SRECTrade will host a webinar covering the latest pricing and supply numbers for the OH and PA SREC markets.
The webinar is open to the public and will be held on Wednesday, 4/8/14, at 2 pm ET.
SRECTrade has printed auction prices for Pennsylvania ranging from a high of $310 in June 2010 and a low of $20 for SRECs created in the same energy year. The drop in Pennsylvania SREC prices is due to a severe over-supply of SRECs above the amount of SRECs that buyers (electricity producers) need to acquire each year, but how did the market become over-supplied and is anything being done to address the over-supply?
The Pennsylvania SREC market was created as a state-level, long-term incentive for homeowners and businesses to go solar, but around the same time that the SREC market was created, other, more generous solar rebate programs like the Pennsylvania Sunshine Program were created that caused a short-term boom in solar installations. In addition to this, the Pennsylvania SREC market is one of two markets (OH is the other) that accept SRECs from out-of-state sited solar systems, including from states that don’t have their own SREC markets. This means that Pennsylvanians are effectively subsidizing solar in other states and ensuring that Pennsylvania SREC prices remain low.
The Proposed Fix
The Pennsylvania SREC market was created by the state legislature and amendments to the market must go through the legislature first. In the spring of 2011, Rep. Chris Ross (R-Chester) proposed House Bill (HB)-1580 to address some of the key factors behind low Pennsylvania prices. The crux of HB 1580 is a proposal to move up the SREC requirement by three years. This would mean that if the bill passed, Pennsylvania SREC requirements would increase beginning in 2013. A detailed schedule of the proposed increase can be found in the bill.
We’ve followed the progress of HB 1580 over the last year and periodically posted updates to our blog. Most recently the bill went before the House Consumer Affairs Committee on January 11, 2012 where it met resistance from Committee Chair Rep. Bob Godshall (R-Montgomery) and various entrenched groups representing the Pennsylvania electricity industry. Since the January hearing Rep. Chris Ross has worked hard to develop compromise amedments to HB-1580 that might help the bill survive a tough Committee vote. If the bill makes it out of Committee it has 110 co-sponsors in the House and substantial Senate support in a companion bill.
According to PennFuture, a Pennsylvania environmental and renewable energy advocacy group, Ross’ proposed the following compromises:
What Can You Do?
Pennsylvania solar advocates are hoping that they can convince the House Consumer Affairs Committee to vote on HB 1580 when the legislature reconvenes in mid-March. If you are a Pennsylvania resident, please feel free to contact House Majority Leader Turzai at 717-772-9943 to express your support for seeing the bill go up for vote.
A critical Pennsylvania House Consumer Affairs Committee hearing on the Pennsylvania Solar Jobs Bill (HB 1580) scheduled for Thursday, December 8th was delayed again, according to a news flier sent out by the Pennsylvania advocacy group PennFuture. This is the 2nd time that the hearing has been delayed in as many weeks. According to the PennFuture flier, the bill hearing was delayed due to a death in Committee Chair Rep. Godshall’s family. No reschedule date has been announced yet.
On November 16th, 2011, the Pennsylvania Solar Energy Industries Association (PASEIA) released its Ratepayer Cost Analysis regarding PA House Bill #1580. HB1580 was introduced on October 3rd, 2011 by Rep. Chris Ross, and includes 109 co-sponsors as of November 10th, 2011.
The Bill was introduced to address the recent collapse of the PA SREC market by accelerating the solar share requirement from 2012 through 2015. While the solar share requirements from 2012 through 2015 have been accelerated, the solar share requirements in 2016 through 2018 remains the same as SREC prices are expected to have stabilized by then regardless of the present situation. HB1580 will also close the solar market in Pennsylvania to out-of-state systems, thus limiting the supply of SRECs available which will drive up their value. While undoubtedly a blessing for the solar industry within Pennsylvania, some concerns have been raised regarding the impact this program will have on ratepayers. The Ratepayer Cost Analysis aims to address these issues.
Here is the breakdown of HB1580, using figures derived from the Cost Impact Report. The introduction of HB1580 imposes an additional $113,315,417 distributed amongst all residential and commercial power users in Pennsylvania.
