Archive for November, 2010

PA Solar Bills HB 2405 and HB 1128 Are Done

Posted November 22nd, 2010 by SRECTrade.

Pennsylvania House Bill 2405 and House Bill 1128 are no longer on the table in Pennsylvania. The Bills were intended to strengthen the PA SREC market but both included critical flaws such as the exclusion of previously qualified facilities in HB 2405 and incredibly low ACPs in HB 1128.  At this point it is unlikely that there will be any changes to the PA SREC market any time in the near future.

HB 2405 was sponsored by Democratic Representative DePasquale who confirmed that the recent election squashed any chances that the Bill would be up for a vote any time soon. The Bill had proposed to strengthen the Pennsylvania Renewable Portfolio Standard solar carve-out to require 3% of the state’s electricity supply to come from solar generation facilities by the 2025 reporting year. This would have increased the current requirement by 6 times the 2025 reporting year target. In addition to the increase in capacity, HB2405 also intended to set the solar alternative compliance payment at a level of $450/MWh in the 2012 reporting year and slowly decline the SACP each year over the life of the program.

HB 1128 was created as a watered down version of 2405. It was viewed as a Bill that had fewer contentious points and was initially focused on simply increasing the solar requirements in the state moving forward. The Bill garnered the support of the solar lobby until it was amended by the Department of Environmental Protection (DEP) to include a drastic decrease in the ACPs paid out by non-compliant energy company. This decrease would have devastated the SREC market in Pennsylvania.  As a result of the DEP’s changes, HB 1128 was dead on arrival.

What’s Next?

The open SREC market in Pennsylvania is vulnerable to a collapse in pricing. Unlike in states like New Jersey (approximately 255 MW required) where requirements are high enough to outpace significant growth, the PA SREC market (approximately 27 MW required) is still small enough to be vulnerable to oversupply, especially given the influx of solar from the entire PJM region.  There is a growing disconnect between the supply in the market relative to demand that could create challenges for the solar industry. Facilities are being built based on current SREC pricing that may not be available at the current pace of installation in the state and surrounding regions.

The PA legislature needs to take into consideration bringing another Bill forward to continue to support the solar industry and SREC market in the state. The key issues would need to focus on increasing the solar capacity requirement, setting a competitive alternative compliance payment, similar to other SREC states, restricting the size of SREC eligible facilities in the early years and allowing for electricity suppliers to meet their compliance requirements through the most efficient means possible. In addition, real-time, transparent information regarding the rate of installation and SREC pricing paid by utilities needs to be addressed along with steps taken to prevent a market collapse.

If there is any good news coming from the demise of these two Bills, it is that buyers that have adopted a “wait and see” approach can now move forward with business as usual.  There is no reason to think that out-of-state SRECs in Pennsylvania will be excluded any time soon, nor is there any reason for buyers to hope for a lower ACP payment. If anything, the demise of HB 1128 is an indication that attempts to set below market ACPs will not be successful.

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Announced 50MW Ohio solar farm threatens SREC market

Posted November 16th, 2010 by SRECTrade.

In October AEP Ohio announced a 50 MW solar project to be built in southeastern Ohio.  The facility will be developed by Turning Point Solar and the electricity and SRECs will be purchased by AEP.  The announced project will be phased in over 3 years, starting with 20 MW by 2013, 15 MW by 2014 and the remaining 15 MW by 2015.  This is not the first time that AEP has elected to procure SRECs from utility-scale facilities. AEP met its 2010 and 2011 SREC requirement primarily from a 10 MW facility built in Upper Sandusky, OH.

Although the announced project may still see some hurdles before all contracts are finalized and construction commences, the prospect of 50 MW worth of SRECs flooding the market in the next few years will likely have an impact on the growth of the Ohio solar industry. Ohio currently allows buyers to source 50% of the SRECs from out-of-state. Since there is more supply in the out-of-state market, prices will likely be lower than the in-state market. In 2011, the existing 10 MW project will represent 23% of the total market in Ohio, meaning that roughly half of the SRECs required from in-state will come from the Upper Sandusky project next year. In 2012, the Upper Sandusky project will represent 11% of the overall market, roughly one-fourth of the in-state market. Then, in 2013, when the first 20 MW of the Turning Point project comes online, the 30 MW available to AEP will represent 23% of the total market, again, roughly half of the in-state market.  These percentages increase slightly to 25% and 26% in 2014 and 2015 when the additional 15 MW tranches are turned online.

