Archive for the ‘New Jersey’ Category

New Jersey Installed Capacity Update

Posted September 14th, 2011 by SRECTrade.

The New Jersey Office of Clean Energy (NJ OCE) recently released installed solar capacity figures as of July 31, 2011. After the first two months into Energy Year (EY) 2012, the state has averaged a rate just over 30 MW/month, bringing the total installed capacity to nearly 400 MW, up from 339.6 MW at the end of EY2011. These figures exceed the estimated average capacity required to meet the state’s 2012 target of approximately 370 MW.

The rapid growth in capacity corresponds with a sharp decline in prices for 2012 spot trading, with the September auction clearing at $166.79. The estimated average installed capacity needed to meet the EY2013 requirements is 500 MW. To reach this target by the beginning of EY2013, the state would only have to install an additional 100 MW, or an average of 10 MW/month for the remainder of EY2012.

The surge in installed capacity is partially due to the anticipated expiration of the federal 1603 grant, an upfront cash payment for commercial projects of up to 30% of system costs, at the end of the calendar year. As more projects aim to take advantage of the grant before it expires, the total installed capacity will continue to approach the EY2013 target.

Upon their return from recess, state legislators will consider an amendment to the RPS to pull 2014 and future year requirements forward one year in attempt to prevent a prolonged oversupply in the SREC market. The chart below demonstrates monthly installed capacity and corresponding increases since December 2010.

NJ Installs 7_31_11

Tags: New Jersey, RPS, Solar Capacity, SREC Prices
Posted in New Jersey, SREC Markets | 1 Comment »

New Jersey looks to address SREC volatility, but does it know where to look?

Posted September 14th, 2011 by SRECTrade.

Over the past few months, the market-based Solar Renewable Energy Certificate (SREC) incentive that led New Jersey to become the nation’s second largest solar market has quickly become volatile after an unprecedented influx of new solar installations. In the first 7 months of this year alone, supply in New Jersey has grown from 260 MW to 400 MW. Over 100 MW have come online in the past four months alone; an astonishing number considering that the state’s first 260 MW took 10 years to install! The increased solar capacity in New Jersey means that the supply of SRECs, which represent one megawatt hour of solar energy produced, will be greater than the required number (demand) set by the New Jersey Renewable Portfolio Standard (RPS) for the first time since the state transitioned to a market-driven incentive program. As a result, SREC values have dropped from $640 in June , a price that reflected an undersupply in prior years, to a low of $165 in September.

Significant oversupply troubles
A drop in price is expected in a market-based system when supply catches up to demand. Over the past three years, solar installations have benefited from relatively high SREC prices as the state industry struggled to keep up with the demand set forth by the RPS. Therefore, it should be no surprise that SREC values would drop now that supply has reached level of demand. However, the true problem facing New Jersey is not just that supply has caught up with demand, it is that supply has considerably overshot demand – and will likely continue to do so through the end of the 2011 calendar year until the Federal grant expires.

The “2012” Energy Year in New Jersey runs from June 1, 2011 to May 31, 2012. Based on the required number of SRECs required (442,000), the state needs approximately 370 MW of capacity running on average throughout the 2012 Energy Year to meet the SREC requirement. With 400 MW installed at the end of July (month 2 of 12), the state will easily meet it’s requirement this year. Based on the state’s projections, solar capacity could be at 500 MW halfway through the 2012 Energy Year – enough capacity to meet the 2013 Energy Year requirement of 596,000 SRECs!

There are a few reasons why supply has overshot demand in New Jersey. The rapid increase is driven by large projects in the state’s solar pipeline that have come online over the past few months. There are currently 465 MW of projects in New Jersey’s pipeline that have been approved, but aren’t yet installed. These projects take months – if not years – to put together as developers travel the arduous financing, sales, permitting and interconnection approval processes before beginning construction. As a result, a stream of projects initiated in 2009 or 2010 are coming online in a time when the SREC market looks dramatically different than when these projects were conceived. Many of these projects will be forced through to completion in order to take advantage of the Federal grant before it expires at the end of 2011, perhaps with the hope that the SREC market will eventually rebound after 2012. This is a dangerous assumption that would have significant consequences for the New Jersey SREC market.

Homeowners and small business owners are the most at risk
The portion of the solar industry that gets hit the hardest by SREC price decline are the homeowners and small business owners who invested in their own systems. These retail solar generators are at a severe disadvantage to solar farms built by large institutions. Viable long-term contracts are scarce in the market as a whole, but because energy companies will not enter into contracts with non-creditworthy generators selling in small volumes, such contracts are nearly non-existent in the retail sector.

While large institutions can lock in long-term SREC contracts, the retail sector has been required to place its faith in the integrity of the market. These retail solar owners were sold systems when SREC prices were above $600, most with the impression that the market would push those prices down gradually over time – perhaps to $400 in the mid-term, $200 in the long-run, and eventually to $50 or less. That “distant future” of sub-$200 SREC prices has become a reality today because of the state’s rapid growth of large commercial and institutional solar projects.

