Posts Tagged ‘New Jersey’

New Jersey SREC Update May 2012

Posted May 7th, 2012 by SRECTrade.

New Jersey SRECs recently traded at $115.16 per SREC in SRECTrade’s May 2012 auction. This follows the dramatic decline in prices that the New Jersey SREC market has experienced since the beginning of the 2012 energy year. Click here for historic data on SRECTrade’s New Jersey SREC market auction pricing.

What’s going on?

The New Jersey SREC market is oversupplied. The state’s  Solar Renewable Portfolio Standard (RPS) targets a fixed number of megawatt hours (MW-hrs) needed to be purchased by electricity suppliers each compliance period. A MW-hr is the equivalent of one SREC, so in NJ we discuss the SREC market both in terms of total capacity installed in MW and total number of SRECs available each year. Under the current RPS, significantly more solar has been installed than is necessary to meet the state’s RPS goals for the next several years.

The 2012 reporting year (June 1, 2011 – May 31, 2012) requires 442,000 SRECs. Our March 2012 capacity analysis (scroll down to see the NJ numbers) shows that as of the beginning of April, total registered installed capacity was 670.9 MW with 386,500 SRECs issued. More recent data from the New Jersey Office of Clean Energy shows the installed capacity, as of March 31, 2012, at 730.3 MW. Additionally, approximately 455,000 SRECs have been issued in GATS from solar PV generation through March 2012. This figure, demonstrates that as of the last issuance period, there are more than enough SRECs available in the market to meet the 2012 reporting year requirement of 442,000 SRECs. The Generation Attribute Tracking System (GATS) is the organization that all New Jersey PV systems must register with in order to create and transact SRECs.

Another factor is that SREC issuance tends to follow a natural lag due to missing meter reading submissions and delays registering systems with GATS.  Given our experience with this data, it’s reasonable to expect a further bump in SREC numbers through March 2012. Also, April and May 2012 SRECs will be issued at the end of May and June, respectively, and will also add to this year’s total SREC issuance figures.

The additional volume to be issued allows us to project that the market is likely 40% to 50% oversupplied for the 2012 energy year. Lastly, when analyzing the 2013 through 2015 energy year current RPS requirements, the figures show that the market will be oversupplied when taking into consideration eligible excess SRECs rolled forward from prior years and the existing amount of installed capacity as of 3/31/12 currently eligible to produce SRECs. The table below demonstrates this in more detail:

Proposals to stabilize the SREC market

Industry stakeholders are working with the New Jersey legislature to come up with a way to stabilize the NJ SREC market. A article dated May 3rd, mentions a possible bill proposal by Sen. Bob Smith (D-Piscataway), Chairman of the Senate Environment Committee, that would accelerate New Jersey’s solar goals while reducing how much buyers would need to pay for their SRECs if they don’t have enough SRECs in their portfolios at the end of each energy year.

To date, no bill has been made publicly available. Based on the information provided on the NJ State Legislature website, it appears the bill will be slated under the number S1925. The current description listed includes the following, “Revises certain solar renewable energy programs and requirements; provides for aggregating net metering of Class I renewable energy production on certain contiguous and non-contiguous properties owned by local government units and school districts.”

Until then, we must speculate on what the final contents of the bill will be.  An additional consideration is that even if a bill is passed by the NJ legislature, the bill will likely not go into effect until the 2014 energy year which starts in June 2013.

New Jersey Solar Legislation Doesn’t See the Light

Posted January 10th, 2012 by SRECTrade.

New Jersey legislation to modify the state’s renewable portfolio standard (RPS) in order to increase demand to soak up existing excess supply failed to pass the NJ Legislature yesterday. In fact, the bill (S-2371) never even came to a vote because of disagreements among solar advocates, who were not in lockstep over issues such as the mix between distributed net-metered and larger utility scale projects.

Although Governor Christie signaled broad agreement with the majority of the bill in his Energy Master Plan, released in December, several last-minute changes were made in the final 2 days of the session. The complexity of these changes was apparently too great to digest given the limited time available. The view of the new legislature on this issue should not change appreciably with the start of the next session and the Governor’s support is clear.

At this point it is a matter of priority and the ability to put together a new bill and get it scheduled for a vote early in the new session. Although a setback for the solar industry in New Jersey for now, hopefully increased time to craft and debate the new bill will allow for more transparency and a lead to a better quality piece of legislation.

Governor Christie backs solar in New Jersey’s final 2011 Energy Master Plan (EMP)

Posted December 7th, 2011 by SRECTrade.

