Posts Tagged ‘S1925’

Watch out! Tricky New Jersey SREC Rules Require Prompt Registration and Extend SREC Life to Five Years

Posted February 11th, 2013 by SRECTrade.

NJ Board of Public Utilities (BPU) recently provided clarification on two SREC program rulings.

New solar energy projects must apply for an SRP number within 10 business days after the execution of a construction contract or face 12 month SREC eligibility suspension.

A June 4, 2012  BPU ruling requires that the NJ Office of Clean Energy (OCE) receive a NJ solar facility’s SREC Registration Program (SRP) application within 10 business days after the execution of the contract for purchase or installation of photovoltaic panels.  The requirement is outlined on the NJ OCE webiste here.  All non-compliant solar facilities will face a 12-month suspension from the date of interconnection. During that period, any SRECs created in PJM-GATS for that facility will not be marked as eligible for compliance in the NJ SREC market. Following the 12-month penalty period, PJM-GATS will reinstate the state certification number for all of those SRECs so that they will be valid for compliance. All SRECs created after the initial 12 months will be generated normally, and be immediately eligible for compliance in the SREC program.

SRECs created from photovoltaic generation on or after July 23, 2012 are eligible for five years. SRECs created from photovoltaic generation prior to July 23, 2012 are elgible for three years. 

The second clarification concerned a section of S1925, which became law on July 23rd, 2012, and among other things, increased the useful lifetime of SRECs in NJ from 3 years to 5 years. A detailed analysis of S1925 can be found here. The legislation was unclear whether the extended life would affect all SRECs (including prior compliance years’ SRECs), and if not, whether June 2012 and July 2012 SRECs would be treated separately than other NJ 2013 SRECs since the law was changed mid-month. The law states that, “SRECs shall be eligible for use in renewable energy portfolio standards compliance in the energy year in which they are generated, and for the following four energy years.” Since pre-July 2012 SRECs are never mentioned in the law, there appears to be no justification for treating them differently. Nonetheless, the BPU has so far failed to officially address this issue in writing. Originally, BPU staff verbally stated that only SRECs awarded for July 2012 generation and forward were to be awarded the extended lifetime. SRECTrade believes that the BPU’s verbal statements reflect the likely outcome of an official ruling later.

NJ Governor Christie Signs Bill to Increase Solar Requirements

Posted July 23rd, 2012 by SRECTrade.

Today, New Jersey Governor Chris Christie signed into law legislation to increase the state’s solar goals by amending the Renewable Portfolio Standard (RPS). Both Senate Bill 1925 and Assembly Bill 2966 were passed on June 25, 2012. The bill, which attempts to address the state’s SREC oversupply, adjusts the Renewable Portfolio Standard (RPS) Solar requirements by amending the following:

1) Solar RPS Requirements Increased beginning in Reporting Year 2014: Beginning June 1, 2013 the market will see an increase in SREC requirements, shifting the state’s solar goals from a fixed megawatt hour requirement to a percentage based requirement. Although the requirements increase in the near term, later dated requirements decline over the current solar goals.

2) New Solar Alternative Compliance Payment (SACP) Schedule: Beginning in the 2014 energy year, the SACP will be reduced to $339 declining to $239 by 2028.

3) Grid Supply Projects Capped at 80 MW Per Year in 2014-2016: In 2014, 2015, and 2016 only 80 MW of aggregated grid supply solar can be installed. Certain exemptions for landfills and parking lots have been made. The capacity of a single project shall not be greater than 10 MW.

4) SREC Life Extended to 5 Years: SRECs will be eligible to meet compliance obligations the year in which they are generated and the following four compliance periods.

5) Rules Set for Public Entity Net Metering Aggregation: The bill implements regulations for aggregate net metering for public entities such as schools, counties, or other municipal agencies.

NJ Solar RPS in 2014 and Beyond: Summary of Solar % Requirements and SACP

The charts below demonstrate the % Solar Requirements set under the new bill as well as the proposed SACP schedule. It is important to note that the existing 2012 and 2013 reporting year (RY) requirements do not change under this piece of legislation. RY2012 and RY2013 have an SREC requirement of 442,000 and 596,000 SRECs, respectively. Additionally, the SACP for RY2012 and RY2013 are $658 and $641, respectively.