|Reporting Year||Solar Share||SRECs||SREC Price*||Cost|
|2012 – 2013||0.0510%||75,189||$50||$3,759,453|
|2013 – 2014||0.0840%||123,012||$50||$6,250,621|
|2014 – 2015||0.1440%||216,338||$50||$10,816,879|
|2015 – 2016||0.2500%||379,150||$70||$26,540,513|
|2016 – 2017||0.2933%||449,047||$80||$35,923,723|
|2017 – 2018||0.3400%||525,500||$85||$44,667,471|
Proposed Scenario (HB1850)
|Reporting Year||Solar Share||SRECs||SREC Price*||Cost||Increment|
|2012 – 2013||0.1500%||221,144||$190||$42,017,420||$38,257,967|
|2013 – 2014||0.1700%||253,001||$150||$37,950,200||$31,699,579|
|2014 – 2015||0.2040%||306,478||$125||$38,309,780||$27,492,901|
|2015 – 2016||0.2500%||379,150||$100||$37,915,019||$11,374,506|
|2016 – 2017||0.2933%||449,047||$90||$40,414,188||$4,490,465|
|2017 – 2018||0.3400%||525,500||$85||$44,667,471||$0|
* SREC price is based on aggregator feedback, as well as average weighted PA SREC prices in GATS
The cost imposed on each ratepayer is than calculated based on an estimated use of 10,716kWh/yr for residential and 150,000kWh/yr for commercial usage.
|Reporting Year||Estimated Elect Sales||Estimated Increased Cost||
Cost Increase per kWh
|Estimated Increased Residential Cost||Estimated Increased Commercial Cost|
As the table shows, the residential bill on average increases by less than 14 cents over five years and under $2 for commercial customers with an assumed annual electric usage of 150,000kWh/yr. This amounts to less than half a penny a day for residential owners. In addition, these are pre-tax costs, so for-profit commercial and industrial customers will pay less than these estimates based on their effective tax rates..For more information, please contact: Ron Celentano PASEIA – President CelentanoR@aol.com
Over 90 members of the Pennsylvania solar industry lobbied Pennsylvania legislators on Monday, 10/28/11 to voice their support HB 1580 an SREC bill. The effort was part of an official “Pennsylvania Solar Advocacy Day” event put on by PennFuture, Solar Alliance, Vote Solar, PASEIA and others. By the end of the day more than 108 members of the Pennsylvania House (of a required 100) had offered to sponsor the legislation should it make it out of committee.
House Bill 1580 (sponsored by Rep. Chris Ross, R-Chester) proposes to move the total requirement of SRECs forward by three years to increase the number of SRECs Load Serving Entities (utility-scale “dirty” electricity producers) must purchase. The rapid implementation of Pennsylvania SREC eligible facilities over the last year has led to an SREC over-supply of more than double the amount of SRECs needed by utility-scale electricity producers. This over-supply is responsible for low SREC pricing in Pennsylvania.
SREC markets are driven by the fundamentals of supply and demand. However in Pennsylvania demand (the amount of SRECs required for a given year) is significantly lower than the number of SRECs available. The Pennsylvania SREC market is designed in such a way that every year there is a set goal for amount of power that comes from renewable energy sources and any adjustment to the yearly goal requires legislative action.
In order for the bill to move forward it needs the support of Rep. Bob Godshall, Chairman of the House Consumer Affairs Committee for Committee vote. PennFuture has asked the Pennsylvania solar community to write Rep. Godshall to show their support of the bill. However, even if the bill gets out of Committee in its current form it still needs to pass the House and Senate. With 108 state Representatives co-signing the bill it is expected to pass the House, but it’s unclear how it will fair if it reaches the Senate.
Stay tuned for more HB 1580 Updates.
On Monday, October 24th PennFuture, Vote Solar, the Solar Alliance, and SUNWPA will hold a Solar Advocacy Day and Evening Reception at the Capitol building in Harrisburg. If you are part of Pennsylvania solar community this is an opportunity to educate policymakers and the media about solar in your state. The main focus of the advocacy day will be the support of the Solar Jobs Bill, which we’ve written a few blog postings about.
Here are the websites for the participating groups:
Vote Solar: national grassroots solar advocacy group
PennFuture: Pennsylvania environmental advocacy group
Solar Alliance: state-focused solar industry group
SUNWPA (Solar Unified Network of Western Pennsylvania): sub-group of PennFuture without a formal website
Click here to take action. Use the link to let your local PA state representative know that you support solar in PA.
If you have an advocacy event that you’d like SRECTrade to know about please email email@example.com
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.
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.
Despite a robust RPS and the threat of non-compliance fines above $550, the Pennsylvania SREC market has been slow to develop. We take a quick look at some of the factors that influence this market and hopefully provide some insight as to why the Pennsylvania SREC demand has been low.