Governor Christie’s administration has released the 2011 Energy Master Plan, which can be viewed in its entirety here.  The Plan is generally positive for the stability of NJ SREC markets, and signals overall support by the Governor’s Office for solar in NJ.  The plan specifically lists support for the following:

1. Accelerate the RPS:

A temporary acceleration of the RPS would provide some interim relief for the current market in SRECs and an opportunity for the industry to adjust. This acceleration would require increasing the RPS over the next three years and reducing the outlier years of the RPS schedule to minimize the impact to ratepayers.”


2. Give preference to smaller, distributed projects:

Projects that offer a “dual benefit” should take priority for approval and any legislative expansion of SREC eligibility by modifying the definition of “distribution system” should also provide the BPU with the ability to review and approve subsidies for grid-supply projects to ensure compatibility with land use, environmental and energy policies. Additionally, the development of solar projects should not impact the preservation of open space and farmland.

We read that second bullet as support for giving the BPU the ability to manage large utility scale projects so that they don’t flood the SREC market.

Other interesting points include support for extending Electric Distribution Company contracting programs and support for a requirement to set up a supply queue that will give the market insight into pipeline of future non-residential systems.

The Governor also calls for reducing the Solar Alternative Compliance Payment (SACP) schedule to minimize impact of the previous changes to ratepayers.  This seems to be a reasonable concession on the part of SREC sellers, especially given that the current oversupply situation makes the SACP irrelevant.

The EMP by itself does not make policy or change the current NJ renewable portfolio standard.  However, it does signal the Governor’s position on any legislation that he may be asked to sign that would change the portfolio standard law, like Assembly Bill 4226 which contains many of the items listed in the EMP.

The EMP process itself has been illuminating, revealing a Governor’s office that is responsive to stakeholder input and seems to be responsive to data over dogma.  The draft EMP released earlier in the year was far less positive toward solar, however over several public meetings and hundreds of public comments the Governor’s office heard a great deal about the impact of solar on jobs and NJ’s energy supply.  The final Plan reflects much of this input and is a very different document from the draft.

Overall, the 2011 EMP indicates that the Governor supports solar, but he isn’t willing to write the industry a blank check.  The solar industry will need to continue to prove it’s value to New Jersey, and as long as it continues to do so it appears to have the support of Governor Christie.

 Accelerate the RPS
A temporary acceleration of the RPS would provide some interim relief for the current market in
SRECs and an opportunity for the industry to adjust. This acceleration would require increasing
the RPS over the next three years and reducing the outlier years of the RPS schedule to minimize
the impact to ratepayers.

New Jersey Capacity Update – Solar Continues to Push Forward

Posted November 28th, 2011 by SRECTrade.

NJ2012 Capacity Update

The New Jersey Office of Clean Energy (NJ OCE) published an updated installed solar projects list as of September 30, 2011. According to the NJ OCE, as of 9/30/11 the Garden State installed 447.7 MW of solar capacity. This equates to more than 20 MW added in the month of September, putting the state at an average of 27.1 MW per month and a total of 108.2 MW installed for the 2012 compliance year to date. NJ OCE estimates for October 2012 expect 44 MW of additional capacity to be installed, bringing total installed capacity to over 491 MW.

Although the NJ OCE reports 447.7 MW installed as of September 30, 2011, PJM GATS currently shows 431.2 MW registered to produce SRECs as of 11/26/11. It is common to see a difference in registered projects between the NJ OCE and PJM GATS reported figures as there is typically a delay from when systems are interconnected and installed to when they receive their NJ state certification number and become registered in GATS.

New Jersey’s 2012 reporting year solar requirement is currently set at 442,000 MWhs. Assuming a production factor 1.2 MWh per installed kW per year, the state needs approximately 370 MW operational all year long. As of 11/26/11, GATS has reported 163,507 SRECs issued through September 2011 generation. October 2011 generation will be issued on November 30, 2011. Given the volume issued through September 2011, approximately 37% of the required volume has been generated. This leaves a need of approximately 278,500 SRECs to meet the 442,000 MWh RY2012 target.

Monthly Capacity Analysis_v2-1

Assuming all NJ solar facilities produce at a 1.2 MWh production factor per kW per year, and all systems noted as installed on the NJ OCE installed project list received generation credit from their first full month of operation, the existing installed capacity of 447.7 MW will produce approximately 338,400* SRECs between October 2011 and May 2012. This additional generation will bring the NJ2012 SREC issuance total to approximately 501,900 SRECs, an excess of 60,000 MWhs. Assuming the October 2012 estimates are accurate, the additional of 44 MW in October creates additional oversupply, equating to a forecast of almost 530,600* NJ2012 SRECs minted and an excess of 88,600 MWh. Both of these scenarios only account for the existing installed capacity through September 2011 and estimates through October 2011. Additional supply will continue to come online through the remaining months of NJ2012, with more capacity anticipated to be pushed through at the end of the 2011 calendar year due to the expected expiration of the federal grant incentive. The additional supply coming online throughout the remaining months of NJ2012 will further impact the long SREC market NJ is facing and have an effect on the 2013 market.

