Archive for November, 2016

SRECTrade at Solar Focus 2016: Maryland SREC Update and Pennsylvania RPS Overview

Posted November 21st, 2016 by SRECTrade.

Last week, members of the SRECTrade team attended MDV-SEIA’s Solar Focus Conference in Washington, D.C.  The conference’s focus was on “cracking the code for East Coast solar”, and the subject matter covered a wide variety of issues relevant to the solar industry across the Mid-Atlantic region.  In particular, the conference provided a forum for in-depth conversations around the future of critical, although challenged, state markets such as Pennsylvania and Maryland.

SRECTrade’s Director of Environmental Markets, Brett Waikart and our Director of Regulatory Affairs and General Counsel, Allyson Browne were invited to speak about the Maryland and Pennsylvania markets, respectively.  Brett’s presentation covered the fundamentals of the Maryland SREC market and laid out hypothetical future scenarios assuming various RPS carve-out schedules and build rates.  Allyson’s presentation focused on the composition of Pennsylvania’s electricity market and emphasized different aspects of the state’s Alternative Energy Portfolio Standard (AEPS) structure that could be adjusted in order to improve market conditions.  Their presentations are included below, along with a brief synopsis of the analysis provided.

Maryland SREC Update – November 2016

Little has changed in the overall degree of oversupply in the Maryland spot market since our last post in September. There have been no changes to official RPS policy, and supply continues to far outstrip the demand levels set by the RPS compliance schedule.  As can be seen in the snapshot below, as of November 15th there were approximately 156k CY14 and CY15 SRECs still available for sale and another 477k CY16 SRECs that had been generated in the current year.  Assuming that recent build rates continue through the end of 2016, we anticipate another 89k SRECs to be generated before the year is over.  When compared to the MD16 RPS obligation of  approximately 431k SRECs, these numbers indicate that we are oversupplied by a little more than 291k SRECs, or 68% of the current RPS demand requirement. MD16 snapshot

While this degree of oversupply is substantial, the monthly build rate numbers confirm that weaker project economics, caused by depressed SREC prices, have indeed slowed the installation of new capacity significantly.  The average amount of new capacity added over the last three months has slowed to just less than 10MW/month, as compared to just less than 30MW/month in the first quarter of 2016.  Also notable is that we have not seen the installation of a single asset greater than 1MW in capacity reports since June.  You can clearly see the trend lower in the graph below, which illustrates the quarterly sum of new capacity brought online over the last year.

Q4_15 to Q3_16

With the MD SREC market now fully reflecting the current degree of oversupply, and the effects now being felt by the asset development industry, stakeholders can agree that the time has come to find a solution.  The Maryland market has now fully outgrown the trajectory previously laid out for it through the current RPS schedule.  With that in mind, we now present a third scenario in our MD Capacity Presentation.  In addition to our typical supply and demand projections under the current RPS and the RPS proposed through HB1106, we now include an analysis illustrating the potential market conditions that would result from a more aggressive RPS schedule.  You will find our results in the slide deck provided below.

Our full capacity presentation can be found here.

Pennsylvania Policy Update

The concept of oversupply is even more familiar to Pennsylvania’s SREC market. Although the state’s AEPS targets exceed those of other PJM state RPS targets on an absolute basis, the state has been fundamentally oversupplied for years due to the design of its program.

In her presentation, Allyson takes a holistic look at Pennsylvania’s electricity market and generation mix and applies this foundation to the state’s AEPS design. The result is a structural oversupply that will require several supply- and demand-side adjustments before the market will be able to rebound and achieve supply-demand balance.

After providing this framework for the panel’s discussion, Allyson addresses Pennsylvania’s work towards compliance with the EPA’s Clean Power Plan (despite its now uncertain future) and identifies possible routes for reinvigorating Pennsylvania’s solar market.

Allyson’s full presentation can be viewed here.