Slow Down New Jersey, You’re Installing Too Much Solar – The NJ SREC Market Looking Forward

On July 19, 2012, the New Jersey Office of Clean Energy estimated installed solar capacity to be 831.6 MW as of 6/30/12. This represents an increase of approximately 29 MW from the prior month. Also, the state’s solar project pipeline increased by approximately 30 MW to 590 MW as of 6/30/12 from 560 MW the month prior.

As of the latest SREC issuance data in PJM GATS, we estimate the RY2012 market to be oversupplied by approximately 230,000 SRECs. Taking into consideration this oversupply and installed capacity through 6/30/12, the RY2013 market will be oversupplied by more than 600,000 SRECs without any new projects installed in the remaining compliance period (July 2012 – May 2013).

Looking forward to 2014, the state needs to realize a substantial reduction in installed solar capacity on a monthly basis to see the market come into balance in future reporting years. Using similar forecast cases from our prior analysis, Case 1 shows oversupply by approximately 97,000 SRECs through 2015. This is under a scenario in which install rates decline to 18.8 MW/month; representing half of the last twelve month (LTM) average – now 37.6 MW/month through June 2012.

The legislation signed into law today is a step forward to allow ongoing development of solar projects in the Garden State. This bill was needed to ensure companies servicing the NJ solar market are able to continue forward, existing solar projects see some stabilization, and rate payers are protected from excessively high SREC prices. The future development of projects needs to be monitored closely by all stakeholders as this bill requires current install rates to decline in the near term for the market to come into balance with the revised RPS requirements in future reporting years.

A Break In The Clouds? – NJ Legislature Passes S1925/A2966

Posted June 26th, 2012 by SRECTrade.

Introduction

On June 25, 2012, S1925/A2966, now aligned with each other, passed the New Jersey Senate and House. Next, the bill needs to be signed into law by the Governor, which given his recent public support is expected to be completed within the next couple weeks. The bill, which attempts to address the state’s SREC oversupply, adjusts the Renewable Portfolio Standard (RPS) Solar requirements by amending the following:

1) Solar RPS Requirements Increased beginning in Reporting Year 2014: Beginning June 1, 2013 the market will see an increase in SREC requirements, shifting the state’s solar goals from a fixed megawatt hour requirement to a percentage based requirement. Although the requirements increase in the near term, later dated requirements decline over the current solar goals.

2) New Solar Alternative Compliance Payment (SACP) Schedule: Beginning in the 2014 energy year, the SACP will be reduced to $339 declining to $239 by 2028.

3) Grid Supply Projects Capped at 80 MW Per Year in 2014-2016: In 2014, 2015, and 2016 only 80 MW of aggregated grid supply solar can be installed. Certain exemptions for landfills and parking lots have been made. The capacity of a single project shall not be greater than 10 MW.

4) SREC Life Extended to 5 Years: SRECs will be eligible to meet compliance obligations the year in which they are generated and the following four compliance periods.

5) Rules Set for Public Entity Net Metering Aggregation: The bill implements regulations for aggregate net metering for public entities such as schools, counties, or other municipal agencies.

Summary of the Legislation’s Solar % Requirements and SACP

The charts below demonstrate the % Solar Requirements set under the new bill as well as the proposed SACP schedule.

More Solar Now, Less Solar Later – How Does This Compare to the Current RPS Solar Requirements?

While S1925/A2966 increases the RPS requirements in the near term, by 900,000 or more SRECs each year in the 2014-2020 reporting years, beginning in 2024 the bill reduces the SREC requirements. The table below shows the current RPS requirements vs. the number of SRECs estimated to be required under the new legislation.

Oversupply Likely Through at Least 2014, Possibly Longer – What Does This Mean For the Market Moving Forward?

While increasing the RPS requirements is needed to address NJ’s current solar oversupply, the requirements implemented under S1925/A2966 do not necessarily put the market back into under supply. The days of SRECs trading up against the SACP at levels of $600+/SREC are long behind us for 2 reasons: 1) The SACP will naturally push pricing down to levels below $339 when it comes into effect in 2014 and 2) current installed capacity points to oversupply should the market continue at recent rates. This means that if the market is to see an under supplied scenario (i.e. a seller’s market), the amount of solar installed needs to slow down. We would naturally expect to see this take place given the removal of certain federal incentives and a decline in SREC prices, but this decline has been taking somewhat longer than expected in the first half of 2012 (i.e. likely a result of projects being wrapped up from the end of calendar year 2011).

