your NC system signed up, just fill out our EasyREC forms here.

More on North Carolina soon. You can always check our North Carolina page.

Delaware Legislation Would Expand Solar Requirement

Posted July 15th, 2010 by SRECTrade.

New legislation which would modify Delaware’s Renewable Portfolio Standard (RPS)  has passed in both of Delaware’s legislative bodies and is awaiting the Governor’s signature. This bill, titled SS1 for SB119, will change the RPS by increasing and extending the required minimum percentage of renewable energy supply and contribute to the growth and longevity of the SREC market in Delaware.  The RPS currently requires that 20% of energy come from renewable sources. The new legislation will expand this requirement to 25% by 2025 and will also increase the proportion of renewable energy which must come from solar generation each year. For example, for the 2011 compliance year the solar requirement will change from .048% of the renewable energy mandate to .2%.

Key Changes:
1. The number of SRECs required will dramatically increase
2. The SACP which sets a ceiling price for SRECs will be raised to levels competitive with other states
3. The municipal utilities that have been exempt thus far will now be required to comply

The alternative compliance payment (ACP) an energy supplier must pay if failing to meet the solar requirement will also increase following this bill being signed into law. The solar ACP will strengthen from $250 to $400 per missed SREC, with this payment increasing to $450 if an ACP were paid in the previous year and to $500 if non-compliance continued for a third year. This will effectively raise the ceiling on SREC prices in Delaware to $400+.

The legislation also adds a premium to SRECs produced by systems created by in-state resources.  An additional 10% credit toward meeting RPS requirements is granted for any SREC obtained from a facility constructed or installed with at least a 75% in-state workforce.  The same credit is granted for systems with at least 50% of their components manufactured in Delaware.  These provisions together will likely lead to a premium on SRECs from in-state solar systems.

Though well-intentioned, it is unclear how the state will track this premium given that it essentially will result in two markets for SRECs… one for normal SRECs and one for the special “Made by Delaware Labor” SRECs.  Other states have tried to implement various types of multipliers with limited success and more likely resulting in more trouble than their worth.  However, it could be particularly useful in giving an advantage to local Delaware companies on the larger projects that face tough competition from well-capitalized out-of-state developers.

Nonetheless, the intent is clear: Delaware wants to develop a strong solar industry in-state.  This is a positive sign for the solar market there and in some ways a contrast to other states.  SREC markets have a variety of benefits to a state.  Besides a move to renewable energy, a properly setup program will also encourage the development of a commercial and residential solar industry.  In some cases,  like New Hampshire and North Carolina, the state will benefit from the former, but it doesn’t necessarily mean a boost to the latter.

Overall this is a huge win for the Delaware solar industry.  Today, most of our customer base from Delaware sells their SRECs in the PA or DC markets.  It will be great for them to know that their future SRECs will likely be sold in their home state!  Delaware now joins Maryland and New Jersey who have also passed recent legislation directed at strengthening their respective SREC markets.

The full text of SS1 for SB119 can be found here.

Details can be found here: Delaware SREC Program

Delaware Solar Requirements

Chart numbers are based on 2007 electricity sales into Delaware assuming a 1.5% annual growth rate