Stakeholders put forth solutions
The New Jersey Board of Public Utilities (BPU) will convene to address the status of the SREC markets with a number of stakeholders in a public hearing on Thursday, September 15, 2011 at 401 E State Street in Trenton, NJ from 1 to 5pm EST. This meeting is intended to review the program as a whole, but the major topic to be addressed is the current volatility in pricing. There have been several solutions put forth. Some are unlikely to be approved, while some others don’t really address the main issues. Here are the common themes put forth thus far:

Increase the Demand: The New Jersey legislature is considering a change to the solar RPS that would move all of the yearly requirements forward by one year starting in 2013. The additional demand is intended to reduce the downward pressure on pricing. Unfortunately, this is a short-term solution that only postpones the underlying problem. New Jersey is on pace to add 250 MW of solar in this calendar year. Over the next 5 energy years, the RPS can only accommodate an additional 120-160 MW of solar in any given year. Moving the requirements up one year means that 2013 can accommodate 250 MW of added solar, but 2014 would drop back down to growth of 150 MW. If the state were to increase demand in a meaningful way to support the solar industry, it would need to start with annual growth of 250 MW as a baseline and increase it each year from there. Given the current political and economic climate, this type of support from the state seems unlikely – though it should really be given some serious thought, particularly in light of the Solar Alliance’s response to Christie’s Energy Plan.

Increasing demand also does not address the real problem here, which is that the NJ solar industry is unable to pace its growth within the confines of the established incentive structure. How do you get an industry able and willing to grow at a rate of 250 MW a year, to slow down to 150 MW? This problem doesn’t go away if the demand is increased to 250 MW in 2013, but the industry continues to scale up to the point where it adds 400 MW that year. Some are advocating that the industry learn this lesson the hard way, and to let the SREC price collapse play out. That would indeed be tough medicine for the industry; but the impact of such a price collapse, as we pointed out earlier, extends beyond the “industry” to the 10,000 solar system owners – many of whom are small-scale system owners who stand to face significant financial losses.

Establish a Floor Price: Massachusetts is currently the only SREC market with an established floor price, better described as a price support mechanism. It has been well-received particularly by the retail sector; however, the fact that the support mechanism has yet to be tested remains a key hurdle for many institutional players. Unfortunately, the differences in the way the New Jersey and Massachusetts markets are structured make it impossible for New Jersey to copy the Massachusetts model. Massachusetts designed it’s price floor by employing a creative set of rules that further incentivize energy companies to buy SRECs above the floor price, thus avoiding putting state resources at risk. Simply put, one mechanism the state can utilize is to increase the SREC requirement from one year to the next in order to assure that the market stays above the price floor. The RPS law in New Jersey, however, focuses on “predictability” – by design, the yearly SREC requirement through 2026 is predetermined and the BPU cannot alter those requirements. Since NJ does not have a maximum capacity target of systems eligible for the SREC program (like MA does), the cost to the state could skyrocket with the imposition of a long-term price floor. Establishing a floor price mechanism in New Jersey that doesn’t put the state’s resources at risk would probably require a difficult overhaul of the program.

Require Long-Term Contracts: The concept of long-term contracts has proven, time and time again, to be at odds with a competitive electricity industry in New Jersey. Any proposals to this effect have quickly been shot down by the state legislature due to fears of locking electricity suppliers into long-term rates. The RFP solicitations put out by the state’s four electric distribution companies (or EDCs), JCP&L, PSE&G, RECO and ACE, have been the primary source of long-term SREC financing in New Jersey. Combined, these programs were capped at 140 MW of solar installations. As of the end of 2010, only 60 MW of the 260 MW installed in New Jersey had been installed from these programs. The EDCs don’t actually need to buy SRECs – the requirement is imposed, rather, on the state’s load serving entities (i.e. the electricity suppliers) – therefore the SRECs purchased by the EDCs in these programs are actually just sold back into the market. The EDC programs had been promoted by the BPU over the past few years because the state was struggling to meet it’s solar goals. Because a condition of the EDC program was that the EDCs were able to pass any losses on to their ratepayers, the 10-15 year contracts attached to the program could end up hurting ratepayers. In 2010, 10-year contracts signed by the EDCs ranged from $426 to $465/SREC. Given current spot market SREC pricing, the EDCs stand to lose money on these contracts beginning in 2012. The RFP solicitations are set to expire in 2012 and it will be up to the BPU to determine if they should be extended. Given that they were initially established to support a market that was falling behind, it may be that the BPU decides the market can move forward without these programs. Nonetheless, if long-term contracts are made available to the entire market in a sustainable way, they would go a long way to address volatility concerns.

These solutions, however, can each be seen as trying to address the question: How do we avoid the forces which are inherent to a market? Price uncertainty and insufficient demand are normal forces in any competitive market. These proposed solutions, however, are shifting focus away from the true problems facing SREC markets and the main question that people should be asking, which is: How do we make this market work better so that we don’t run into these “emergency” situations? The concept of a market-based approach to incentives being successful relies on the assumption of efficient, rational markets. In SRECTrade’s experience, we see a lot of inefficiency and plenty of irrational behavior in the SREC market. In our opinion, the key focus needs to be placed on the answering the following two questions:

(1) Why does the supply-demand balance swing from one extreme to the other?

