Posts Tagged ‘Pennsylvania’

PA’s Latest Attempt to Increase Solar Requirements – HB 1128

Posted November 12th, 2010 by SRECTrade.

At the end of September, Pennsylvania lawmakers introduced HB 1128. The main focus of the bill is to amend the requirements under PA’s Alternative Energy Portfolio Standards (AEPS) by increasing the amount of renewable energy to come from Tier I alternative energy sources and Solar Photovoltaic technologies. In addition to increasing the requirements, HB 1128 attempts to amend the program by introducing a fixed alternative compliance payment (ACP) for the Solar PV portion of the AEPS. Currently, the ACP under the PA solar carve-out is derived based on 200% of the average SREC price paid by buyers during the reporting year. The ACP in RY2008 and RY2009 was $528.17 and $550.15 per MWh, respectively. The table below demonstrates the the key changes to the solar requirements, attempting to increase the total requirement 3 times the current level by the 2022 energy year.

HB1128 Table_Crop

Positive Impacts of HB 1128
The increase in PV capacity would help support the growing solar economy in Pennsylvania and provide more room under the current requirements for more solar to come to market. The current PA market has over 2,900 solar projects registered and eligible for the AEPS program. The total nameplate capacity of these projects is equal to 51.8 MW. Of these 2,900 projects only four projects are greater than 1 MW. In addition to being eligible for the PA SREC market, many of these facilities could also be registered in other states such as Ohio and Washington D.C.

The current capacity of solar projects eligible for the PA market is greater than the requirements for the current energy year. The implementation of HB 1128 would allow for the solar market to continue to grow and support the development of projects of all sizes, from small rooftop residential to larger multi-MW utility scale solar systems. Pennsylvania’s inability to implement some sort of amendment to increase the solar RPS requirements could result in a migration of PA’s solar industry to other surrounding states such as New Jersey, Maryland, and Delaware which have all recently increased the requirements of their solar RPS programs and maintain fixed alternative compliance payment schedules. It has been estimated that the increase in the AEPS program could create at least 14,000 jobs over the next ten years. A stronger solar policy in PA will not only help create new, clean energy focused jobs, but will help move the state towards a more energy independent future.

Compared to HB 2405, the treatment of out-of-state facilities is not addressed in HB 1128. Though the future acceptance of out-of-state facilities can be left up to the lawmakers to debate, the major problem with HB 2405 was that it excluded existing facilities from neighboring states that have been financed based on being accepted into the SREC program in Pennsylvania. This disregard for the existing out-of-state facilities is unacceptable. Fortunately, HB 1128 does not address this issue. Any future Bill to address this topic should at the very least grandfather in any previously approved facilities.

Negative Impact of HB 1128
Despite the need for an increased requirement, PA HB 1128 may not be the answer because of the low ACPs that are included in the Bill.  It could depress SREC market pricing to levels that could be prohibitive to the economics of solar today.  There are few financeable projects at SREC values below $200, especially when there is limited access to long-term contracts. Compared to other state markets, PA would have the lowest ACP and be heading in the opposite direction of states like Delaware, Maryland and New Jersey that have increased the fines to encourage growth and discourage electricity suppliers from paying the ACP.

Pennsylvania’s Current ACP
Meanwhile, the current ACP in Pennsylvania has not been implemented the way it was intended, which could have an impact on the market in the long run.  The way the law was written, the intent was to fine electricity suppliers 200% of the average SREC purchase price in the PJM region. i.e. keeping them in check with neighboring state markets.  Most likely because this was somewhat vague and difficult to calculate, the ACP was interpreted differently by the organizations implementing the program. Instead of being fined based on neighboring state markets, the interpretation of the ACP was that since Pennsylvania accepted SRECs from throughout the PJM region, it was a fair indication of the average price in the region. Therefore, Pennsylvania uses an ACP of 200% of the average price paid for compliance in Pennsylvania. Instead of keeping buyers in the PA market in check with other states, the ACP in Pennsylvania keeps buyers in check with themselves. The goal for buyers in Pennsylvania is to keep the average price down, so that the fines will remain low in non-compliance years. In reality, the price paid will ultimately have to be just enough to get a project done, though the market would be far more stable if the ACP were implemented as it was originally intended.

Click here for a link to the HB 1128 summary.

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Pennsylvania SREC Market in 2010

Posted February 19th, 2010 by SRECTrade.

Despite a robust RPS and the threat of non-compliance fines above $550, the Pennsylvania SREC market has been slow to develop. We take a quick look at some of the factors that influence this market and hopefully provide some insight as to why the Pennsylvania SREC demand has been low.

