In May 2018, New Jersey Governor Phil Murphy signed Assembly Bill 3723 (AB-3723) and Senate Bill 2314 (SB-2314). The bill increased the state’s overall RPS requirements to 50% by 2030. Specific to the solar carve-out, the legislation increased NJ’s solar requirements to 5.1% by energy year 2021 and decreased the Solar Alternative Compliance (SACP). Pursuant to the bill, the Board of Public Utilities is currently working to adopt rules to close the market to new applications upon the attainment of the revised 5.1% requirement (i.e. the reporting year 2021, 2022, and 2023 requirement which declines thereafter beginning in 2024). Additionally, the board is working to complete a study to evaluate the implementation of the state’s next solar incentive program.

Solar build rates have remained steady over the last twelve months (LTM). Average LTM monthly build rates increased from 26.9 MW/month in April 2018 to 27.2 MW/month in August 2018. Installed solar over the last six months (LSM) declined 5.5% as compared to the last twelve month average build rate, shown in our analysis. While the total build in the last three months ending in July 2018 did increase by 46.9% compared to the three months ending in April 2018, much of this can be contributed to seasonality. The last three month build rate ending in July 2018 only increased by 3.4%  as compared to the same three months in 2017.

For full market update presentation click here.

Using reporting year 2017 retail sales of 75,031,955 MWh and an LTM build rate of 27.2 MW/month, we anticipate a relatively balanced market in NJ2019 with a marginal oversupply of approximately 4.0%. This includes an estimated banked SREC volume of 294,734 after NJ2018 compliance filings are completed (NJ2018 compliance filings are just about to be finalized). These figures are based on the new solar RPS requirements as passed.

Projecting out further under three build rate scenarios, 75%, 100%, and 150% of LTM average build rates, we see the market relatively well balanced in NJ2019 and under-supplied in NJ2020, barring any substantial increase in sustained monthly build. In NJ2021, the market will remain under-supplied to balanced in our first 2 scenarios and oversupplied in our 3rd build scenario (i.e. 40.9 MW/month).

Recent pricing in the spot market for NJ2019 SRECs has remained strong, with bids ranging between $210 and $225 throughout Q3 2018. Additionally, bids for the NJ2020 and NJ2021 vintages have been indicatively $205 and $170, respectively, as of late.

Please feel free to contact us with any questions or if we can be of assistance with any SREC management and transaction services.

The 2017 energy year for New Jersey closed at the end of May, and with the latest NJ Office of Clean Energy Solar Activity Reports we have our first indication of total development activity for the full 12 months of the previous compliance period. We have taken the opportunity to update our state capacity model and dig into the available information in greater detail.

You can find our most recent capacity presentation here.

As of the most recent NJ Office of Clean Energy activity report, which tracks registered assets as of 5/31/2017, New Jersey has built a total of 2,169MW of solar capacity.  345MW of that has been built in EY 2017 alone. The most recently published report showed an increase of 38.9MW in solar installations since the figure reported through 4/30/17.  While much of the new capacity was certified in April and May of 2017, an unusually high amount of new capacity was attributed to December of 2016.

• 12MW from May 2017
• 11MW from the period between January and April 2017
• 14MW from December 2016

Given the observed pattern in the delay of these reports accurately displaying the full capacity to be attributed to a given month, we assume that we will see another 5-15MW of capacity added to May 2017 in next month’s activity report, bringing the EY 2017 total new build figure in the range of 350MW to 360MW.

In terms of EY 2017 SREC supply and demand, our analysis shows that 2017 will be slightly (4.8%) oversupplied, but with the implied growth rate of 30MW/month quickly outpacing the growth of the RPS solar carve out schedule. Given a base case of 30MW/month and an assumption of flat load growth, we see an 24% oversupply in 2018 and a 57% oversupply in 2019.

An important piece of information to note however is that state electricity sales have shown a consistent negative trend, with sales dropping from over 83mm MWh in 2007 to 74mm MWh in 2016.  This is an annualized rate of decrease of slightly more than 1% over the previous 10 years.  We have included scenario analysis for both a flat load growth scenario as well as a negative growth scenario. Below demonstrates flat load growth scenarios.

Given the high likelihood of significant market oversupply in coming years, either a drastic slow down in build rates or an expansion of the New Jersey SREC program requirements would be needed to address forecasted supply and demand dynamics.  Industry stakeholder groups are currently in process of evaluating how expanded NJ RPS requirements may be feasible in the framework of the existing program.

As always, we will follow the legislative process closely and keep our clients updated on any substantive changes in the market. Please feel free to reach out to your brokerage team coverage with any questions or comments.

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.

As the calendar year comes to a close, we wanted to take one final opportunity to examine the most recently released solar installation data from the New Jersey Office of Clean Energy. Throughout 2016 the New Jersey SREC market has been profoundly influenced by the implications of the data in these reports. After experiencing the type of price volatility we’ve seen in 2016, our hope is that market participants will welcome some added insight into these numbers and will consider this analysis as they begin to make projections for 2017.

You can find our most recent capacity presentation here.

