Posts Tagged ‘SREC Prices’

November 2012 SREC Auction Results

Posted November 9th, 2012 by SRECTrade.

SRECTrade’s November 2012 SREC Auction closed last week. Below are the clearing prices by vintage across the markets covered in the auction.

November SREC Prices Energy Year Ending
State 2011 2012 2013*
Maryland $130.00
Massachusetts $199.00
New Jersey $70.01 $70.00
Ohio In-State
Ohio Out-of-State
Pennsylvania $15.00 $8.99
Washington, DC $251.00 $300.00

*Delaware, New Jersey and Pennsylvania operate on a June-May energy year.
Green text represents a price increase over the last auction clearing price for that vintage, red text represents a decrease.
“-” reflects no sale, which would result if there were no SRECs available for sale in that vintage or there were no matching bids and offers to determine a clearing price.

For detailed analysis of SREC market prices and trends please subscribe to the SREC Market Monitor, a joint publication of Greentech Media’s GTM Research and SRECTrade.

State Market Observations:

Delaware: No DE SRECs transacted in the November auction.  The last auction price for DE2012 SRECs was $40.00 in the September 2012 auction. Most demand for DE SRECs will be through the DE SEU SREC Procurement Program solicitations. More information about these solicitations can be found at

Maryland: MD2012 SRECs continue to decline in price, trading at $130/SREC. The 2012 market is expected to be oversupplied. More than 60,000 MD2012 SRECs, ~90% of this year’s requirement, have been issued through September generation. A portion of the 2012 oversupply is driven by a 20 MW project in Hagerstown, MD and a 16.1 MW project at Mount St. Mary’s University. There have been rumors that some of the SRECs from the Mount St. Mary’s project will be withheld from the market, but no official statement has been made public. The market is expecting this volume to impact supply.

Massachusetts: MA2012 SRECs continue to trade around $200/SREC. SREC issuance volumes through Q2 2012 and Q3 2012 MWhs reported to the MA CEC demonstrate that 2012’s requirements have been met. The market will likely be oversupplied by approximately 50% of this year’s compliance obligation. Many sellers remain confident they will be able to utilize the DOER’s solar credit clearinghouse auction if they are unable to sell their SRECs prior to the close of the trading year.

New Jersey: NJ2012 SRECs traded up $5/SREC, while the NJ2013 vintage remained flat at $70/SREC. December 1 is the final deadline for Load Serving Entities to complete their 2012 compliance requirements. SREC volumes issued through September, plus the oversupply from 2012, have surpassed the 2013 compliance obligation.

Ohio: OH Sited and OH Adjacent markets did not trade in the November 2012 auction. Both markets are oversupplied. It appears that most demand for OH Sited SRECs has been fulfilled through long term agreements with large utility scale projects or through long term RFPs with the state’s regulated utilities. Given the current market, it is likely there will be minimal demand for the remaining part of the 2012 compliance year.

Pennsylvania: Both PA2012 and PA2013 SRECs traded down from $17 to $15 and $20 to $8.99, respectively. The lack of demand for the 2013 vintage caused the significant decline. SREC oversupply continues to impact PA’s market. 

Washington, DC: The 2012 vintage increased from $290 to $300/SREC. New installations continue to come online slowly as the geography of the District is challenging for developers. The 2012 market is likely under supplied given the estimated requirements for the 2012 compliance year.

For historical auction pricing please see this link. The next SRECTrade auction closes on Monday, December 3rd at 5 p.m. ET and will cover MA and PJM Solar RECs. Click here to sign in and place an order.

Last Chance to Sell MA 2011 SRECs

Posted May 18th, 2012 by SRECTrade.

On July 15, 2012 the first 2012 vintage MA SRECs will be minted. To date, all transactions of MA SRECs in 2012 have been for 2011 vintage SRECs. Short of something unanticipated the 2011 market will remain under-supplied and MA 2011 SRECs (if they have not yet been sold) should continue to sell close to SACP pricing.