Demand Issues: For starters, the PA RPS is expected to ramp up as described on our Pennsylvania Page. Based on current electricity sales into Pennsylvania, we project the demand for SRECs to be as follows:

Pennsylvania SREC ProjectionsAccording to this projection, approximately 20,000 SRECs need to be purchased in Pennsylvania for generation through May 31, 2010. However, the reality is a bit more complex. Electricity markets are composed of three types of companies: electricity generators who supply the power, electricity transmitters responsible for transmission and electricity distributors responsible for the delivery of the retail electricity. It is important to know that although the distribution companies (EDCs) or retail utilities are most commonly associated with state RPS goals, it is actually the numerous electricity suppliers who are responsible for purchasing the SRECs to meet the RPS. The Pennsylvania electricity market is comprised of 11 Electricity Distribution Companies (EDCs).  Behind each EDC are the many suppliers providing power to them.  When the PA RPS was passed, the suppliers for several EDCs were exempted for the first few years. According to the DSIRE website, these EDCs were exempted because they were under rate freezes or still recovering from costs associated with restructuring. In all, 5 of the 11 EDCs are exempt. The exemption ended this January of 2010 for one of the EDCs and the exemption for the other 4 will expire in January of 2011.  More significantly, these EDCs represent over 85% of the total electricity market exempt through January of 2010 and 70% exempt through January of 2011!  With that said, this changes the outlook for SREC demand in Pennsylvania substantially in 2010 and 2011:

Pennsylvania EDC SREC BreakdownAs a result, the actual demand for PA SRECs in the 2009-10 Energy Year drops from nearly 20,000 SRECs to under 5,000 SRECs – 25% of what was initially projected. In 2010-11, the demand drops from an initial projection of 33,000 SRECs down to 21,000 SRECs – about 60% of initial projections!

Procurement Issues: In addition to a decreased demand in the early years of the PA market, the state also has some constraints in place that have created challenges for buyers and sellers to connect in this market. For the first time in history, home and business owners are entering electricity markets as generators. These markets are geared towards large corporations that produce significant amounts of power, and as a result, the approach many companies have taken to procuring SRECs is geared towards large companies (as an aside, this is why GATS is such a cumbersome platform for solar owners). In addition, since most of these companies are heavily regulated, protections are put in place to ensure a competitive process. Unfortunately, these protections are also geared towards large companies.  The end result is that the Pennsylvania Public Utilities Commission (PUC) requires buyers to use a competitive RFP process.

Well, the problem is that most solar owners don’t even know what an RFP is, let alone have the requirements in place to be eligible. This explains why most RFPs for SRECs are severely under-prescribed and why in late 2009, PPL successfully petitioned the PUC to lessen the credit requirements necessary to bid in their RFP. Instead of being required to have a credit rating and listing with an accredited credit agency, you now only needed to put up a letter of credit to bid on the opportunity to sell SRECs in minimum bundles of 500!

Fortunately, it seems that the PUC continues to re-evaluate this process and the constraints they have placed on the suppliers.  Most recently, they have proposed a change to their policy to allow suppliers to enter into a restricted volume of bi-lateral contracts that are also restricted in value by the average value of SRECs procured in the adjacent RFPs. You can read the proposal and we encourage you to submit your comments. While this is a step forward, we still believe that this will likely incentivize the same companies bidding on RFPs to just enter into the bi-lateral contracts, squeezing out the rest of the market.  We setup our auction to ensure a competitive process that is accessible to all market participants and hope that future iterations of PUC policy changes will better address the entire SREC market and allow more compliance buyers to enter into auctions like SRECTrade without having to jump through legal hoops in order to do so.

Conclusion: The Pennsylvania SREC market has an extremely promising future and all signs are pointing in the right direction. We believe that this is an iterative process. Looking back at the lead taken by New Jersey, their SREC program has been amended several times and it is now inspiring a prolific SREC market. Pennsylvania will continue to tweak its program until the market truly is more efficient and effective in promoting solar. Until then, we at SRECTrade are doing everything we can to bring buyers to the market, as well as set up other means for selling SRECs for our clients. The great news is that most facilities eligible in Pennsylvania are also likely to be eligible in DC and Ohio where in the short-term, SREC prices will be better. If you have any questions, as always, feel free to contact us.

Pennsylvania SREC Pricing

Posted July 13th, 2009 by SRECTrade.

The Pennsylvania Solar Alternative Compliance Payment (SACP) is structured a bit differently than the rest of the states in our auction.  Most states have a set SACP that is known at the beginning of each year.  Pennsylvania releases their SACP six months after the Energy Year ends. The 2008 Pennsylvania SACP of $528.34 was released in December of 2008 for the Energy Year ending May 31, 2008. It is calculated as 200% of the PJM area average SREC price. This means that from June 1, 2007 – May 31, 2008, the average PJM area SREC price was $264.17.  The interpretation used by the program is that this is an average of the price paid for SRECs used to comply with the Pennsylvania state RPS.  So in reality, it is an average of PA SRECs.

PA SRECs are valued based on speculation of what the SACP will be in  December. PA utilities should be willing to pay more for SRECs if they are struggling to meet the solar requirement in Pennsylvania. In the early years of this program, that requirement may be attainable, but it ratches up pretty quickly, so it may not be long before the SREC values in Pennsylvania increase above all the other states in the region.

For reference, our July 10th auction saw PA close at $300.  DE closed at $245, and MD closed at $375.

This is good news for solar owners in Delaware, Maryland, Ohio, West Virginia and the other surrounding states who may be eligible to sell into Pennsylvania.  Of course the influx of supply of SRECs into PA might at some point depress the price of SRECs.  It will be interesting to see how the market plays out.  One thing is certain—as a seller, it doesn’t hurt to be registered in as many states as you can.  See our post on cross-listing to learn how.