The table below demonstrates the current RPS requirements vs. the estimated requirements under S1925/A2966 assuming no new additional capacity is installed after the NJ Office of Clean Energy’s May 31, 2012 capacity estimates.

It is important to note that the table above shows that regardless of the impact of the new legislation, the 2013 compliance period is oversupplied by approximately 575,000 at a minimum (i.e. the unlikely case of no build throughout the period).

Below, similar to our prior posts, 3 scenarios are analyzed. The first assumes future build continues at half of the last twelve month (LTM) average rate, 38.6 MW/month through May 31, 2012. The second assumes the market continues to build at its LTM average rate and the third case assumes install rates grow adding 1.5x the LTM average rate.

The table below shows the impact of the three scenarios presented above as compared to the estimated SREC requirements under S1925/A2966. If installation rates are able to decrease to half of the LTM average rate, the market will see a slight under supply beginning in 2014. Cases in which the market continues at current rates or increases above current monthly capacity installed show substantial oversupply in each of the periods forecast.

In conclusion, it is important that the solar industry recognizes that if this legislation is signed into law, it does not allow for the rate of installs to see continued growth. The bill merely helps address the oversupply by increasing the near term requirements and putting some limitations on larger scale solar projects. It will be necessary that all industry stakeholders track the market’s progress closely to clearly understand how supply is pacing relative to the SRECs required during that compliance period.

New Jersey Legislation Update: A2966

Posted June 7th, 2012 by SRECTrade.

***UPDATE: As of the close of June 7, 2012, the NJ legislature noted A2966 passed out of the Assembly Telecommunications and Utilities Committee. The bill will now move on to its second reading.***

On Thursday, June 7, 2012 at 10 a.m. ET the New Jersey Assembly’s Telecommunications and Utilities committee will review Assembly Bill 2966. A2966, sponsored by Assemblyman Chivukula, is the assembly’s version of S1925, which passed out of the Senate on 5/31/12; 23 (Yes), 9 (No), 8 (Not voting). While both bills propose to revise NJ’s Solar Renewable Portfolio Standards (RPS), A2966, proposes slightly different revisions as compared to S1925. For a detailed review of S1925, see our prior note here. Should A2966 pass out of committee, the bill will be voted on in the Assembly. If it passes out of the Assembly, A2966 and S1925 would have to be reconciled prior to its review by the Governor’s office before ultimately being signed into law.

Summary of A2966

Similar to S1925, A2966 proposes a few substantial changes that would influence New Jersey’s RPS requirements beginning in the 2014 compliance year (June 1, 2013 – May 31, 2014). The chart below demonstrates the proposed % based Solar requirement outlined in A2966 vs. S1925. Under A2966, the Solar RPS requirements would change beginning in the 2014 compliance year, with a requirement of 1.99% increasing to 4.63% by the 2028 energy year. Additionally, the second chart below shows the proposed Solar Alternative Compliance Payment (SACP) schedule in A2966 vs. S1925.

How Does A2966 Impact New Jersey’s Future SREC Requirements?

The table below shows the SREC quantities required under the current RPS versus the estimates required under the A2966.

Similar to S1925, A2966 takes the steps needed to prop up the NJ SREC market, but a closer look suggests that even if this bill is signed into law the market could continue to be oversupplied. The table below shows the current RPS and estimated requirements under A2966 through 2017. Both scenarios demonstrate what the markets look like given installed capacity through April 30, 2012, and assume that excess, eligible SRECs from prior periods are used to meet the compliance obligations in the current period. Under the current RPS requirements, assuming no new build, the market is oversupplied through energy year 2016. Applying these same figures to the estimated SRECs required if A2966 is implemented, the market is short approximately 198,000 SRECs in 2014 (the equivalent of approximately 165.0 MW operational all year long).

Although the requirements under the current installed capacity and proposed changes under A2966 put the EY2014 market at under supply with no new build, the likelihood of that is minimal. Over the last twelve months (LTM), through April 2012, the average MW installed per month has been 36.8 MW. That figure over the last 6 months has reached 46.6 MW/month. Given the recent historic build rates, we have analyzed 3 different scenarios in which the following cases are assumed:

1) Case 1 – shows half of the LTM average MW added per month throughout the course of the annual forecast periods;

2) Case 2 – shows the LTM average MW added per month remains the same throughout the annual forecast periods;

3) Case 3 – shows 1.5x the LTM average MW added per month throughout the annual forecast periods.