 

As always, please feel free to reach out to your coverage on the SRECTrade brokerage desk to discuss any observations or comments you may have regarding our analysis or your view of the SREC markets.  We will continue to update our analysis and provide you with any new information we receive as it becomes relevant.

 

Disclaimer. This document, data, and/or any of its components (collectively, the “Materials”) are for informational purposes only. The Materials are not intended as investment, tax, legal, or financial advice, or as an offer or solicitation for the purpose or sale of any financial instrument. SRECTrade, Inc. does not warranty or guarantee the market data or other information included herein, as to its completeness, accuracy, or fitness for a particular purpose, express or implied, and such market data and information are subject to change without notice. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Any comments or statements made herein do not necessarily reflect those of SRECTrade, Inc. SRECTrade, Inc. may have issued, and may in the future issue, other communications, data, or reports that are inconsistent with, and reach different conclusions from, the information presented herein.

Copyright. This document is protected by copyright laws and contains material proprietary to SRECTrade, Inc. This document, data, and/or any of its components (collectively, the “Materials”) may not be reproduced, republished, distributed, transmitted, displayed, broadcasted or otherwise disseminated or exploited in any manner without the express prior written permission of SRECTrade, Inc. The receipt or possession of the Materials does not convey any rights to reproduce, disclose, or distribute its contents, or to manufacture, use, or sell anything that it may describe, in whole or in part. If consent to use the Materials is granted, reference and sourcing must be attributed to the Materials and to SRECTrade, Inc. If you have questions about the use or reproduction of the Materials, please contact SRECTrade, Inc.

Massachusetts DOER Updates Exempt Load Figures

Posted November 16th, 2016 by SRECTrade.

On November 14, the DOER updated the exempt load projections for both SREC-I and SREC-II, as well as provided information on the total volume of re-minted SRECs available in the market. These two data points impact the level of demand and expected supply, respectively.

Briefly on SREC-II, the exempt load numbers for 2016 and 2017 increased slightly, which will in turn lower aggregate demand. We already anticipated those markets being oversupplied and with this new data, this assumption strengthens. See our most recent analysis for a deeper dive.

As a follow-up to our recent post on the MA16 SREC-I market, we will incorporate recent data published by the Department of Energy Resources (DOER) and re-examine supply assumptions to provide another view into the recent weakness in the market.

Starting with the demand side of the market, we now project the total market demand for MA16 SREC-I in the range of 807,203 – 832,507, depending on the total amount of electricity sales. Note, the scenario on the left assumes load is down approximately 3% from 2015, while the scenario on the right keeps load flat at the estimated 2015 levels.

2016_11_04_SREC-I_Model

For a more nuanced view on the projected supply for the year, we consider using Q3 and Q4 issued SRECs from 2015 as a proxy for this year. Adding those figures to SRECs already issued in Q1 and Q2 of this year results in an estimated supply of 818,761 for MA16 SREC-I.

With the latest data from DOER, we can now add 50,499 additional SRECs to the supply side. These SRECs are re-minted volumes from past Clearinghouse Auctions that are eligible for compliance on 2016. In sum, we anticipate a total supply of 869,260.

When compared to the range of demand we anticipate the market is long by 4%-8% of demand, or 36,753-62,057 SRECs:

2016_11_04_SREC-I_Model

Factors that could swing the market one way or the other include how much electricity is sold and how much output comes from the installed capacity. Additionally, although the market is potentially oversupplied, it is possible some participants may not bring supply to the market if market prices are lower than their expectations. This could influence price upward to levels we experienced earlier in the year. On the other side, if natural buy-side demand chooses to take a wait and see approach the efficiency of the market can be impacted and influence price downward. The latter has been the case over the past months as the market has moved down on a dearth of natural buy-side demand.

Clean Energy Advocates Urge Gov. Kasich & Ohio Lawmakers to Reinstate Frozen RPS

Posted November 3rd, 2016 by SRECTrade.