NJ2013 SREC Market

As it currently stands, the NJ2013 (June 2012 – May 2013) Renewable Portfolio Standard (RPS) requires 596,000 MWhs of solar generation. This Solar REC requirement equals approximately 496.7 MW to be operational all year long, assuming the NJ2013 requirements are met only using 2013 vintage SRECs. Given the current market, and expected oversupply, the NJ2013 market will start off the year with between 60,000 – 88,600 MWhs already issued and eligible to meet the 2013 requirements. Note, this assumes the September figures and October estimates provided by the NJ OCE are accurate and do not take into consideration any additional capacity to be installed in the remaining months of the 2012 compliance period.

Assembly Bill 4226

Introduced on November 10, 2011, Assembly Bill 4226, sponsored by Assemblyman Upendra Chivakula (District 17), and Assemblyman Daniel Benson (District 14), would implement changes to the current solar RPS requirements. Under the current RPS, the SREC requirements are subject to a 20% increase per year through 2027 should the state meet or exceed its solar requirements three years in a row, while also experiencing a decline in SREC pricing in those same three consecutive periods. The final paragraph of the current format of 4226, states that the 3 year time period would be reduced to 1 year and be applied beginning in the 2013 compliance period.

Should this bill be signed into law, the 20% increase would take effect in 2013. Currently, RY2013 has a requirement of 596,000 MWhs. A 20% increase would adjust the 2013 requirement to 715,200 MWh; equal to an additional 119,200 SRECs required or approximately 99.3 MW operational all year long.

Other solar trade and advocacy groups have actively suggested alternative proposals to the legislation, some of which include a revised SREC requirement schedule as well as a fixed SACP schedule through 2027. We will continue to keep a close eye on the legislative process and provide updates as more information is known and how it will impact RY2013 and future NJ compliance periods.

*This figure uses a PVWatts calculation assuming 1.2 MWh/kW/Year and takes into consideration seasonality for the remaining months left in the compliance period.

NJ Capacity Update

Posted October 10th, 2011 by SRECTrade.

The New Jersey Office of Clean Energy (NJ OCE) recently released installed solar capacity figures as of August 31, 2011. After the first three months into Energy Year (EY) 2012, the state has averaged a rate just over 30 MW/month, bringing the total installed capacity to more than 430 MW, up from 339.6 MW at the end of EY2011. In order to meet the state’s fixed production requirement of 442,000 SRECs this year, approximately 370 MW needs to be online throughout the entire compliance period.

The 2012 spot market traded up to $200+/SREC in recent periods with the October auction clearing at $205. The estimated average installed capacity needed to meet the EY2013 requirement is approximately 500 MW. To reach this target by the beginning of EY2013, the state would have to install an additional 70 MW, or an average of 7.8 MW/month for the remainder of EY2012. This calculation takes into consideration the capacity needed to generate enough EY2013 vintage SRECs, which could be reduced based on EY2012 vintage SRECs used to meet the EY2013 compliance obligation.

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 Capacity Aug 31 2011

Note: This analysis is based on capacity as of the dates noted and does not take into consideration the impact of EY2012 vintage SRECs used to meet the EY2013 requirement.

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

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.

NJ solar rebate program suspended

Posted May 14th, 2010 by SRECTrade.

This week, the New Jersey Board of Public Utilities announced they are suspending their popular solar incentive program. The rebate paid $1.00 per watt to commercial systems upto 50,000 watts and as high as $1.75 to residential systems.

New Jersey’s actions parallel those the cuts to solar incentives in Spain and the reduction of feed-in tariffs (FiT) in Germany. Fixed rebate programs and feed-in tariffs lack a market mechanism and don’t have the feedback mechanism inherent in a REC or SREC trading program. If legislators set the solar incentives too low, they don’t inspire any development. But when legislators set incentives too high, there is a gold rush — developer overwhelm the rebate or FiT programs that was engendering the frenzy.

These dramatic cuts highlight difference between rebates and feed-in tariffs and an SREC program. SRECs prices move according to supply and demand and are not subject to on-again, off-again whim of legislators and have proven to be a stable, long-term incentive that has been very effective stimulating solar development.

In New Jersey, SRECs are now an even bigger determinant of the economics of a project. With clear, transparent long-term contracts, solar investors and developers have clarity in the cash flows associated with solar. And for smaller systems looking to offset the high upfront costs of installation, prepaid SREC contracts are an interesting alternative to rebate programs – the current bids in New Jersey prepaid SRECs equivalent to approx. $2.27 per installed watt.

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