Although the argument can be made for the jobs created by the project and the progress towards the ultimate goal of solar energy, projects of these size can impact SREC markets in a way that could halt the development of a sustainable in-state solar industry. Other states have dealt with this issue in various ways that could hopefully serve as an example for Ohio to follow.

In New Jersey, up until 2010, facilities over 2 MW were ineligible for the SREC program. When the requirements increased to 160 MW, while the state only had 80 MW installed, the legislature passed a bill opening the doors to larger projects. This made sense both because New Jersey was so far behind and because the exponential growth in the increasing requirements made it impossible to keep pace without projects above 2 MW. The legislature also limited the ability of investor-owned utilities from building large projects, requiring approval from the BPU based on the projected impact in SREC pricing.

In Delaware, a 10 MW Delmarva Power project threatened to collapse the SREC market when it was still in its infancy. The Delaware Sustainable Energy Utility (SEU) stepped in to purchase the SRECs and take them out of the market. The SEU is a quasi-governmental organization that used its funding to support the SREC market. In response to this, and the fact that most Delaware solar owners were selling in Pennsylvania, the Delaware legislature increased the fines and requirements in Delaware in 2010.

In Massachusetts, the state recently voted to increase the ceiling on solar project sizes eligible for the solar carve-out from 2 MW to 6 MW. This increase was needed to help the state kick-start the SREC market which was well-behind the target midway through 2010.  Though the market will do very well for reasons stated here, the 6 MW cap re-iterates Massachusetts commitment to developing a solar industry, not just a few giant solar farms.

If more states could follow the lead put forth by New Jersey, Massachusetts and Delaware, the SREC program would be far more effective in promoting solar in a way that best benefits society. While the utility lobby would prefer to maintain the status quo of centralized power generation since generation and distribution are their primary purposes, the solar industry is best suited to promote distributed, decentralized power generation. If every SREC market were overcome by the generation of a few behemoth solar farms, each state would be left with several solar projects and a few successful developers, instead of an industry. Meanwhile, the states that temper the growth of utility-scale solar and focus the SREC markets on residential and commercial solar will see electricians, general contractors, roofing companies and heating & air conditioning companies build sustainable businesses around solar. This will lead to jobs and job growth far more effectively than the influx in short-term construction jobs created by the occasional 50 MW solar project.

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Solar Thermal SRECs in DC – Update

Posted November 12th, 2010 by SRECTrade.

The Washington D.C. Public Services Commission has recently clarified the requirements associated with registering Solar Thermal facilities to be eligible for the D.C. SREC market.

Moving forward, all eligible systems must be certified by the Solar Rating and Certification Corporation (SRCC). Specifically, the system has to be SRCC OG-300 certified.

The Washington D.C. Public Services Commission has indicated that any changes to the eligibility requirements would have to be made by the legislature, not the public services commission.

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PA’s Latest Attempt to Increase Solar Requirements – HB 1128

Posted November 12th, 2010 by SRECTrade.

At the end of September, Pennsylvania lawmakers introduced HB 1128. The main focus of the bill is to amend the requirements under PA’s Alternative Energy Portfolio Standards (AEPS) by increasing the amount of renewable energy to come from Tier I alternative energy sources and Solar Photovoltaic technologies. In addition to increasing the requirements, HB 1128 attempts to amend the program by introducing a fixed alternative compliance payment (ACP) for the Solar PV portion of the AEPS. Currently, the ACP under the PA solar carve-out is derived based on 200% of the average SREC price paid by buyers during the reporting year. The ACP in RY2008 and RY2009 was $528.17 and $550.15 per MWh, respectively. The table below demonstrates the the key changes to the solar requirements, attempting to increase the total requirement 3 times the current level by the 2022 energy year.

HB1128 Table_Crop

Positive Impacts of HB 1128
The increase in PV capacity would help support the growing solar economy in Pennsylvania and provide more room under the current requirements for more solar to come to market. The current PA market has over 2,900 solar projects registered and eligible for the AEPS program. The total nameplate capacity of these projects is equal to 51.8 MW. Of these 2,900 projects only four projects are greater than 1 MW. In addition to being eligible for the PA SREC market, many of these facilities could also be registered in other states such as Ohio and Washington D.C.

