August SREC auction commentary

Posted August 11th, 2009 by SRECTrade.

SRECTrade recently closed the August auction with a price of $680 for 2009 SRECs in New Jersey, as well as prices of $663 for 2010 NJ SRECs, $245 for Delaware, $300 for Pennsylvania and $308 for Maryland.

2009 NJ SRECs
This was a new high for the 2009 NJ SREC market which closes next month. If you still have 2009 SRECs available, your last chance to sell them will be in our September 11th auction. Get on it!

2010 NJ SRECs
The reason for a distinction between 2010 and 2009 NJ SRECs and their relative values was highlighted in an earlier posting we did on the new energy year. We were concerned that there might be a significant drop in the pricing as the new year started, but the $663 clearing price is extremely encouraging for several reasons.  First, the fact that prices remained above $600 indicates that the New Jersey market has stabilized. In previous years, legislative changes led to instability in pricing. Brokers and other intermediaries benefited from such instability. Today, with a better educated seller-base and buyers who have now been able to develop a strategy from the experience gained in recent years, perhaps we will see a more stable market.  Second, in previous years, sellers would have been incentivized to hold their SRECs until the end of the year to get the best price.  Considering that last August, our auction yielded a price of $461 and then later topped out at $680 for 2009, that strategy made sense.  However, given that the SACP has dropped to $693 for this year, $663 is actually a better price in 2010 than $680 was in 2009 relative to the SACP. We can only speculate how the New Jersey market will evolve through 2010, but it is definitely not the same market we saw in 2009. Since 2009 SRECs are only good in 2009, they held no value if the state solar requirement was achieved. In 2010, SRECs can be applied in both this year and 2011. This has two effects. First, sellers can hold onto their credits if they don’t like the price they get now. In addition if the solar requirement is met, SRECs will still hold value in the following year, so the market does not drop to zero. Finally, from a buyer’s perspective there are two approaches that can be taken. Either buy what you can now for as low a price as possible and then drive prices up at year end if you don’t complete your requirement, or start out with a high price and lower it as you get closer to achieving the requirement. In that latter scenario, what you might see is more volume early in the year as sellers are disincentivized to wait, and perhaps less of a scramble at the end. It still is way early to tell how the prices will hold over the next few months. From our perspective, we’re hoping to see stability for the benefit of sellers, buyers and anyone thinking about getting into solar. As this market matures, the easier it will be to make that decision to bet on the value of SRECs in New Jersey.

New state markets
The fluctuation from $375 to $308 in the Maryland market is a confirmation of the obvious: these are all still very immature markets. The Pennsylvania market should see an increase above the $300 price as more buyers get into the mix. When the 2009 SACP gets published in December, it will likely be even higher than the 2008 SACP of $528 that was published in December of 2008 for the 2008 energy year. Considering that it is tied to 200% of the average trading price in the PA and prices are only increasing, 2010 should be an even better year to sell SRECs to utilities that may be struggling to meet the growing solar requirement. The way the SACP is set in Pennsylvania further complicates an already complex market. Meanwhile, Delaware and Maryland have more stable markets, but face their own challenges. In Delaware, most of the solar requirement is applied to energy supplied by Delmarva Power. Therefore, they feel the most pressure to deliver solar energy in the state. With few buyers, it may be a difficult market for small generators to navigate, so many will turn to Pennsylvania and other markets where they could be eligible. Maryland, meanwhile has been trying to encourage long term contracts, but buyers have been reluctant to enter into any long term SREC programs because of their own uncertainty over the state of deregulation in the state. However, there is a lot of potential in the Maryland market. Both these states and many others may eventually turn to Pennsylvania to sell their SRECs into that market. Even this comes at a risk. Pennsylvania currently has two pieces of legislation being considered. First is the House Bill 80 which, as currently written, would change the law so that Pennsylvania would no longer accept out-of-state SRECs, unless captured in a existing contract.  In PA, there is also a senate version of the bill, SB92.  The senate has to pass their version and then reconcile with the house before the bill can be sent to the governor for approval.  In SB92, it states that 50% of SRECs must come from within PA.  The other 50% can come from outside of the commonwealth (from states like DE, MD, OH). Our take: The House Bill was presented by Vitali, Ross, George, and DePasquale, along with a host of other liberal Democrats.  The senate is 29/50 republican, while the house is democratic majority.  So far, in the house, the votes have split party line with republicans against.  The senate bill has yet to get out of first committee, and if the votes go anyway like they did in the house, the 29/50 republican block in the senate will shut the bill down.  Even if a bill does pass, it is possible that the 50% out-of-state clause will be included in the final version. We hope that if something like that is implemented that the government would at least grandfather in anyone who was registered and certified prior to the legislation. As we all know, since this is a form of subsidy for solar, we all remain at the mercy of the state governments.

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