There is a significant time gap between the market signal (pricing) and the input (installing solar). Customers are sold systems based on today’s SREC price signal and then installed 3, 6, 9, 18 months from now; at which point the market could be fundamentally different. In an efficient market, the decision to buy something would result in an immediate action. With SRECs, the decision to buy does not yield an action for several months. This inefficiency manifested itself last year in New Jersey when the market was so attractive that everyone jumped signed up while the prices were high. As we fast forward to today, those projects are finally entering an already-flooded market, likely pushing through (despite a crashing SREC price) since they have already reached a “point-of-no-return” stage of the project. The BPU tries to address this by requiring projects to register during early stages, thereby creating a signal to the market that there is going to be incoming supply. The problem with this “pipeline”, however, is that there is no way of predicting if and when these registered projects will be built.

These issues are further exacerbated when you look at how incentives are aligned. Project developers make a living by selling and building solar systems. The last person who would want to admit to a prospective customer that the SREC market outlook is bleak is the sales person. Who can blame them? While there are companies that take a long-term approach to building a business, there are plenty of new entrants in the solar industry who need to find every possible angle to spin SRECs in a positive light because their business is dependent on getting this or the next deal done. It’s a real-life example of game theory – if everyone jumps in, everyone suffers; but, if you’re sitting on the sidelines while your competitor is overselling the benefits of SRECs, he or she is making money and you are losing business.

(2) Why are SREC prices so wildly volatile?

The other issue is a structural one that adversely affects price volatility in the market from one year to the next. Load-serving entities (LSEs), more commonly referred to as “electricity suppliers”, are the “natural” buyers of SRECs – meaning they are the entities that ultimately need them to satisfy the state’s requirements. They are required to report their SRECs to the BPU at the end of September each year, which in a June to May energy year like NJ means the compliance year’s SRECs are due 15 months after the trading period begins.

Natural buyers have no reason to be active in the market until the very end of the trading period. This has been historically evident in nearly all SREC markets, with the exception being New Jersey in energy years 2010 and 2011 when a severe under-supply meant that buyers needed to compete throughout the year. If you look at price trends in New Jersey in 2009, Massachusetts, Maryland and Ohio, SREC markets consistently see a spike in activity – and increase in pricing – at the end of the trading period (May – August in New Jersey, March – April in the other states whose compliance requirements follow a calendar year).

In an oversupplied market, natural buyers know that the SRECs they need will be available at the end of the year. They have little incentive to be active buyers in months 1-5 when they don’t truly need their SRECs until month 15. Meanwhile, sellers don’t have the luxury of waiting until month 15 for their cash flows. What follows is a staring contest (favoring buyers) as sellers get more and more desperate to sell their New Jersey SRECs, while traders benefit from the ensuing panic. Anyone that understands project finance in New Jersey knows that the economics don’t support SREC values at $165, but yet that’s where they are trading – not because that’s what the “market” is for SRECs, but because a few sellers have sold into what has become a trader’s market.

Third party traders do play a valuable role in the SREC market by providing liquidity throughout the year, but they also benefit from the volatility. With no urgency coming from the natural buyers, traders are meeting the needs of sellers chasing liquidity at any cost. This has driven SREC prices well below where anyone expected, and as long as the natural buyers can sit on the sidelines, the market will continue to cannibalize itself to the ultimate benefit of traders and LSEs. Addressing this structural issue would create more consistency in the market throughout the year. It doesn’t mean that New Jersey would go back to trading at $500+ (it won’t trade that high again) but prices would trend along a much smoother curve and settle at a value that is rational in the market. With more volume traded on a regular basis, the market would better reflects today’s solar economics.

The long-term solutions in New Jersey would first address the mechanisms driving supply into the market in a way that promotes rational behavior. Some suggestions have been to regulate the supply coming into the market. That may give the BPU too much influence over a “market”. Ultimately, the answer will have to balance the needs of a competitive market with the assurances that everyone is acting in the best interests of the long-term viability of the market.

The BPU should also look at solutions that mobilize natural buyers earlier to create more consistent demand throughout the year. For a variety of reasons, it probably would not be feasible to break the reporting year into monthly or quarterly periods, though that could be one proposed solution. A modified solution would be to include the transaction date in the end-of-year report, with a requirement that the LSEs are held to some form of standard with respect to equal participation throughout the year. Either way, the inconsistency between the seller’s need for liquidity throughout the year and the buyer’s lack of urgency should be a key focal point for stakeholders looking at ways to address the volatility in the New Jersey market.

Tags: market, New Jersey, renewable portfolio standard, Solar REC, SREC, SREC Prices, stakeholders
Posted in New Jersey | Comments Off on New Jersey looks to address SREC volatility, but does it know where to look?