The DOER recently issued a press release reminding SREC sellers that they have until June 15th to sell SRECs on the open market. Any SRECs not sold on the open market will need to be placed in the DOER’s “last chance” Solar Credit Clearinghouse Auction and put up for the sale at the mandated $300 per SREC offer. Remaining SRECs not placed in the auction will be automatically retired and will not be eligible for future transactions.

SRECs transacted through SRECTrade have consistently sold for $540 per SREC. Please do not hesitate to contact us if you are a seller with unsold Massachusetts SRECs.  For a history of MA SREC pricing in the SRECTrade auctions click here and scroll to the bottom of the page.

April 2012 SREC Auction Results

Posted April 4th, 2012 by SRECTrade.

SRECTrade’s April 2012 SREC Auction closed this week. Below are the clearing prices by vintage across the markets SRECTrade is currently active in.

April SREC Prices Energy Year Ending
State 2010 2011 2012*
New Jersey $135.00
Ohio In-State $234.99 $185.00
Ohio Out-of-State $17.50 $30.00
Pennsylvania $20.00 $20.00
Washington, DC $250.00 $277.50 $290.00

*Delaware, New Jersey and Pennsylvania operate on a June-May energy year.
Green text represents a price increase over the last auction clearing price for that vintage, red text represents a decrease.
“-” reflects no sale, which would result if there were no SRECs available for sale in that vintage or there were no matching bids and offers to determine a clearing price.

State Market Observations:

Please note, all capacity references are from the February capacity analysis and reference the amount of supply registered as of the end of February. The demand noted is the estimated capacity needed to be operational all year long for the current compliance period. Additional details regarding SREC issuance and older vintages impacting the RPS requirements are noted in the capacity analysis.

Delaware (Supply: 27.1 MW | Demand: 19.8 MW): No DE SRECs transacted in the April auction. The Delaware PSC approved the SREC Procurement Pilot Program for long term contract solicitations. The solicitation window opened this week.

Maryland (In-state Supply: 41.8 MW | Demand: 56.1 MW): No MD SRECs transacted in the April auction. Legislation to pull forward the Solar RPS requirements passed the Senate today in a vote of 37-9.

Massachusetts (Operational Supply: 52.6 MW | 2011 Demand: 55.7 MW, 2012 Demand: 65.0 MW): There was no sale of MA SRECs this period as they were sold in the Quarterly SREC Auction in mid-January. The next quarterly MA SREC auction will close on April 16, 2012. See the following link for an update on the MA SREC market: Massachusetts SREC Market Update – March 2012.

New Jersey (Supply: 689.1 MW | Demand: 368.3 MW): The 2012 market declined to $135. The continued decline in 2012 pricing reflects the substantial amount of supply currently installed relative to the 2012 and future compliance requirements.

Ohio (In-State Supply: 44.0 MW; Out-of-state Supply: 81.3 MW | Demand: 79.4 MW) : OH2011 sited SRECs increased to $234.99 as compliance obligations are being finalized for the year. 2012 pricing for in-state SRECs declined to $185. The out-of-state SREC market declined to $17.50 and $30 for the 2011 and 2012 vintages, respectively. This decline is driven by the oversupply from PA as well as the other adjacent states not having their own SREC programs.

Pennsylvania (Supply: 182.0 MW | Demand 41.2 MW): PA2011 SRECs traded up from $10 to $20, while we saw a slight decrease in the 2012 vintage to $20.

Washington, DC (Supply: 23.1 MW | Demand: 51.0 MW): The 2010 vintage saw a decline from $275 to $250/SREC, while the 2011 DC SRECs increased slightly to $277.50/SREC. Compliance year 2012 SRECs traded at $290/SREC.

For historical pricing please see this link. The next SRECTrade auction closes on Monday, April 16 at 5 p.m. ET and will cover MA2011 SRECs. The next PJM Solar REC auction will close on Tuesday, May 1 at 5 p.m. ET. Click here to sign in and place an order.