Two years ago, Ohio took a gamble with the state’s renewable energy industry by imposing a two-year freeze on Ohio’s energy efficiency (EERS) and Renewable Portfolio Standard (RPS). With the freeze due to expire at the end of the year, state lawmakers are evaluating potential paths for lifting the freeze, including opposing options to either bolster the RPS moving forward or convert the RPS to a voluntary program. As state lawmakers look to vote on proposals shortly after the November 8th General Election, nine companies have stood up in support of reinstating–and strengthening–Ohio’s energy efficiency and RPS, alongside the state’s many clean energy advocates.

It is clear to many that the RPS freeze was a failed experiment for Ohio. The RPS has provided many benefits to Ohio residents, including the creation of thousands of new clean energy jobs and the infusion of more than $160 million in annual GDP from the clean energy sector. During the freeze, however, utility companies reduced–or in some cases completely suspended–renewable energy and energy efficiency programs and services. Clean energy companies had no choice but to leave Ohio. As a result, Ohio’s wind industry lost more than 1,400 jobs in 2015 alone. Today, Ohio’s projected growth for clean jobs is only at 4.9%. In order to get back on track, the industry needs a jolt of support that can only come from the reinstatement of the RPS and EERS.

In an effort to show solidarity with the clean energy industry, nine companies teamed up behind sustainability advocate Ceres Inc., encouraging lawmakers to consider more–not less–aggressive RPS and EERS policies. The companies, including giants such as Campbell Soup, Clif Bar, Gap, Nestle, and Whirlpool, collectively employ more than 25,000 people in Ohio. Each company issued individual statements in support of the coalition’s request.

Gap Inc.’s Director, Environmental Impact, Christina Nicholson urged lawmakers to act. “The time to act is now. We urge leaders in Ohio to lift the freeze on the state’s renewable energy and energy efficiency standards. Clean energy policies are smart and will build a stronger and more resilient Ohio. As a company with a large presence in the state, energy efficiency and renewable energy is important to our business and our future. We’ve set an ambitious goal to reduce our GHG emissions by 50% by 2020, and we encourage Ohio’s leaders to help us all move toward a clean energy future.”

Other groups, including Ohio Citizen Action, are also actively advocating for stronger environmental standards. The group is hosting a Climate Action Rally and Press Conference on November 16th to encourage Governor Kasich to take a stand against those trying to skirt or otherwise weaken the reinstatement of the RPS. Earlier this year, while seeking the Republication nomination for President, Gov. Kasich told a New Hampshire crowd that he would reinstate the RPS if the legislature attempted to gut the policies, even though he considered the original RPS to be “unpalatable”. Given the legislature’s current position on the issue, all eyes are on Gov. Kasich to see whether he sticks to his campaign words from January and pressures the Legislature to reinstate the RPS and EERS without further delay.

MA16 SREC-I Market Review

Posted November 3rd, 2016 by SRECTrade.

With the October issuance of Q2 2016 SRECs behind us, we are now approximately halfway through the 2016 energy year in Massachusetts. This blog post will take into account observed issuance numbers from the first half of the year and use projections for future issuance periods to understand what caused the fall in MA16 SREC-I prices from $450+ in January to more recent bids of $380. We will look at the supply and demand balance in order to survey what may be coming in the months ahead.

Recall that demand is driven by retail electric sales in the State. The latest data we have comes from 2014, a year in which 48,129,294 MWh were sold. If we assume that retail electricity sales are flat and we apply the obligation of 1.76% and then adjust for exempted load, we derive a total estimated demand of 833,780 SRECs:

MA16 SREC-I Demand

On the supply side of the market, the simplest analysis assumes the market generates nearly 784,000 SRECs and when combined with the re-minted volumes from this year’s SCCA (1,898), then we get a total supply of 785,886. When compared to the demand outlined above, we conclude the market is short nearly 48,000 SRECs.

