On April 15, 2016 the last SRECs of Calendar Year 2015 will be issued for Massachusetts. With the policy climate in flux, it’s important to recall where the market stands for 2015. In short: SREC-I may be slightly oversupplied at ~4.4% to under supplied by ~24.9%. SREC-II is oversupplied by ~65.8%.

Oversupplied or under supplied for MA15 SREC-I?

It is possible the market could be slightly oversupplied. This would be the case if all 2015 issued, 2014 banked, 2014 Solar Credit Clearinghouse Auction (SCCA) re-minted, and 2013 SCCA re-minted SRECs were used towards 2015 compliance. Additionally, compliance entities would have to forgo banking any 2015 vintage SRECs for use in 2016 (i.e. up to 10% of the compliance obligation can be banked for future use).

It is possible the market could be under supplied. This would be the case if not all of the 2014 banked, 2014 SCCA re-minted, and 2013 SCCA re-minted SRECs were used towards 2015 compliance, but some were carried forward for 2016 compliance. This is certainly a possibility as many compliance entities may have purchased 2013 and/or 2014 SCCA SRECs with the intention of using them towards compliance in 2015 and/or 2016. Since the SCCA SRECs could be purchased at a fixed priced of $300, it would have been advantageous for a compliance buyer to buy the less expensive SRECs in the SCCA versus paying 2015 or 2016 market prices.

Why is MA15 SREC-II more straightforward?

The last compliance year, 2014, for MA SREC-II was the first year of the SREC-II program. The compliance period was under supplied and as a result no SRECs were deposited into the SCCA. This is why no volumes from prior periods are impacting the SREC-II estimated oversupply.

Current Pricing

As of late, the MA SREC market has experienced less demand for MA2015 SREC-Is and IIs as many compliance buyers have finalized their needs for the year. Note, all SREC retirements need to be made by June 15, 2016. As a result, bid activity has been less frequent and pricing has fallen with MA15 SREC-Is most recently bid $460 and MA15 SREC-IIs most recently bid $262.50.

*Source: NEPOOL GIS. Q4 2015 SRECs issued based on MA DOER installed capacity information and SRECTrade estimates.

On Friday, February 26, 2016 UBS Analyst Julien Dumoulin-Smith hosted Allyson Browne and Alex Sheets for a discussion on the current state of affairs in Massachusetts regarding solar policy. The slides are available here. The recording is below:

UPDATE: UBS published a transcript of the call.

On Friday, February 5, 2016, the Massachusetts Department of Energy Resources (DOER) announced that the total capacity available under the SREC-II Program Capacity Cap for projects larger than 25 kW DC was reached. As of the announcement, the DOER received applications for 854 MW of capacity. This exceeds the current cap for projects greater than 25 kW by more than 193 MW. While it is unclear if all of the submitted facility applications meet the eligibility criteria to qualify under the SREC-II program, the DOER confirmed that all applications for projects larger than 25 kW DC submitted on or before February 1, 2016 were received before the program cap was reached. The DOER noted that they cannot guarantee applications received after February 1, 2016 were submitted prior to the cap being met. For more information, the DOER publicly updates the full details on capacity in SREC-II under the “Qualified Projects” section of their SREC-II current status webpage.

The DOER will continue to review applications and queue them accordingly to the guidelines provided in Section 4(B) of the Assurance of Qualification Guideline. After the DOER confirms that 660.595 MW DC of capacity have been issued Statements or Assurances of Qualification, the DOER will provide further direction for applicants that submitted applications after February 1, 2016, to inform them of their queue status. At this time, the DOER will publish the Waiting List on its website.

SRECTrade, Inc. is continuing to submit applications in the order in which we received them, and will provide additional updates from the DOER as they become available. Below is the summary SREC-II capacity information made available by the DOER as of February 1, 2016.

We published a detailed analysis on MA SREC-II supply and demand on January 19, 2016. Click here for more information.

Last Friday, SRECs generated in Q3 of 2015 were issued to all qualified asset owners in the Massachusetts SREC-I and SREC-II programs. The additional liquidity brought to the market helped refocus attention on the MA SREC program after the beginning of the year was dominated by action in the New Jersey market. Given the renewed attention to the Massachusetts markets we have adjusted our capacity models to reflect the most current supply and demand figures.

Our most recent MA SREC-II capacity presentation can be found here.

As compared to our last MA Capacity Update, the Trailing Six Month (TSM) average build rate is only marginally higher at 18.7 MW/mo as compared to the Trailing Twelve Month (TTM) 17.8 MW/mo. The greatest contrast is between the three months ending in September 2015 and December 2015, with asset developers installing twice as much SREC-II eligible capacity over the summer as what was installed in the fall.

Using these updated numbers we can begin to predict the degree of over or under supply in the upcoming year. Due to the methodology employed by the MA DOER we already know what the 2016 compliance requirement will be.  We can also use the most recent year to date build (YTD) rate, 17.9 MW/month, as our base-case assumption for future 2016 build. What is important to add to this analysis, however, is the 120 MW carve out that the MA DOER announced in their most recent bulletin. Of the total 946.2 MW of SREC-II eligible capacity (1,600 MW of total covered capacity less the 658.3MW covered by SREC-I) we know that 575.1 MW have already been qualified for SREC-II. This leaves 371.1MW still available for new construction, however we now know that since we have passed the 60% threshold of total SREC eligible capacity, 120MW of that remainder will be reserved for projects less than 25KW. This leaves just 251.1MW for larger scale projects under the current program.

Holding our most recent YTD build rate (17.9 MW/mo) constant and using the previously set 2016 compliance obligation, we see the MA SREC-II market finishing 2015 oversupplied by 78,957 SRECs and 2016 oversupplied by 226,537. These figures are equivalent to 64.4% and 69.2% oversupplied, respectively. Slide 8 of our MA SREC-II presentation also illustrates potential upper and lower bounds for 2016 build rates, set at 75% and 150% of 2015 YTD average monthly build. Across all scenarios we project that the market will finish 2016 oversupplied, somewhere between a range of 56.7% to 81.7%

As always, this analysis is informational only in purpose in order to help explain the implications of recently reported MA SREC-II eligible build rates. We will continue to watch the markets closely and stay on top of new MA capacity data as it is updated by the Massachusetts DOER.

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