As of 11/30/2106, the latest NJOCE Solar Installation Report showed an increase of 26.7MW of installed capacity since it was last issued as of 10/30/16.  Almost 20MW of that increase came from reported installations in October and November, with the balance distributed relatively evenly back to June 2015.

• 10.3MW added in November 2016
• 9.6MW added in October 2016
• 4.6MW added July through September 2016
• 2.2MW added June 2015 through June 2016

**Regular readers of these reports will also notice that a significant amount of capacity was “added” to the period from 2001 to May 2015, although this was simply a reclassification of previously reported capacity in order to improve the accuracy of the information presented. **

Within this report, a trend which we had previously noted has become more clearly defined.  Assuming that the November figure for installed capacity will be revised upward in future reports to a degree similar to the prompt months in prior data releases, we see that the average monthly rate has fallen drastically from the first half of the year to the second.  Through the first six months of 2016, the New Jersey solar market was adding just over 33MW/month.  Assuming the reported November installation number doubles due to future upward revisions, since July that monthly average has now dropped to 20MW/month.  That represents a 40% drop in new installations.

Although there were undoubtedly a range of factors that contributed to this sudden shift, lower SREC pricing almost certainly played a central role in this change of trend.  When extrapolated out into the future, the extremely aggressive build rates observed in Q1 and Q2 of 2016 indicated a market that would very quickly become oversupplied as the pace of development overtook the rate of RPS growth.  This expectation of future imbalance led to a precipitous decline in prices, bringing the NJ SREC spot market down from highs in the $290s to lows in the $200s.  This decline meant developers experienced further difficulty finding adequate funding to support their pipeline of projects.  The consequence has been that many projects that don’t qualify for residential rates of electricity – those projects who would otherwise depend on healthy SREC prices to be economically feasible – simply didn’t get built.  This is clearly apparent when comparing the three month periods ending in July 2016 and November 2016:

A closer examination of the data reveals another powerful shift in industry trends. Commercial and residential build rates have historically kept a somewhat even balance with respect to one another.  In 2015, commercial and residential capacity made up 41% and 52%, respectively, of total installations in that year.  In the first half of 2016, that balance was 58% and 40%, respectively.  Since July 2016, that balance has now shifted to 23% and 64%.  While the residential market has remained strong, the larger commercial-sized systems have experienced very real difficulty. Again, this shift is not solely due to SREC pricing, but the significant decline in the amount of funding available from the SREC markets undoubtedly played a powerful role.

As always, we want to apply this information to create better informed opinions regarding the future of the market.  The recent slowdown in new installation has further supported the idea that EY2017 will remain fairly balanced in terms of supply and demand.  Across a range of scenarios, 2017 will most likely remain well balanced with a projected oversupply of only 9-11%. Barring a drastic acceleration in new installations, 2018 is also projected to remain fairly balanced.  2019 and beyond, however, take on a much different dynamic.

Even under modest growth scenarios, the current RPS can again be overwhelmed by the growth of the New Jersey solar market in a matter of years.  It is important to note that the pricing of all financial products – SRECs included – is determined by a combination of current market conditions as well as expectations of market conditions in the future.  Even though 2017 and 2018 appear to be years of relative balance, a drastic oversupply in the later years of the New Jersey market could easily have an adverse affect on pricing in the near term.  Without some type of legislative amendment to the current state RPS schedule, the New Jersey SREC market could feasibly experience a prolonged period of depressed pricing which would signal a new, harsher economic reality for solar market participants across all segments of solar installation.

It is SRECTrade’s opinion that the market would be best served by proactively supporting any available means of expanding the state’s RPS schedule to account for this future growth.  In order to successfully support the solar market, any such solution will need to focus on the longer term expansion of the SREC program.  There have been several different proposals debated amongst industry participants, all of which have their own merits, but the fact remains that ANY expansion is better than none at all.  If the industry chooses not to take this opportunity to expand the RPS program, developers will face an increasing probability of further market contraction and slower growth.

We will continue to update you with any new data as it becomes available.  Please feel free to reach out to your SRECTrade brokerage coverage with any questions or comments you may have, we are always willing and eager to discuss our analysis with all members of the market.

We wish continued success and happiness to all of our friends and partners in the renewable energy industry, and we look forward to working together again in 2017!

**This report was updated on 4/20/2017 to address an error in the oversupply projection model which resulted in the oversupply being slightly understated. This has now been corrected** 

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.

We recently received an update on the New Jersey solar market from the office of New Jersey’s Clean Energy Program, bringing us up to date on new solar capacity built through June.  As of June 30th, New Jersey had a total installed capacity of 1,793.79MW – a 61.49MW addition from the figure previously reported as of the end of May.

The 61.49MW addition is obviously noteworthy at first glance, and the market has immediately responded by selling off significantly in the days that followed the report’s release.  A closer look into the data, however, provides a more nuanced understanding of what that figure really represents.  Given the magnitude of the market reaction after this release we took the opportunity to update our New Jersey capacity models to provide a framework to better understand the data.

You can find our updated New Jersey SREC capacity presentation here.