Governer Christie’s Draft Energy Master Plan criticized by Solar Alliance.

Posted September 8th, 2011 by SRECTrade.

The New Jersey State’s Energy Master Plan (EMP) draft, released every three years, is a vision for the use, management, and development of energy in New Jersey over the next ten years and beyond. It was released by Governor Chris Christie on June 7, 2011, but comments on the EMP were accepted up until August 25^th, with the Solar Alliance, a solar industry trade organization, filing comments just before the deadline.

The position taken by the Solar Alliance is that some of the costs and benefits have been misconstrued. In particular, the Solar Alliance commented that:

The Draft EMP has severely inflated the present cost of solar.
New Jersey’s solar costs have already been pushed far below those assumed in the Draft EMP by competitive SREC markets.
As opposed to statements in the Draft EMP, the costs of the SREC program comprise only a tiny fraction of ratepayers’ monthly electric bills
The Draft EMP acknowledges external benefits of other energy resources but does not account for external benefits of solar.
Contrary to statements in the Draft EMP, the quantified benefits of solar far exceeds the cost of solar incentives.

Carrie Hullen Hitt, President of the The Solar Alliance summarized the organization’s position this way, “we believe the analysis has left out important economic and social benefits. As currently drafted, the EMP will restrict New Jersey solar businesses from creating jobs and deploying clean, reliable solar electricity.” Below are three key points that the Solar Alliance feels should be included in any interpretation or revision of the EMP:

The Board of Public Utilities should quantify all value streams, from manufacturing to investment and financing to development and installation, associated with solar when attempting to calculate the net economic benefit of solar projects.
The EMP should use updated, universally recognized cost estimates of solar technology instead of out-of-date, inaccurate ones.
The EMP should reassess its calculation of the cost of the SREC Program to ratepayers. The Solar Alliance estimates that the cost of the program is equivalent to $.09 per kW-hr.

The EMP is responsible for assessing the impact of, and recommending adjustments to, New Jersey’s Renewable Portfolio Standard (RPS) Program. The RPS is the program that created the NJ SREC market. While it remains to be seen if the EMP will be revised in the light of these comments, recent shifts in the SREC markets have since led to a new paradigm. At the time that the EMP was released SRECs were typically trading at 95% of the SACP. As of this writing, SRECs are trading at around 25% of the SACP. This alone prompts a revisit to the calculation regarding the cost of solar on utility prices as the calculations were based on the assumption that SRECs are priced at 75% of the SACP.

Tags: Governor Christie Energy Plan, New Jersey Energy Master Plan, New Jersey Renewable Portfolio Standard, New Jersey SREC Legislation
Posted in New Jersey | 1 Comment »

First 2012 New Jersey Auction and Market Conditions

Posted August 10th, 2011 by SRECTrade.

Our August auction was the first auction of the NJ2012 reporting year (RY2012). In New Jersey, the reporting year runs from June 1 to May 31, and dictates the vintage year of a given SREC. June SRECs, the first generation month of RY2012, were first available for trading in the August auction and showed a significant price drop compared to RY2011 SRECs. The price drop reflects the anticipated oversupply of SRECs for RY2012. Previously, in RY2011 and prior, buyers had faced an under-supplied market and were willing to pay high prices. RY2012, however, will be the first year in the NJ market with an oversupply of SRECs.

RY2012 SRECs traded on July 29th at $276.16, approximately 50% less than the RY2011 prices. Prices for RY2011 SRECs (June 2010 – May 2011) remained high at $564.99. Given that compliance buyers have until the end of September to purchase their required RY2011 SRECs, RY2011 SRECs should remain in demand until that time.

For RY2011, SREC compliance buyers are required to purchase 306,000 SRECs, but SREC production fell short of this goal as the energy year came to a close. As of this posting, PJM-GATS reported that approximately 276,000 NJ2011 SRECs have been issued, representing a shortage of 30,000 SRECs. In RY2012, 442,000 SRECs will need to be procured, an increase of 136,000 SRECs, or approximately 113 MW. Given this increase the market is intended to only average 10 MW of solar development each month, though as the graph below shows, growth has averaged 20.1 MW per month since the beginning of 2011.

NJ blog post 8_10_11

New Jersey started the 2012 reporting year in June at 339.6 MW of installed capacity, approximately 28.7 MW less than the targeted average of 368.3 MW. As of the end of July, the NJ Board of Public Utilities announced the state surpassed 380 MW of installed capacity, adding more than 40 MW in June. Considering recent capacity added and additional growth through RY2012, the market will have enough supply online to create 442,000 SRECs in the 2012 reporting year.

On the legislative front, the New Jersey State Senate recently passed S2371, a bill intended to help stabilize the NJ SREC market. The bill has yet to move to the State Assembly and the Governor’s desk, but if passed, it would move the SREC compliance requirements forward one year, with RY2014 SREC requirements replacing those in place for RY2013.