Why are Pennsylvania SREC prices so low?

Posted February 16th, 2012 by SRECTrade.

SRECTrade has printed auction prices for Pennsylvania ranging from a high of $310 in June 2010 and a low of $20 for SRECs created in the same energy year. The drop in Pennsylvania SREC prices is due to a severe over-supply of SRECs above the amount of SRECs that buyers (electricity producers) need to acquire each year, but how did the market become over-supplied and is anything being done to address the over-supply?


The Pennsylvania SREC market was created as a state-level, long-term incentive for homeowners and businesses to go solar, but around the same time that the SREC market was created, other, more generous solar rebate programs like the Pennsylvania Sunshine Program were created that caused a short-term boom in solar installations. In addition to this, the Pennsylvania SREC market is one of two markets (OH is the other) that accept SRECs from out-of-state sited solar systems, including from states that don’t have their own SREC markets. This means that Pennsylvanians are effectively subsidizing solar in other states and ensuring that Pennsylvania SREC prices remain low.

The Proposed Fix

The Pennsylvania SREC market was created by the state legislature and amendments to the market must go through the legislature first. In the spring of 2011, Rep. Chris Ross (R-Chester) proposed House Bill (HB)-1580 to address some of the key factors behind low Pennsylvania prices. The crux of HB 1580 is a proposal to move up the SREC requirement by three years. This would mean that if the bill passed, Pennsylvania SREC requirements would increase beginning in 2013. A detailed schedule of the proposed increase can be found in the bill.

We’ve followed the progress of HB 1580 over the last year and periodically posted updates to our blog.  Most recently the bill went before the House Consumer Affairs Committee on January 11, 2012 where it met resistance from Committee Chair Rep. Bob Godshall (R-Montgomery) and various entrenched groups representing the Pennsylvania electricity industry. Since the January hearing Rep. Chris Ross has worked hard to develop compromise amedments to HB-1580 that might help the bill survive a tough Committee vote. If the bill makes it out of Committee it has 110 co-sponsors in the House and substantial Senate support in a companion bill.

According to PennFuture, a Pennsylvania environmental and renewable energy advocacy group, Ross’ proposed the following compromises:

  • Capping the Alternative Compliance Payment (ACP) for solar at $325, with a 2% annual decline
  • Offsetting early-year increases in the solar requirement with decreases in later years and extending the SREC program through 2026
  • Allowing solar hot water (SHW) systems to qualify for SREC sales
  • Making slight adjustments to the language of the in-state requirement, aimed at preventing net-metered systems from inadvertently being disqualified
  • Ensuring that utilities cannot procure any AEPS resource above the ACP price

What Can You Do?

Pennsylvania solar advocates are hoping that they can convince the House Consumer Affairs Committee to vote on HB 1580 when the legislature reconvenes in mid-March. If you are a Pennsylvania resident, please feel free to contact House Majority Leader Turzai at 717-772-9943 to express your support for seeing the bill go up for vote.

February 2012 SREC Auction Results

Posted February 3rd, 2012 by SRECTrade.

SRECTrade’s February 2012 SREC Auction closed this week. Below are the clearing prices by vintage across the markets SRECTrade is currently active in.

February SREC Prices Energy Year Ending
State 2010 2011 2012*
Delaware $60.00
Maryland In-State $180.00 $205.00
Maryland Out-of-State
New Jersey $205.00
Ohio In-State $285.00
Ohio Out-of-State $40.00
Pennsylvania $9.99 $30.00 $35.00
Washington, DC $275.00

*Delaware, New Jersey and Pennsylvania operate on a June-May energy year.
Green text represents a price increase over the last auction clearing price for that vintage, red text represents a decrease.
“-” reflects no sale, which would result if there were no matching bids and offers that cleared for a sale in the auction.