The current capacity of solar projects eligible for the PA market is greater than the requirements for the current energy year. The implementation of HB 1128 would allow for the solar market to continue to grow and support the development of projects of all sizes, from small rooftop residential to larger multi-MW utility scale solar systems. Pennsylvania’s inability to implement some sort of amendment to increase the solar RPS requirements could result in a migration of PA’s solar industry to other surrounding states such as New Jersey, Maryland, and Delaware which have all recently increased the requirements of their solar RPS programs and maintain fixed alternative compliance payment schedules. It has been estimated that the increase in the AEPS program could create at least 14,000 jobs over the next ten years. A stronger solar policy in PA will not only help create new, clean energy focused jobs, but will help move the state towards a more energy independent future.

Compared to HB 2405, the treatment of out-of-state facilities is not addressed in HB 1128. Though the future acceptance of out-of-state facilities can be left up to the lawmakers to debate, the major problem with HB 2405 was that it excluded existing facilities from neighboring states that have been financed based on being accepted into the SREC program in Pennsylvania. This disregard for the existing out-of-state facilities is unacceptable. Fortunately, HB 1128 does not address this issue. Any future Bill to address this topic should at the very least grandfather in any previously approved facilities.

Negative Impact of HB 1128
Despite the need for an increased requirement, PA HB 1128 may not be the answer because of the low ACPs that are included in the Bill.  It could depress SREC market pricing to levels that could be prohibitive to the economics of solar today.  There are few financeable projects at SREC values below $200, especially when there is limited access to long-term contracts. Compared to other state markets, PA would have the lowest ACP and be heading in the opposite direction of states like Delaware, Maryland and New Jersey that have increased the fines to encourage growth and discourage electricity suppliers from paying the ACP.

Pennsylvania’s Current ACP
Meanwhile, the current ACP in Pennsylvania has not been implemented the way it was intended, which could have an impact on the market in the long run.  The way the law was written, the intent was to fine electricity suppliers 200% of the average SREC purchase price in the PJM region. i.e. keeping them in check with neighboring state markets.  Most likely because this was somewhat vague and difficult to calculate, the ACP was interpreted differently by the organizations implementing the program. Instead of being fined based on neighboring state markets, the interpretation of the ACP was that since Pennsylvania accepted SRECs from throughout the PJM region, it was a fair indication of the average price in the region. Therefore, Pennsylvania uses an ACP of 200% of the average price paid for compliance in Pennsylvania. Instead of keeping buyers in the PA market in check with other states, the ACP in Pennsylvania keeps buyers in check with themselves. The goal for buyers in Pennsylvania is to keep the average price down, so that the fines will remain low in non-compliance years. In reality, the price paid will ultimately have to be just enough to get a project done, though the market would be far more stable if the ACP were implemented as it was originally intended.

Click here for a link to the HB 1128 summary.

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Why other states should take note of the Massachusetts SREC program

Posted November 8th, 2010 by SRECTrade.

On the heels of the Conference On Clean Energy in Boston last week, it is worth drawing attention to the Massachusetts SREC program. Though the market is still in the very early stages of development, the program has been well-conceived and one that may serve to be a template for future SREC markets. (And yes, SREC markets are coming!)

Solar is nothing new to Massachusetts, but SRECs were only introduced in 2010. Prior to the solar carve-out, solar owners had to rely on large upfront incentives and the sale of Class I RECs that had limited value.  The solar carve-out set the stage for an SREC program that will provide a market-based incentive to help subsidize the cost of solar today. Though any homeowner or investor would prefer an upfront cash grant from the state for their solar system, the reality is that both society and the industry have suffered from a reliance on these programs that are at the same time costly and incredibly volatile in availability. The beauty of the SREC program is that it creates a market-based subsidy that is not paid out by the state government, but by the electricity companies that supply the state. Though the price paid for SRECs may vary, the payments made to solar owners for SREC sales can be viewed as a tax levied on the suppliers of dirty energy. As such, once implemented, the program does not require the additional allocation of state funding to subsidize projects. As solar proliferates in the state, the market-based SREC price will come down over time. Meanwhile, solar businesses that adapt to the SREC program will find comfort in the continuity it provides, especially after years of boom and bust periods driven by upfront subsidies.