Tags: New Jersey SREC forecast, New Jersey SREC Prices, New Jersey SREC volatility, NJ Solar Requirements, NJ SREC forecasts, NJ SREC Prices
Posted in New Jersey, SREC Markets, SREC Pricing | 2 Comments »

New Jersey SREC market experiences volatility for first time in 3 years

Posted July 14th, 2011 by SRECTrade.

The July New Jersey SREC auction on SRECTrade.com cleared at $555 earlier this week, an $85 drop from $640 where NJ SRECs have traded since the beginning of the year. Today, the results of the NERA SREC auction on behalf of the four regulated Electric Distribution Companies (EDCs) closed at $475 per SREC. This is the auction used by PSE&G, ACE, JCP&L and RECO to sell the SRECs they purchase from the solar facilities that contracted in the various long-term SREC RFPs, such as the Solar Loan Program.

Meanwhile, the most recent data on SRECs created in New Jersey was reported by the Office of Clean Energy through May (generation through April). After 11 months, the state has created 220,000 2011 SRECs. The requirement is 306,000 SRECs. In April, there were about 40,000 SRECs created by the installed capacity and with one month to go, and over 80,000 SRECs short, it is highly unlikely that the state will meet its target. New Jersey will probably end up with somewhere between 85% and 90% of the requirement – which is pretty successful given how low relative capacity was at the beginning of the year.

That said, SREC prices have fallen despite the under-supply. The market could either keep falling to levels similar to the $475 price in the NERA auction or it could turn out to be a lull in the market before 2011 trading comes to a close in September. Here are few possible explanations as to why prices might fall at this time of year despite a shortage:

1. The 4th of July holiday coupled with a large influx of supply from May SRECs created July 1 means buyers may not been as active, while the volume of sellers increased.
2. At this point in the year, the aggressive buyers have purchased the SRECs they need, leaving the market to less-competitive buyers, who will pay less or opt for the fine.
3. Since New Jersey has a fixed SREC requirement, the BPU must notify each buyer what their total SREC requirement is based on their pro rata share of electricity sales. Without that information, buyers have a harder time estimating their requirement than in past years when it was based on their own electricity sales. Until the BPU publishes the final requirements, buyers will likely hold off on their final purchases.

Either way, 2011 trading will end in September and 2012 trading will pick up next month as the first 2012 SRECs are created. Next year will be a big year for the SREC concept in general. For the first time since 2008, SREC prices in New Jersey will be set by the market, not by the SACP. The SREC market concept will be tested on a large scale with a pure SREC-only policy – something that was missing in Pennsylvania when supply shot through the roof last year. If dropping SREC prices have the intended effect, the rate of installation in New Jersey will slow down to 10-12 MW per month for the next few years. If it doesn’t slow down, prices could be in trouble.

For now, the immediate concern has to do with whether or not buyers will return to the 2011 market before the trading period ends. Given what 2012 has in store, at the very least, it would be prudent to make sure to sell 2011 SRECs before September 30.

Tags: New Jersey SREC forecast, New Jersey SREC Prices, New Jersey SREC volatility, NJ SREC forecasts, NJ SREC Prices
Posted in New Jersey | Comments Off on New Jersey SREC market experiences volatility for first time in 3 years

DC Closes Borders to Out-of-State Solar Systems

Posted July 12th, 2011 by SRECTrade.

The Council of the District of Columbia unanimously voted, today July 12th, to close the DC SREC market to out-of-state systems. The Distributed Generation Amendment Act of 2011 (Bill 19-10) increases the SREC requirement in 2011 as well as establishes an SACP schedule through 2023. Once in effect, the bill will allow out-of-state systems registered prior to 1/31/2011 to continue to sell SRECs in the DC market. The DC Public Services Commission has not provided clarification on how the bill will affect out of state systems that have already granted DC registrations after the January 31st 2011 grandfather date. For more information on the bill please refer to our previous blog postings here and here.

The bill is not yet law. It first must go through a 30-day Congressional Review process before it can go in to effect. Given these mechanistic delays we don’t expect the bill to go in to effect for at least another month.

The following chart illustrates which out-of-state systems will be effected by the legislation.

State	Eligible Markets (after B19-10 is effective)
DE	DE, PA
IN	OH; PA (if in American Electric Power territory)
IL	PA (if in Com Ed territory)
KY	OH; PA (if in American Electric Power territory)
MD	MD; PA
MI	OH; PA (if in American Electric Power territory)
NC	NC; PA (if in Dominion Electric Territory)
NJ	NJ, PA
NY	–
OH	OH; PA
PA	PA; OH
TN	PA (if in American Electric Power territory)
VA	PA
WV	OH; PA
WI	–

Posted in Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, SREC Markets, State RPS, Tennessee, Virginia, Washington, DC, West Virginia, Wisconsin | 2 Comments »

New Jersey Senate votes to advance solar RPS

Posted July 5th, 2011 by SRECTrade.