MA16 REC-I simple supply

What would explain falling prices in a market that is potentially under-supplied? The quick answer is that perhaps retail sales of electricity are falling instead of flat, which would lower the demand. Alternatively, perhaps the supply of SRECs is higher than detailed. We’ll examine some supply scenarios first.

One component of supply is the banked SRECs from prior years. Retail suppliers can bank up to 10% of their annual obligation for use in future years. The maximum volume of banked RECs in the market is estimated at 65,382 – the sum of the total obligation in 2014 and 2015 multiplied by 10%. If all of those SRECs were brought to market in 2016, then we would see the market long by 17,488 SRECs. We see that scenario as unlikely since 2015 was short and the bank may have been used to avoid paying Alternative Compliance Payments (ACPs). On the other hand, it’s possible that between re-minted SRECs from the 2013 and 2014 SCCCA and banked volumes, that upwards of 15,000 SRECs from prior vintages may impact the 2016 market. This source of supply would help to tighten the balance of supply and demand, but not necessarily push to over-supply.

Examining a different scenario on the demand side, even if retail sales were down 3%, the total SREC demand would still sit at 808,414, leaving a tight, yet still under-supplied market based on the simpler supply analysis.

Another element worth mentioning is liquidity. While a healthy market needs liquidity from both buyers and sellers in order to function properly, we will direct our attention to the buy-side. Because there are far more sellers than buyers in this market, an absence of even a handful of buyers is far more impactful to the efficiency of the SREC markets than the absence of an equivalent number of sellers.

In recent months we have observed a noticeably subdued level of activity from buyers. What happens when SRECs are issued and a bunch of sellers come into a quiet market? As evidenced from pricing over the last month, bids start to retreat:

Market_Insights___SRECTrade

A simplistic read of the current state of the market is that prices have dropped due to the possibility of oversupply. However, deeper examination of current supply and demand in SREC-I markets points towards a tighter, more balanced market. The bearish sentiment reflected in recent weeks may actually reflect a lack of activity from natural compliance buyers in the face of a glut of supply coming to market after Q2 issuance. These two scenarios mean very different things for medium to long term “equilibrium” pricing in the SREC-I market. A structural and persistent oversupply, a scenario we do not perceive as likely, would mean that lower prices are justified and here to stay. A mismatch of liquidity due to trading preferences of buyers and sellers however would point towards short term volatility but longer term stability in supportive SREC prices.

As always, we will continue to provide follow-up analysis as more information becomes available.  Feel free to reach out to your contacts on SRECTrade’s brokerage desk with any questions you may have.

 

Disclaimer. This document, data, and/or any of its components (collectively, the “Materials”) are for informational purposes only. The Materials are not intended as investment, tax, legal, or financial advice, or as an offer or solicitation for the purpose or sale of any financial instrument. SRECTrade, Inc. does not warranty or guarantee the market data or other information included herein, as to its completeness, accuracy, or fitness for a particular purpose, express or implied, and such market data and information are subject to change without notice. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Any comments or statements made herein do not necessarily reflect those of SRECTrade, Inc. SRECTrade, Inc. may have issued, and may in the future issue, other communications, data, or reports that are inconsistent with, and reach different conclusions from, the information presented herein.

Copyright. This document is protected by copyright laws and contains material proprietary to SRECTrade, Inc. This document, data, and/or any of its components (collectively, the “Materials”) may not be reproduced, republished, distributed, transmitted, displayed, broadcasted or otherwise disseminated or exploited in any manner without the express prior written permission of SRECTrade, Inc. The receipt or possession of the Materials does not convey any rights to reproduce, disclose, or distribute its contents, or to manufacture, use, or sell anything that it may describe, in whole or in part. If consent to use the Materials is granted, reference and sourcing must be attributed to the Materials and to SRECTrade, Inc. If you have questions about the use or reproduction of the Materials, please contact SRECTrade, Inc.