Demand Issues: For starters, the PA RPS is expected to ramp up as described on our Pennsylvania Page. Based on current electricity sales into Pennsylvania, we project the demand for SRECs to be as follows:
According to this projection, approximately 20,000 SRECs need to be purchased in Pennsylvania for generation through May 31, 2010. However, the reality is a bit more complex. Electricity markets are composed of three types of companies: electricity generators who supply the power, electricity transmitters responsible for transmission and electricity distributors responsible for the delivery of the retail electricity. It is important to know that although the distribution companies (EDCs) or retail utilities are most commonly associated with state RPS goals, it is actually the numerous electricity suppliers who are responsible for purchasing the SRECs to meet the RPS. The Pennsylvania electricity market is comprised of 11 Electricity Distribution Companies (EDCs). Behind each EDC are the many suppliers providing power to them. When the PA RPS was passed, the suppliers for several EDCs were exempted for the first few years. According to the DSIRE website, these EDCs were exempted because they were under rate freezes or still recovering from costs associated with restructuring. In all, 5 of the 11 EDCs are exempt. The exemption ended this January of 2010 for one of the EDCs and the exemption for the other 4 will expire in January of 2011. More significantly, these EDCs represent over 85% of the total electricity market exempt through January of 2010 and 70% exempt through January of 2011! With that said, this changes the outlook for SREC demand in Pennsylvania substantially in 2010 and 2011:
As a result, the actual demand for PA SRECs in the 2009-10 Energy Year drops from nearly 20,000 SRECs to under 5,000 SRECs – 25% of what was initially projected. In 2010-11, the demand drops from an initial projection of 33,000 SRECs down to 21,000 SRECs – about 60% of initial projections!
Procurement Issues: In addition to a decreased demand in the early years of the PA market, the state also has some constraints in place that have created challenges for buyers and sellers to connect in this market. For the first time in history, home and business owners are entering electricity markets as generators. These markets are geared towards large corporations that produce significant amounts of power, and as a result, the approach many companies have taken to procuring SRECs is geared towards large companies (as an aside, this is why GATS is such a cumbersome platform for solar owners). In addition, since most of these companies are heavily regulated, protections are put in place to ensure a competitive process. Unfortunately, these protections are also geared towards large companies. The end result is that the Pennsylvania Public Utilities Commission (PUC) requires buyers to use a competitive RFP process.
Well, the problem is that most solar owners don’t even know what an RFP is, let alone have the requirements in place to be eligible. This explains why most RFPs for SRECs are severely under-prescribed and why in late 2009, PPL successfully petitioned the PUC to lessen the credit requirements necessary to bid in their RFP. Instead of being required to have a credit rating and listing with an accredited credit agency, you now only needed to put up a letter of credit to bid on the opportunity to sell SRECs in minimum bundles of 500!
Fortunately, it seems that the PUC continues to re-evaluate this process and the constraints they have placed on the suppliers. Most recently, they have proposed a change to their policy to allow suppliers to enter into a restricted volume of bi-lateral contracts that are also restricted in value by the average value of SRECs procured in the adjacent RFPs. You can read the proposal and we encourage you to submit your comments. While this is a step forward, we still believe that this will likely incentivize the same companies bidding on RFPs to just enter into the bi-lateral contracts, squeezing out the rest of the market. We setup our auction to ensure a competitive process that is accessible to all market participants and hope that future iterations of PUC policy changes will better address the entire SREC market and allow more compliance buyers to enter into auctions like SRECTrade without having to jump through legal hoops in order to do so.
Conclusion: The Pennsylvania SREC market has an extremely promising future and all signs are pointing in the right direction. We believe that this is an iterative process. Looking back at the lead taken by New Jersey, their SREC program has been amended several times and it is now inspiring a prolific SREC market. Pennsylvania will continue to tweak its program until the market truly is more efficient and effective in promoting solar. Until then, we at SRECTrade are doing everything we can to bring buyers to the market, as well as set up other means for selling SRECs for our clients. The great news is that most facilities eligible in Pennsylvania are also likely to be eligible in DC and Ohio where in the short-term, SREC prices will be better. If you have any questions, as always, feel free to contact us.
The Pennsylvania Solar Alternative Compliance Payment (SACP) is structured a bit differently than the rest of the states in our auction. Most states have a set SACP that is known at the beginning of each year. Pennsylvania releases their SACP six months after the Energy Year ends. The 2008 Pennsylvania SACP of $528.34 was released in December of 2008 for the Energy Year ending May 31, 2008. It is calculated as 200% of the PJM area average SREC price. This means that from June 1, 2007 – May 31, 2008, the average PJM area SREC price was $264.17. The interpretation used by the program is that this is an average of the price paid for SRECs used to comply with the Pennsylvania state RPS. So in reality, it is an average of PA SRECs.
PA SRECs are valued based on speculation of what the SACP will be in December. PA utilities should be willing to pay more for SRECs if they are struggling to meet the solar requirement in Pennsylvania. In the early years of this program, that requirement may be attainable, but it ratches up pretty quickly, so it may not be long before the SREC values in Pennsylvania increase above all the other states in the region.
For reference, our July 10th auction saw PA close at $300. DE closed at $245, and MD closed at $375.
This is good news for solar owners in Delaware, Maryland, Ohio, West Virginia and the other surrounding states who may be eligible to sell into Pennsylvania. Of course the influx of supply of SRECs into PA might at some point depress the price of SRECs. It will be interesting to see how the market plays out. One thing is certain—as a seller, it doesn’t hurt to be registered in as many states as you can. See our post on cross-listing to learn how.