While the New Jersey Governor has recently raised some uncertainty over the state’s commitment to solar energy in the Energy Master Plan, there certainly is no doubt where the state Senate stands on the subject. Last week the Senate voted 30-7 to pass S2371 to accelerate the solar renewable portfolio standard. This Bill was originally intended to create a requirement for long-term SREC contracts in the New Jersey market, but that measure was shot down fairly quickly given the strong opposition from the deregulated energy industry in New Jersey. A later version of the Bill included a mechanism for a floor price, similar to the one introduced in Massachusetts in 2010. The version of the Bill that was passed only increases the SREC requirement in 2013, moving forward all the SREC requirements by one year in each year after 2012.

Though the initial intent of this Bill was to provide stability and lower long-term SREC prices to a fluctuating SREC market, the revised Bill will essentially double the additional capacity required in 2013. With a pending oversupply in New Jersey (the state installed 145 MW last year and needs only 115 MW before it hits an oversupply), the increase in 2013 will help support the current rate of solar adoption. The change will allow for 275 MW of additional capacity in 2013, allowing the state to maintain its current build rate. That said, it is only a temporary fix to what will continue to be a problem past 2013 as the requirements in 2014-2016 only allow for approximately 150 – 175 MW of solar per year. The bottom line is that the rate of solar development in New Jersey needs to slow down. Whether this bill passes or not only effects how fast the industry must apply those brakes.

If development doesn’t slow down, SREC prices will not only fall, but many sellers will not be able to find buyers in an oversupplied market. Hopefully the current drop in SREC prices are providing the intended signal to would-be solar projects that the market can’t handle continued development. This past month, an additional 23 MW became active in the NJ SREC market. Moving forward, the market cannot handle any more than 10-12 MW per month for the next 5 years if it is to reach an equilibrium.

Tags: New Jersey S2371, New Jersey Solar RPS Advancement, NJ S2371, NJ SREC market, NJ SREC Prices, NJ SRECs
Posted in New Jersey | 2 Comments »

New Jersey falls short of 2011 SREC target

Posted June 22nd, 2011 by SRECTrade.

The New Jersey SREC program runs on a June 1 to May 31 Energy Year (EY), referred to by the year in which it ends. EY2011 concluded last month on May 31, 2011. The final EY2011 SRECs will be minted for May 2011 generation beginning next week, commencing the end of year true up period. Load-Serving Entities will have until the end of September to finalize their purchases to meet state requirements. Though most of the remaining 2011 SRECs will be sold in the July auction, SRECTrade will continue to host auctions for remaining EY2011 SRECs in August and September. Given the shortage of EY2011 SRECs, prices should remain high, trading near the $640 mark that has cleared throughout the year.

According to the BPU, as of April 30, 2011, there was 330 MW of solar installed in the state. Due to interconnection and other delays, by the end of May, the actual number of solar facilities that were active in the SREC market was 310 MW. A common misperception in the SREC market relates to how supply and demand interact. Since there was a 255 MW requirement in New Jersey for 2011, it would appear that the state would experience an oversupply of SRECs having achieved 310 MW by the end of EY2011. In fact, New Jersey will fall short of its SREC requirement by approximately 40,000 SRECs. Here’s how we arrive at that number:

The New Jersey RPS requires a fixed number of SRECs each year:
EY2011 RPS Requirement = 306,000 SRECs or MWhs

The common annual production factor used in New Jersey is 1200 MWh per MW of installed capacity:
306,000 MWh / 1200 = 255 MW of required capacity

It is important to keep in mind that this is the capacity required to be running on average throughout the year. At the beginning of EY2011, on June 1, 2010, there was 133 MW of solar installed and active. Using the 310 MW installed and active at the end of the year, we can estimate the average capacity:
EY2011 Average Active Solar Capacity: (133 MW + 310 MW) / 2 = 222 MW

Converting back into SRECs, we can estimate the number of SRECs produced through EY2011:
222 MW * 1200 = 266,000 MWhs or SRECs

With this estimate, we can calculate the shortfall in New Jersey for EY2011:
306,000 SRECs required – 266,000 SRECs projected = 40,000 SREC shortfall

This is the same number projected by the BPU in the April report on the status of the SREC program. This should be good news for market participants with EY2011 SRECs, however, this is only a 13% shortfall and as the compliance period comes to an end in September, it is unclear if outside factors may influence pricing as the year closes out. For example, some buyers may opt to pay the SACP instead of procuring SRECs in the market. In other cases, prices may be influenced by oversupply concerns and falling prices for EY2012. With 310 MW active as a starting point and a 368 MW requirement for EY2012, the picture is not as bright for the future of New Jersey’s SREC market. A potential 2012 oversupply will most likely drive prices down in August when the first 2012 SRECs are created for June generation.

With 3 months left for buyers to procure EY2011 SRECs, it is unclear if market prices will finish the year on a strong note despite the under-supply.

Tags: New Jersey SREC, New Jersey SREC Aggregation, New Jersey SREC Aggregator, New Jersey SREC Broker, New Jersey SREC Prices, NJ SREC, NJ SREC Aggregation, NJ SREC Aggregator, NJ SREC Broker, NJ SREC Prices, SREC Prices
Posted in New Jersey | 1 Comment »

New Jersey Energy Master Plan Myths

Posted June 14th, 2011 by SRECTrade.