This fluctuating SREC price is at the heart of the greatest challenge that participants in the solar industry face when confronted with an SREC market. Addressing this uncertainty is precisely why Massachusetts stands out from any other SREC market in the U.S.  Instead of setting fixed long-term targets that may or may not be achieved, Massachusetts has set up a formula that publishes a new target each year based on the conditions in the market the previous year. This formula is designed to ensure that the state is setting goals that are neither too aggressive nor too weak.  As a result, it should be easier for developers to finance solar projects based on the price of SRECs.

This is very different from what we’ve seen in other states. In New Jersey, the state goals increased so aggressively that the market could not keep up and SREC values remained high. This isn’t entirely a bad thing for New Jersey since the state earned ~$700 for each SREC that electricity companies fell short last year. Though that money was intended to fund clean energy projects, Republican Governor Christie was able to use it to balance the state budget. Although the next few examples highlight the opposite extreme, the shortfall in New Jersey in 2010 could very easily happen to any of the other SREC states 5 years from now. At about 255 MW required this year, New Jersey dwarfs every other state that followed in implementing a program.

In the smaller state markets, the problem in the early years is the disproportionate impact that a large project could have on a single market. In 2009 the Delaware market was threatened by a 14 MW Delmarva project that would have collapsed state SREC pricing if it weren’t for state intervention.  Meanwhile, in the next few years, the announcement by AEP of a 50 MW project in Ohio could place a significant burden on the in-state solar industry that only has about a 45 MW requirement for 2011. New Jersey was able to protect the SREC program in the early years by placing a 2MW maximum on qualification. It lifted that restriction in 2010 to feed the exponential growth needed to meet the RPS solar requirement. Hopefully Ohio, Pennsylvania and the other budding state SREC markets realize the impact these large projects will have on a solar industry that is just learning to thrive off of SRECs.

Meanwhile, back in Massachusetts, it seems the state has already thought through a lot of these issues. The aforementioned formula for determining the requirement each year provides certainty that an influx of large projects won’t collapse SREC pricing for everyone else.  In addition, though it recently raised the cap on system sizes from 2 MW to 6 MW, the cap should be enough to ensure that an industry is built, not a few large solar farms. Finally, in case the flexible requirement and 6 MW cap weren’t enough to help participants feel comfortable, the state implemented a program with a floor price of $300 per SREC.  As a result, SRECs in Massachusetts will trade between $300 and $600.  In the unlikely event that there is an oversupply, the state will host a fixed-price auction that will give buyers a chance to purchase the SRECs at $300 to get an early start on the next year. If the SRECs don’t sell after a couple rounds, the state will put them back into the market with an extended life, while at the same time, increasing the requirements proportionally.

In summary, if all goes as planned with the Massachusetts solar carve-out, the state requirement should increase enough each year so that there is never an oversupply.  In the event that there is an oversupply, the state will host an auction for buyers at $300.  If any SRECs go through the auction unsold, the state will increase the requirements to make sure that buyers will be willing to pay more than $300 for them.  For someone looking for certainty in SREC prices, a gaping oversupply will be very unlikely, an unsuccessful last-chance auction will be extremely rare, and if both those scenarios exist, the possibility that a buyer is not willing to pay at least $300 per SREC is unimaginable under the rules put forth by the state of Massachusetts.

Hopefully all the other SREC states, current and future, take note of the Massachusetts Solar Carve-Out.

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Connecticut election results bode well for the future of CT SRECs

Posted November 8th, 2010 by SRECTrade.

After passing both the state house and senate earlier this year, Connecticut’s energy bill 493 was vetoed by outgoing Governor Jodi Rell. The SREC legislation included in the bill was put on hold at the time. After a close election last week, Connecticut Democrat Dan Malloy will likely bring the energy bill back, with specific support for the SREC legislation. Malloy’s support for the bill was stated and evident during his campaign because it created new jobs and moved towards clean energy.

Malloy also stated on his website that he is committed to “expand[ing] opportunities to finance and invest in energy efficiency and renewable energy”. When asked about the current law that attempts to make 20% of Connecticut’s energy come from green sources, Malloy wrote, “Achieving this “20 by 20″ renewable energy goal would go a long way to reducing costs while also improving our environment and Connecticut’s quality of life”.

This is a very positive sign for the Connecticut solar industry, one that has suffered the highs and lows of inconsistent grant and rebate funding from the state government.  The addition of an SREC market would provide the type of stability that solar companies have thrived on in Massachusetts, New Jersey and other states that have moved towards the market-based incentive program.

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