Note, for the purpose of obtaining an ending balance of MW capacity as of May 31, 2012, the table below assumes another 36.8 MW is added in the month of May 2012.

Under A2966, the market is less oversupplied or under supplied depending on the case displayed above. One of the main differences between the table above and our estimates under S1925, is that if installations slow down to half of the LTM monthly average rate, Case 1, the market would be oversupplied though 2015; whereas Case 1 under S1925 would see under supply in 2015. It is important to note that each case assumes all excess, eligible SRECs from the prior period are utilized to meet the current year RPS requirements.

As demonstrated in the scenario analysis, the market would need to substantially slow down current monthly build rates to allow supply to come in line with demand in the future RPS compliance periods. A2966 attempts to lessen the impact of oversupply, but even under the scenarios above, all three cases show oversupply through at least 2015. Additionally, the trade-off of an increased Solar RPS % comes at the cost of reducing the SACP. Thus, although the NJ solar industry can continue to build projects at a reduced rate, new installs will have to be underwritten with the understanding that less value will be derived from SRECs.

Note: Percentage based SREC requirements have been forecast based on EIA Report updated 11/15/11 “By End-Use Sector, by State, by Provider”. Projected SRECs required utilizes the most recent EIA electricity data applying an average 1.5% growth rate per forecast year. The state’s RPS Solar requirement is then multiplied by forecast total electricity sales to arrive at projected SRECs required. Projected capacity required is based on a factor of 1,200 MWh per MW in New Jersey.

Trade-offs Begin – NJ S1925 Update

Posted May 18th, 2012 by SRECTrade.

For a PDF copy of this post click here.

Yesterday, the Senate Environment and Energy Committee passed S1925 out of committee. Coming out of the session, the bill was revised to increase the Solar Renewable Portfolio (RPS) % requirements and decrease the Solar Alternative Compliance (SACP) schedule. Next, the bill will move on to a second reading in the Senate. The charts below demonstrate the difference between the original and revised versions of S1925.

How Does This Impact New Jersey’s Future SREC Requirements?

In our last research note on S1925, we took a look at a summary of the bill and provided analysis on how it could impact the New Jersey SREC market. Given the revision of the Solar RPS % requirements, below is an update to the original analysis.

The table below shows the SREC quantities required under the current RPS versus the estimates required under the revised version of S1925. Although S1925 increases the RPS requirements in the near term, the % requirements estimate a decrease vs. the current requirements beginning in 2024.

While the revised version of S1925 takes the steps needed to prop up the NJ SREC market, a closer look suggests that even if this bill comes to fruition the market could continue to be oversupplied. The table below shows the current RPS and revised S1925 requirements through 2017. Both scenarios demonstrate what the markets look like given estimates of installed capacity through April 30, 2012, and assume that excess, eligible SRECs from prior periods are used to meet the compliance obligations in the current period. Under the current RPS requirements, assuming no new build, the market is oversupplied through energy year 2016. Applying these same figures to the estimated SRECs required if the revised version of S1925 is implemented, the market is short approximately 411,800 SRECs in 2014 (the equivalent of approximately 343.2 MW operational all year long).

Although the requirements under the current installed capacity and proposed changes under the revised version of S1925 put the market at under supply with no new build, the likelihood of that is minimal. Over the last twelve months (LTM), the average MW installed per month has been 36.0 MW. That figure over the last 6 months has reached 44.9 MW/month. Given the recent historic build rates, we have analyzed 3 different scenarios in which the following cases are assumed:

1) Case 1 – shows half of the LTM average MW added per month throughout the course of the annual forecast periods;

2) Case 2 – shows the LTM average MW added per month remains the same throughout the annual forecast periods;

3) Case 3 – shows 1.5x the LTM average MW added per month throughout the annual forecast periods.

Note, for the purpose of obtaining an ending balance of MW capacity as of May 31, 2012, the table below assumes another 36.0 MW is added in the month of May 2012.