Governor Christie’s Energy Master Plan (EMP), released last week, is a document published every 3 years that lays out the energy agenda for the Christie administration. The plan itself has no impact on the existing Renewable Portfolio Standard (RPS) in New Jersey. Any changes to the RPS would need to come from the legislative branch since the SREC program has been written into law. That said, the EMP could begin to influence the general thinking in the state, which could be cause for concern given that some of the conclusions are inaccurate. Here are some ideas that have been suggested in the EMP that need to be challenged:

Myth 1. Solar may be too costly and needs to be reigned in by a cost-benefit test

The general theme of Christie’s view on solar is concern over the impact on electricity costs of the SREC program. To that point, the EMP suggests that the SREC program be subjected to a cost-benefit test. Prior to 2010, the program had a cap on the cost to ratepayers that was removed by the legislature in the NJ Solar Energy Advancement and Fair Competition Act. The removal of the cap was likely intended to bring more stability to the SREC market which would face a collapse if the cost threshold were reached, making it very difficult to finance projects with such a wildcard in play. Since the 2010 Act, solar installation in New Jersey has soared and the state is on target to reach its aggressive solar goals in 2012. One of the more concerning assertions in the EMP is the cost that solar has had on the ratepayer. A recent Op Ed on NJSpotlight.com by R. William Potter, reaches different conclusions based on the information provided in the EMP. According to Potter, the data shows that the solar program has been a bargain for the state of New Jersey.

Myth 2. The SACP in New Jersey is higher than other states and should be lowered

Figure 38 compares the New Jersey SACP (Solar Alternative Compliance Payment), effectively the ceiling price for SRECs in New Jersey, to those in other states. What it fails to mention is that other states also offer additional upfront rebates and incentives that New Jersey has intentionally moved away from in favor of a greater dependence on SRECs. The elimination of upfront incentives was coupled with an increase in the SACP in 2009 so that SRECs could carry solar projects in New Jersey. This is a key reason why the SREC market in New Jersey has been stable, while other markets, like Pennsylvania, have faltered. Unlike other SREC markets, New Jersey relies entirely on SRECs. There’s no rebate + SREC combination in New Jersey. This means that a project is highly sensitive to SREC financing in the state, whereas in other states, with lower SREC values, the economics aren’t as dependent on the SREC values, and the markets have become unstable due to an influx of projects built with little regard for what the SREC market is doing.

Myth 3. SREC prices are trending upwards, while the cost of solar comes down

Another entirely inaccurate assessment of the data provided in the EMP plan comes in Figures 39 and 40 on page 91 of the document. Historical SREC prices quoted by the New Jersey Office of Clean Energy are displayed, demonstrating an increase in SREC prices over time, while Figure 40 shows that the cost of solar has come down over time, drawing the conclusion that the SREC markets aren’t tracking with the economics of solar. For starters, the data they point to from the Office of Clean Energy is flawed, leading to these incorrect conclusions. The data is pulled from the prices self-reported in GATS each time an SREC is transferred. The problem is that many SREC transfers represent contracts that were signed years ago. If you installed a solar system in 2008 and entered into a 3-year contract, the price was likely around $100-$150 per SREC at that time, when the SACP was $300 (and there was a generous upfront rebate). 3 years, later, you are still transferring your SRECs over at $100-$150 per SREC in an SREC-only market where prices are now trading at $650 per SREC. These legacy contracts have weighed down the average SREC prices over the past 3 years, but as they expire, new contracts will be signed with the post-2009 SACP schedule in place. The average prices published by the New Jersey Office of Clean Energy will naturally rise until the final legacy contract expires. Until then, any conclusions drawn based on the increase in the average price will be terribly flawed.

The EMP’s understanding of SRECs would likely have been more informed if it were published in 2012. Now that New Jersey is finally catching up to its solar goals (and most legacy contracts are expiring), average SREC prices will begin dropping soon. If you were to review historical NJ SREC prices on SRECTrade.com, you will see a step down each year as the SACP is lowered. Prices remained in alignment with the SACP because of a significant shortage of solar and SRECs. In 2012, we will likely see the market transform into a competitive market, based on the cost of solar, and not on the SACP. This is because, for the first time in a few years, there is an end in sight to the shortage and the market will soon begin acting as a market.

Establishing the new SACP:

In 2010, the solar Act called for an extension of the SACP through 2026. It is currently scheduled through the 2016 Energy Year, and cannot be lowered without legislative action. In addition, the law currently states that the BPU must extend the schedule through 2026. The EMP softly suggests a 20% reduction in 2016 followed by a 2.54% reduction moving forward. Ultimately the BPU will decide what the schedule should be, but it shouldn’t make a decision based on the analysis put forth in the EMP. There is limited downside to keeping the SACP high, since it will only factor into SREC prices when utilities fail to meet their goals (the case in 2009-2011). If the SREC market acts as it should, when supply is up and the state is reaching its goals (starting in 2012), the SACP should be a non-factor. However, if the SACP is set too low, SRECs will not be enough to finance solar, stifling growth and compromising the “competitive market” aspect of what makes the SREC program such a powerful force in making New Jersey the 2nd largest solar industry in the U.S. There’s no reason not to extend the SACP at the current rate of a 2.5% annual reduction through 2026, remaining consistent with the precedent.