While it is true that 62MW of new projects were added to the cumulative total of installed capacity, that number actually represents revised figures for monthly installations dating back to January 2015.  The 62MW can be broken out as follows:

• 11MW of upward revisions attributed to 2015 monthly figures
• 32MW of upward revisions attributed to 2016 monthly figures
• 19MW of new build attributed to June 2016

Given the distribution of the newly reported capacity increase, the result on the observed average build rates is not quite as extreme as we have seen other groups report.  Using the newly updated numbers, the trailing twelve month average build rate is about 22.5MW/month and the 2016 YTD average is 25.7MW/month.

In aggregate, the New Jersey RPS is quite large and this recent surge in build in and of itself does not necessarily tip the overall balance of the SREC market.  While we have seen a broad sell off in New Jersey SRECs across most vintages, we believe the New Jersey market can maintain current pricing even if the build rate remains elevated in the short term.  What has most likely sent SREC prices lower is the possible impact that a more long-term increase in build rates might have on the balance of the NJ SREC market.

Looking ahead there are two very different possible scenarios.  For the sake of keeping RPS comparisons constant through this analysis, we will make the assumption that NJ SB2276 (which increases the NJ RPS solar requirement slightly) successfully makes its way through the legislative process and is formally adopted.   First, the solar sector could react to the recent drop in SREC values and regress from its current trend to a less aggressive – though still above the historical average – rate of 17MW per month.  A build rate averaging somewhere close to 17MW per month would keep solar installations just slightly ahead of goals set by the current RPS schedule, leaving us no more than 5% oversupplied in any given year through 2021.  This would likely leave SREC prices stable and trading at consistently strong levels.

The alternative is to presume that the most recent increase represents a “new normal” for New Jersey solar.  An average build rate of 34MW per month, which more closely tracks the current trend, extrapolated out over the next five years would result in a very significant oversupply that would almost certainly push SREC prices lower in 2019 and beyond.   A build rate anywhere near 34MW per month eventually outpaces the growth built into the current RPS schedule and overwhelms the market structure that has been put in place through recent legislation.

We will focus on following how this trend develops over the coming six months.  If the solar industry does indeed respond to the price signals being sent by the NJ SREC market, and build rates normalize to more sustainable rates, then New Jersey solar economics will continue to benefit from strong SREC prices.  If, however, developers ignore these signals and continue to aggressively install new assets irrespective of RPS support we will likely see SREC prices continue to retreat in a manner that reflects the underlying shift in the balance of SREC supply and demand.

As always, we will continue to monitor these trends and share our analysis as new information becomes available.  In the meantime please feel free to reach out to your SRECTrade coverage with any questions or comments.

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.

On Monday evening we received a much anticipated update on the growth of New Jersey’s solar capacity.  Applied Energy Group made their analysis available via New Jersey’s Clean Energy Program website, providing new information on the monthly build rates and overall size of the New Jersey solar market.  

As in most other SREC markets, the beginning of the year has been exceptionally strong for new solar development in New Jersey.  As of May 31st, New Jersey had installed a cumulative total of 1,732.3 MW of nameplate capacity.  88 MW of that capacity was installed just in the last three months since the data was last reported on February 29th.  Also of note, a full 89 MW of the new supply added thus far in 2016 is categorized as Grid Supply, putting this year on track to be the largest year to date for non-behind-the-meter solar development.

The New Jersey SREC market was exceptionally busy on Tuesday and Wednesday as the market digested this new data.  Tuesday morning  the market was predominately offered as sellers attempted to lock in the value that has been available for spot and forward contracts.  As always, we enjoy seizing these opportunities of higher than normal market activity to offer a dose of objective market analysis to the ongoing dialogue.

You can find our updated New Jersey SREC capacity presentation here.

The average rate of new solar construction has indeed increased over the last few months.  88 MW came online in March, April and May of this year, increasing the trailing twelve month average build rate to 20.5 MW/month.  Although this headline number justifiably commands attention, we believe that it is important to evaluate this increase in the context of New Jersey’s equally robust RPS requirements.  In our presentation, we put forward scenario analyses for both the currently adopted RPS percentages as well as the proposed higher RPS percentages contained in Senate Bill 2276 (our previous post on the proposed legislation can be found here).

Our analysis finds that even under the current RPS, a continuous 20.5 MW monthly build rate would not lead to significant oversupply (defined as an imbalance above 25% of the annual requirement) until midway through 2020.  Under either RPS schedule, and even with a build rate that grows to an impressive 30.8 MWs per month, the imbalance of supply and demand would not exceed 20% until 2019 at the earliest.

With that said, passage of SB2276 is critical to the longer term sustainability of the New Jersey solar market.  The proposed demand “pull forward” mechanism central to the bill helps alleviate concerns that the solar market will be able to count on supportive SREC pricing from 2020 onward.  If capacity growth is assumed to remain at a constant rate, but no adjustment is made to the current RPS schedule to match that pace, the SREC market will indeed become increasingly oversupplied from 2020 onward.

As always, please feel free to contact your SRECTrade brokerage team member for any further clarification or discussion of our data.  We will continue to follow the development of the legislative process closely and provide you with updates as they become available.

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.