Under the revised version of S1925, the market is less oversupplied or under supplied depending on the case displayed above. One of the main differences between the table above an our original estimates is that if installations slow down to half of the LTM monthly average rate, Case 1, the market could be under supplied as early as 2015. It is important to note that each case assumes all excess, eligible SRECs from the prior period are utilized to meet the current year RPS requirements.

As demonstrated in the scenario analysis, the market would need to substantially slow down current monthly build rates to allow supply to come in line with demand in the future RPS compliance periods. The revised version of S1925 attempts to lessen the impact of oversupply, but even under the updated table above, all three cases show oversupply through at least 2014. Additionally, the trade off of an increased Solar RPS % came at the cost of reducing the SACP. Thus, although the NJ solar industry can continue to build projects at a reduced rate, new installs will have to be underwritten with the understanding that less value will be derived from SRECs.

Note: Percentage based SREC requirements have been forecast based on EIA Report updated 11/15/11 “By End-Use Sector, by State, by Provider”. Projected SRECs required utilizes the most recent EIA electricity data applying an average 1.5% growth rate per forecast year. The state’s RPS Solar requirement is then multiplied by forecast total electricity sales to arrive at projected SRECs required. Projected capacity required is based on a factor of 1,200 MWh per MW in New Jersey.

Proposed New Jersey Solar Bill May Not Solve SREC Woes

Posted May 16th, 2012 by SRECTrade.

For a PDF copy of this post click here.

Introduction

Senators Bob Smith and Stephen Sweeny recently introduced New Jersey Senate Bill 1925. The bill proposes to amend New Jersey’s current Solar Renewable Portfolio Standard (RPS) requirements in attempt to help stabilize the oversupplied SREC market. The bill is currently in draft form and is scheduled to be heard by the New Jersey Environment and Energy Committee on Thursday, May 17, 2012.

Based on the information presented below, the proposed version of S1925, while increasing the near term Solar RPS requirements, will likely still leave the market oversupplied. This note summarizes the key points in the draft legislation and quantifies the near term and long term impacts it would have on the SREC market if passed into law.

Summary of S1925

Senate Bill 1925 proposes a few substantial changes that would influence New Jersey’s RPS requirements beginning in the 2014 compliance year (June 1, 2013 – May 31, 2014). The chart below demonstrates the change from a fixed SREC requirement under the current RPS to a % based Solar requirement under S1925. The Solar RPS requirements would change beginning in the 2014 compliance year, with a requirement of 1.832% increasing to 3.730% by the 2028 energy year.

Additionally, the table below shows the SREC quantities required under the current RPS versus the estimates required under S1925. While S1925 increases the RPS requirements in the near term, the % requirements estimate a decrease vs. the current requirements beginning in 2023.

Beyond the proposed changes in SREC requirements, S1925 would implement a new fixed Solar Alternative Compliance Payment (SACP) schedule. The schedule reduces the SACP beginning in 2014 to $350/SREC declining to $252/SREC in 2028. The implementation of this schedule will cap SRECs at a price of $350 in 2014 and decrease in future periods. The table below demonstrates the proposed schedule as compared to the current RPS requirements.

In addition to S1925’s proposed SREC and SACP changes, the bill also addresses a few other areas:

1) An SREC’s useful life would extend from 3 to 5 years; giving it eligibility in the year in which it is issued and the following four energy years.

2) During 2014, 2015, and 2016, approved non-net metered grid supply projects cannot exceed more than 100 MW in total aggregated capacity each year. Grid supply projects located on brownfields are not limited under this stipulation. After 2016, the approval of grid supply projects would be subject to review by the Board of Public Utilities (BPU).

3) Solar RPS requirements would automatically increase by 20% for the remainder of the schedule in the event that the following two conditions are met: 1) the number of SRECs generated meets or exceeds the requirement for three consecutive reporting years, beginning with energy year 2014 and 2) the price for SRECs purchased by entities with renewable energy portfolio standards obligations in each of the same three consecutive reporting years is less than the current SREC price in the year prior to the three consecutive reporting years (i.e. if the price in 2014, 2015, and 2016 is less than the 2013 price and the number of SRECs exceeds the requirement in each of these years, the 20% increase in the RPS will be triggered).

What Does This Mean for the NJ SREC Market?