State Market Observations:

Please note, all capacity references are from the December capacity analysis and reference the amount of supply registered as of the end of December. Additional details regarding SREC issuance are provided in the capacity analysis.

Delaware (Supply: 25.5 MW | Demand: 19.8 MW): Pricing was down from $65.00/SREC to $60.00. The Delaware PSC approved the SREC Procurement Pilot Program for long term contract solicitations which should commence in Q2. As of January 3, 2012, PJM GATS reported the issuance of approximately 13,560 DE2011-12 vintage SRECs. Additional SRECs from prior eligible periods may also impact the market should there be a demand for these older vintage SRECs.

Maryland (In-state Supply: 37.8 MW | Demand: 27.6 MW): SRECs held at $205 this past auction period.  MD2011 Out-of-State did not trade. The state continues on pace to maintain a balanced supply relative to demand for the compliance year.

Massachusetts (Operational Supply: 32.5 MW | Demand: 55.7 MW): There was no sale of MA SRECs this period as they were sold in the Quarterly SREC Auction in mid-January. The next quarterly MA SREC auction will close in mid-April.

New Jersey (Supply: 483.2 MW* | Demand: 368 MW): The 2012 market dropped back down to $205 after the state legislature failed to pass a Bill to increase the solar requirements. Inaction will lead to continued declines in pricing.

Ohio (In-State Supply: 29.0 MW; Out-of-state Supply: 68.0 MW | Demand: 39.1 MW) : OH2011 sited SRECs dropped to $285 with growing SREC supply from large in-state systems. The out-of-state SREC market increased again to $40/SREC.

Pennsylvania (Supply: 159.4 MW | Demand 41.2 MW): PA2011 SRECs traded up again to $30/SREC and PA2012 increased to $35/SREC.

Washington, DC (Supply: 21.7 MW | Demand: 41.9 MW): The 2011 DC SRECs increased to $275/SREC.

For historical pricing please see this link. The next SRECTrade auction closes on Thursday, March 1 at 5 p.m. ET.

How Oversupplied is the New Jersey market?

Posted January 18th, 2012 by SRECTrade.

Here is a very basic New Jersey SREC graphic: As of the most recent NJ BPU report, solar installation capacity in New Jersey surpassed 530 MW as of November 30, 2011, the midway point of the 2012 energy year. That’s 44% higher than where it needs to be to meet the 2012 requirement, assuming constant growth. It also means that, with no growth, there is already enough capacity to meet the requirements in EY2013. There is still room for growth in EY2014 and EY2015. Those markets are 17% and 34% short respectively based on installations TODAY. However, the chart below does not account for excess supply that is carried forward, which indicates that the oversupply scenario in New Jersey will likely extend through 2014 and possibly into 2015.

The current supply in NJ is enough to satisfy annual requirements through 2013

The current supply in NJ is enough to satisfy annual requirements through 2013

Note: Energy years run June 1 to May 31. So EY2013 will begin on June 1, 2012 and end May 31, 2013.

Delaware PSC Approves SREC Procurement Pilot Program

Posted November 15th, 2011 by SRECTrade.

The Delaware Public Service Commission approved the SREC Procurement Pilot Program on November 8th, 2011. This program will allow qualified solar energy system owners to sell their SRECs at a fixed price for the next 20 years.

The program will only be open to certain DE solar owners, for example, eligible facility owners must have received approval of their “Accepted Completed Solar System Interconnection Application” on or after December 1st 2010. Another requirement stipulates that the facility must not have received supplemental funding from a public source other than grants associated with the Delaware Green Energy Program “GEP”.

The number of SRECs to be procured is tiered according to the system size from which they are obtained. They will also be priced accordingly. Based on the requirements for June 2011 through May 2012, the numbers and price are

Tier Size (kW) Number of SRECs Percentage of Total SRECs Price, 1st 10 years Price, next 10 years
1 <50 2972 13.4% $260 base, $235 alt+ $50
2a 50 – 250 2,000 9.1% $240 base, $175 alt+ $50
2b 250 – 500 2,000 9.1% Lowest Bid Price* $50
3 500 – 2,000 4,500 20.4% Lowest Bid Price* $50
4 >2,000 10,600 48% Lowest Bid Price* $50
+Alternative pricing for projects that received a GEP grant before December 10 2010.
* Prices for tiers 2b, 3 and 4 will be decided by competitive bidding amongst the applicants.

