Posts Tagged ‘NJ SREC Prices’

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.

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 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.

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.

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.

NJ Backs Out of RGGI, Support Remains Strong For NJ SREC Market

Posted May 27th, 2011 by SRECTrade.

Yesterday Governor Chris Christie of New Jersey announced that he would be removing the state from the Regional Greenhouse Gas Initiative (RGGI), a 10-state program intended as a carbon dioxide cap-and-trade program intended to reduce the power sector’s emissions levels of the greenhouse gas 10% by 2018.

The move, according to Governor Christie, seeks to cut state budget costs by eliminating participation in a program that he deemed “a failure”.  The regional program, however, remains backed by the other Northeast states, and the consequences of the New Jersey withdraw to the RGGI market will most likely be nominal.

Most important for solar customers in New Jersey is to understand that Governor Christie’s decision is not connected to the state’s SREC program.  Participation in RGGI does not affect the state’s participation, goals, or support for the SREC market in NJ.  Please see our March post describing Christie’s previous endorsement of the SREC market.

Governor Christie throws support behind NJ SREC program

Posted March 18th, 2011 by SRECTrade.

Many wondered what might happen to the New Jersey SREC program when the state Governor’s office shifted into Republican control. Since taking over, Governor Christie has initiated a review of all the state renewable programs to understand the effect they have on ratepayer costs. SRECs make up such a small percentage of the overall electricity market, that the cost increases should be relatively minor across the ratepayer base. Furthermore, as a cornerstone of the solar industry in New Jersey, the impact that the SREC program has had on the growth of investment and jobs in the Garden State will likely overshadow any nominal increase in electricity rates.

To this effect, New Jersey has out-distanced every other state in the region, particularly in establishing an SREC market that can support an industry – not a few utility scale solar projects. The primary driver of this success has been the emphasis on smaller, distributed projects and accessibility to a market of buyers. In the early years of the SREC market, New Jersey had a cap of 2 MW, limiting the size of any single entrant in the market and ensuring that many stakeholders could benefit from the program. This is in stark contrast to a state like Ohio, where the SREC program has been tripped up out of the gates by large projects that have cornered the market for SRECs.

The divergent stories of AEP and FirstEnergy in Ohio demonstrate a perverse incentive set up by a poorly designed SREC program. With no cap on the size of projects eligible for the SREC market in Ohio, AEP chose to make plans for utility scale projects. The first was a 10 MW project in Upper Sandusky Ohio and the next project is slated for 50 MW by 2015 in southeastern Ohio. Meanwhile, FirstEnergy chose not to develop these utility scale projects in favor of sourcing SRECs from the in-state solar industry. The RFPs (requests for proposal) they issued with the help of Navigant Consulting were ineffective and at the end of the year FirstEnergy was unable to find any supply of SRECs. In their request to the Ohio Public Utilities Commission to be relieved of their SREC obligation in 2010 due to a shortage of supply, FirstEnergy accurately cited that AEP was successful in sourcing SRECs because it went with utility scale projects, whereas FirstEnergy attempted to purchase from distributed projects. The problem in Ohio with SRECs is that a robust market for spot transactions or bilateral contracts was not developed early on because a few utility scale projects corner most of the market, while the rest of it is made inaccessible by bureaucratic RFPs that just don’t cut it in a burgeoning solar industry filled with startup entrants.

This is where New Jersey has been successful. Since the beginning, the SREC market was established in a way that made it accessible to homeowners and businesses, local installers and upstart developers. The New Jersey Office of Clean Energy has meticulously reported statistics on a monthly basis of how many SRECs are created, traded and the prices at which they are trading. Combined with the knowledge that the market was secure from the threat of utility scale entrants, the installation companies and solar development firms that entered the industry were able to make informed decisions that ultimately led to investments in solar. This is why New Jersey has a legitimate solar industry with a diverse group of entrants that will eventually be self-sustaining as the cost of solar continues to come down. Governor Christie gets this.

In the passing of AB 2529, a New Jersey Bill that would expand the eligibility of the SREC program, the Governor rejected a change that would allow utility scale projects to bypass the scrutiny of the BPU in being accepted into the SREC program. As the New Jersey market stands, a utility scale project can be accepted into the SREC program only if the BPU deems that it will not have an adverse impact on pricing in the SREC market.  This Bill would have created an exception to that rule that could have jeopardized the SREC market. Governor Christie writes:

Accordingly, I recommend that this exception be eliminated. I am concerned about the impact that these solar facilities may have on ratepayers, the impacts these facilities may have on the solar power and SREC market and, the impact these facilities may have on the land use. The role of the BPU and DEP is vital in determining the impacts that large scale solar facility projects will have in New Jersey and should not be by-passed.

This is a major vote of confidence in Governor Christie’s support of using the SREC market as a cornerstone for building a solar industry in New Jersey. It demonstrates that he sees the value of protecting this market for the entrepreneurs and small businesses that have made a living on solar in New Jersey. Many of those businesses have taken their expertise into other markets, creating more opportunities in nearby states. As a result of the SREC program, the state has created opportunities for its solar-smart residents both at home in New Jersey and beyond the state line.