While S1925 takes the steps needed to prop up the NJ SREC market, a closer look at the numbers suggest that even if this bill comes to fruition the market could continue to be oversupplied. The table below shows the current and proposed S1925 RPS requirements through 2017. Both scenarios demonstrate what the markets look like given estimates of installed capacity through April 30, 2012, and assume that excess, eligible SRECs from prior periods are used to meet the compliance obligations in the current period. Under the current RPS requirements, assuming no new build, the market is oversupplied through energy year 2016. Applying these same figures to the estimated SRECs required if S1925 is implemented, the market is short approximately 118,500 SRECs in 2014 (the equivalent of approximately 98.8 MW operational all year long).

Although the requirements under the current installed capacity and proposed changes under S1925 put the market at under supply with no new build, the likelihood of that is minimal. Over the last twelve months (LTM), the average MW installed per month has been 36.0 MW. That figure over the last 6 months has reached 44.9 MW/month. Given the recent historic build rates, we have analyzed 3 different scenarios in which the following cases are assumed:

1) Case 1 – shows half of the LTM average MW added per month throughout the course of the annual forecast periods;

2) Case 2 – shows the LTM average MW added per month remains the same throughout the annual forecast periods;

3) Case 3 – shows 1.5x the LTM average MW added per month throughout the annual forecast periods.

Note, for the purpose of obtaining an ending balance of MW capacity as of May 31, 2012, the table below assumes another 36.0 MW is added in the month of May 2012.

In each of the 3 cases presented above, the market ends up in oversupply through at least 2016. It is important to note that each case assumes all excess, eligible SRECs from the prior period are utilized to meet the current year RPS requirements.

As demonstrated in the scenario analysis, the market would need to substantially slow down current monthly build rates to allow supply to come in line with demand in the future RPS compliance periods. It‘s unlikely that build rates will decline fast enough to protect from future oversupply. This bill does not allow for an increase in build rates (it requires a decrease) and cannot be used as a justification for an increase in PV installation growth.

Reaching the install rates shown in Case 1 (approx. 18 MW/month) should be within reach despite the restrictions put on grid supply projects. Additionally, the potential introduction of new EDC SREC programs, as well as historic build rates in the residential and commercial sectors, will also contribute to meeting the levels outlined in Case 1. Clearly, SREC pricing and availability of forward contracts to support new project development will impact future build rates, but even in markets with an oversupply of solar (i.e. PA), projects continue to be built without much regard for the current SREC environment.

How Does this Impact the 2012 and 2013 energy years?

Under the current draft of S1925, the RPS requirements would be unaffected in 2012 and 2013. The 2012 generation period will come to a close at the end of May 2012. Compliance buyers will have until approximately the end of September to wrap up their purchases before finalizing RPS reports with the BPU. As it currently stands, we estimate the NJ2012 market to see an excess of approximately 180,000 SRECs. Recent over the counter trading has increased to levels between $125 and $135/SREC, up from the last SRECTrade auction clearing price at just above $115/SREC.

The Electric Distribution Companies (EDCs), or regulated utilities, in NJ will be holding an auction on Thursday, May 17, 2012. Recent announcements show that as many as 33,000 NJ2012 SRECs will be available for sale during this auction. Given these volumes, 2012 demand may be reduced after this auction.

In addition to the 2012 energy year, the 2013 compliance period is fundamentally oversupplied. Current estimates show the 2013 period will see an excess of approximately 496,000 SRECs. This estimate takes into consideration the excess SRECs from 2012 and installed capacity estimates through April 2012. The 2013 forward market has recently traded above the 2012 vintage, but given the fundamental oversupply it is likely pricing will trend downward throughout the 2013 compliance period beginning June 1, 2012 (note the first 2013 vintage SRECs will not be issued in GATS and available for delivery until the end of July 2012).

SRECTrade will continue to keep a close eye on the S1925 legislative process as it makes its way through the Senate Environment and Energy Committee and the remaining requirements needed before it can be signed into law.

Note: Percentage based SREC requirements have been forecast based on EIA Report updated 11/15/11 “By End-Use Sector, by State, by Provider”. Projected SRECs required utilizes the most recent EIA electricity data applying an average 1.5% growth rate per forecast year. The state’s RPS Solar requirement is then multiplied by forecast total electricity sales to arrive at projected SRECs required. Projected capacity required is based on a factor of 1,200 MWh per MW in New Jersey.