The SREC market in North Carolina has gotten off to a sluggish start and it appears that a thriving state SREC market may be a long way out. Several aspects of the program have hindered the development of a market in the state, as a result, many SREC aggregation firms and market-makers have gotten out of the state. The two key problems include a non-existent mechanism for compliance and a buyer market dominated by a few large energy producers that are not participating in the market. Local installers and developers that were hoping SRECs would be a key driving force in promoting a North Carolina solar industry are now finding themselves shut out of the market.
The North Carolina law did not require that the North Carolina Utilities Commission (NCUC) set a Solar Alternative Compliance Payment (SACP) which is the fine that any energy supplier who falls short of the solar requirement would have to pay. This is a standard aspect of any SREC market where SACPs vary from as low as $250 in Delaware to as high as $675 in New Jersey. The SACP does not set the price, but acts as a cap in the market. More importantly, it creates an indication for what the SRECs are worth in years where there is an undersupply. In North Carolina, there is little incentive to offer higher SREC prices to promote growth in the industry and buyers are best served by holding prices down.
Utilities Locking Up Their Own Supply
Many investor-owned utilities claim to have locked in their own supply through the next few years and are therefore not participating in the market. Part of the reason this is happening is that North Carolina places no restrictions on the amount of solar that utilities can produce themselves. In addition, the other incentives and tax breaks combine to make solar an attractive investment for utilities. Even Green Co Solutions, the company handling NC-REPS requirements for many of North Carolina’s electricity cooperatives is already well-positioned with respect to their SREC needs. This is a stark contrast to New Jersey and other states, where the incentives are prohibitive for investor-owned utilities and, in some states, completely excluded from the SREC market. New Jersey for example will only approve solar projects from investor-owned utilities if it is determined by the Board of Public Utilities that these projects will not impact pricing in the SREC market.
What are SRECs trading for?
Utility-run programs such as Progress Energy’s Sun Sense program and Duke Energy’s Distributed Generation program provide a structured means for generating solar electricity and selling it back to the grid along with the SRECs that are produced. These programs offer prices of $120 to $180 for bundled electricity and SRECs, resulting in SREC valuations in the $60-$120 range. These programs limit projects to 25kW to 210 kW, a range that is too large for residential solar companies and too small for most commercial developers. Although there have been SREC contracts struck with these large utilities, any agreements have all been done behind-closed doors with little or no transparency as to what pricing is being offered.
Who is faring well in North Carolina?
Despite the relatively non-existent NC SREC market, smaller solar systems in North Carolina have found successful ways to take advantage of SREC programs. Most notably, these systems have the opportunity to sell their SREC production into a small but more favorable Washington DC SREC market. In addition, systems under 10kw in North Carolina are also automatically eligible for NC GreenPower, a voluntary retirement program which offers $150 per SREC bundled with electricity. The most sensible path today for residential solar owners is to register in DC while the market continues to deliver SREC prices of $290. Meanwhile, since the market in DC is small and will likely be oversubscribed, the NC GreenPower program represents an excellent fall-back option. Customers do not need to register for NC GreenPower right away and may choose to register later on, perhaps some time in the future after a price drop in the DC market.
What can be done to get the NC SREC market going?
- Set an SACP. For starters, the North Carolina Utilities Commission has the power to establish a compliance mechanism in the state. Doing so would create some indication of what the willingness is to pay on the part of the buyers. Sellers would then be able to properly compare the fixed-price programs being offered by Duke and Progress Energy to the alternative of selling in a market.
- Limit Investor-Owned Utility Solar Development. This is a much broader debate behind the purpose of subsidizing solar. New Jersey has, in no uncertain terms, made it very clear that the intention of the SREC program is not simply to ensure that the state is running on renewable energy. The intention behind the New Jersey SREC program is to a) diversify energy resources by promoting distributed, customer-sited generation (i.e. residences and businesses producing their own electricity) and b) create jobs by developing the most robust state solar industry in the nation. Meanwhile, in North Carolina, the ultimate goal of acquiring solar energy at the lowest cost possible will likely be achieved. However, if the solar is owned and developed by a few large utility companies that in many cases outsource the development to firms in other states, then a vibrant industry will most likely not develop in North Carolina the way it has in other states. Meanwhile, electricity generation in North Carolina will continue to remain the responsibility of and under the control of a few large firms, rather than distributed across the communities, the way solar resources are meant to be utilized.
- Create Transparency. The unbundled SREC contracts that are currently available are handled behind closed doors with no transparency. There is no publicly available information on the prices offered and the period of time in which these prices are being offered. The more the state can do to create transparency around pricing, the easier it will be for local developers to build projects based on SREC sales. In addition to pricing transparency, if Investor-Owned Utilities continue to develop their own solar, information around their plans should be readily available so that the rest of the SREC market understands what the TRUE market demand will be. Without this, it is nearly impossible to predict the forward price curve for SRECs and build projects based on those projections.
- Create Access to the Market. Limiting Investor-Owned Utilities from developing their own solar would turn them into active buyers within the market. Combined with an SACP and few restrictions around procurement, more buyers, motivated by compliance obligations, will result in easier access to the market for solar projects of all sizes.