Tags: Chris Christie, Governor Christie, New Jersey Energy Master Plan, New Jersey Solar, New Jersey SRECs, NJ EMP, NJ Energy Master Plan
Posted in New Jersey | 1 Comment »

NJ 2011 Energy Master Plan – Solar RPS on Track

Posted June 10th, 2011 by SRECTrade.

On June 7, 2011, New Jersey Governor Chris Christie announced the issuance of the state’s draft of the 2011 Energy Master Plan (EMP). By way of background, the EMP is a road map describing the energy goals of the state’s executive branch. The plan is required to be issued and updated every 3 years. For details of the 2011 draft please click here. For details on the 2008 EMP click here.

Overall, the report outlines the continued implementation of the NJ Renewable Portfolio Standard (RPS) solar carve-out. As the report stands, there is no commentary made that would indicate a substantial change to the existing program. The following provides more insight into the aspects of the report that touch specifically on the RPS solar requirements.

The currently legislated RPS target in New Jersey is 22.5%. Of the several goals set forth in 2008 EMP, one sought to surpass this RPS target by achieving 30% of the state’s electricity needs from renewable sources by 2020. The recently released 2011 Draft EMP lays out 5 goals, one of which is to “Maintain support for the renewable energy portfolio standard of 22.5% of energy from renewable sources by 2021.”

The 2011 Draft EMP demonstrates support for behind-the-meter PV installations, highlighting solar’s ability to achieve reduction in carbon emissions and supporting a solar industry in the state, while also taking into consideration the cost associated with solar incentives to ratepayers. The document does not call for a reduction in the existing solar carve-out, but does indicate the following,

“As the all-in capital costs for diverse solar technologies continue to decline, the Board should take action to reduce the SACP through 2025. Doing so will not undermine new solar projects that are worthwhile, but will reasonably minimize the cost burden borne by nonparticipants.”

The Christie administration explains the benefit of larger scale solar projects while noting that they “…should be considered in addition to, not in lieu of, smaller-scale, grid-connected applications.”

The document highlights the fixed SREC requirements implemented by the Solar Energy Advancement and Fair Competition Act (SEAFCA) introduced in January 2010. Instead of a percentage-based solar requirement, this act insulated the requirement from fluctuating electricity usage by implementing targets in fixed gigawatt-hour terms. This proves beneficial, as part of New Jersey’s energy goals include demand response and energy efficiency initiatives that plan to reduce overall electricity usage.

Solar Alternative Compliance Payment (SACP):

1) The current SACP extends through 2016; the SEAFCA requires the BPU to set the schedule through 2026.

2) No time frame is required, but industry stakeholders suggest the implementation of a schedule to provide certainty to debt and equity investors enabling solar development.

EMP Policy Direction and Recommendations regarding the solar carve-out are as follows:

1) Reduce the SACP: One proposal recommends the reduction of the SACP by 20% in 2016 and 2.54% each year thereafter.

2) Subject Solar Renewable Incentives to a Cost Benefit Test: The EMP mentions, “Solar generation can contribute to the reliability of the grid…” and continues by stating, “…subsidies should enhance job growth and retention objectives and should contribute to reduction in taxes without inadvertently transferring wealth from non-participants to participants throughout New Jersey.”

3) Promote Solar PV Installations that Provide Economic and Environmental Benefit: Support for community solar power is encouraged, allowing economies of scale to give residents access to what otherwise could be an expensive individual solar system. Community solar projects help provide decreased electricity usage through the local utility and can spread the cost of distribution system upgrades among the ownership group.

Overall, the 2011 Draft Energy Master Plan lays out the goals for a diversified mix of energy sources throughout the state of New Jersey. The existing overall RPS targets and specific solar carve-out requirements appear to be a priority of the Christie administration. It is clear that the Governor’s office is focused on reducing the economic impact of implementing the RPS while enhancing electricity security and job creation. The EMP has no substantive proposals that should cause concern for stakeholders participating in the state’s SREC market, but at the same time does not include any discussion of expanding New Jersey’s solar goals to continue adoption beyond the current targets.

Maintain support for the renewable energy portfolio standard of 22.5% of energy

from renewable sources by 2021.

Tags: Governor Chris Christie, New Jersey RPS, New Jersey Solar Alternative Compliance Payment, NJ Renewable Portfolio Standard, NJ SACP, NJ Solar Renewable Energy Certificates, NJ SRECs, SACP, Solar Renewable Energy Certificates, SREC aggregation, SREC Aggregator, SRECs
Posted in New Jersey, SREC Markets, State RPS | 1 Comment »