In the event of oversubscription for facilities in Tier 1 and 2A, systems will be eliminated via lottery, starting with systems enrolled in the equipment or workforce bonus program.

Payments will be made quarterly for Tier 1 and monthly for Tiers 2 and 3. The energy production must be measured by at least a standard, utility grade meter and online monitoring for Tier 1 systems, and a revenue grade meter with online monitoring for Tiers 2 and 3.

Facilities are obliged to deliver the number of SRECs as estimated for their system size when they apply. The Sustainable Energy Utility is obliged to purchase up to 110% of the estimated SRECs, but may choose not to purchase any additional surplus SRECs.

This program will likely commence this winter or spring, and SRECTrade will be supporting this program for all of our installers and their customers. Look out for a future email regarding the SREC Pilot Program.

November 2011 SREC Auction Results

Posted November 1st, 2011 by SRECTrade.

SRECTrade’s November 2011 SREC Auction has completed. Below are the clearing prices at which SRECs traded this month.

November SREC Prices Energy Year Ending
State 2010 2011 2012*
Delaware $88.99
Maryland In-State $174.98 $200.00
Maryland Out-of-State
Massachusetts $535.00**
New Jersey $670.00 $225.00
Ohio In-State $380.00
Ohio Out-of-State $55.00
Pennsylvania $10.00
Washington, DC $119.00 $150.00

*Delaware, New Jersey and Pennsylvania operate on a June-May energy year.
**Massachusetts Q2 auction occurred on October 17th
Green text represents a price improvement over October, red text represents a decrease.
“-” reflects no sale, which would result if there were no matching bids and offers that cleared for a sale in the auction.

State Market Observations:

Delaware (Supply: 22.7 MW | Demand: 19.5 MW): Legislation increasing the SREC requirement went into effect this past June but the market has yet to pick up in response. Stakeholders in DE continue to work to wards a long-term SREC contract solicitation program for new facilities. This program should be approved within the next month. Meanwhile, the SREC market will likely pick up at the end of the energy year when electricity suppliers are more active.

Maryland (Supply: 30.8 MW | Demand: 26.9 MW): SRECs continue to hover around $200. The state seems on a good pace to maintain a balanced supply relative to demand. As 2011 comes to an end, a shortage of SRECs in the state, if any, will be reflected by an increase in prices at the end of the trading period in the first quarter of 2012. Out-of-state SRECs continue to be a non-factor in Maryland.

Massachusetts (Supply: 27.1 MW | Demand: 55.7 MW): Mass SREC values rose to $535 in the Q2 2011 sale on October 18th. This trend should continue as the SREC shortage becomes more apparent. The next big quarterly MA SREC auction will close on Monday January 16th. In the meantime, solar owners can offer unsold SRECs in our regular monthly auctions.

New Jersey (Supply: 448 MW | Demand: 368 MW): The 2012 market continues to rebound up to $225 from $205 last month. As more buyers become active in the 2012 market, prices should continue to correct, though the oversupply continues to grow as 18 more megawatts were added in September.

Ohio (Supply: 82.0 MW | Demand: 37.7 MW) : In-State SRECs demand dropped slightly. Activity in the out-of-state SREC market increased this month.

Pennsylvania (Supply: 146.4 MW | Demand 40.4 MW): HB 1508 was recently introduced to address the state’s SREC market. This marks the beginning of a long process to rescue the PA SREC market. Until then, SRECs will continue to bottom out.

Washington, DC (Supply: 21.4 MW | Demand: 41.9 MW): Prices continue to increase as new legislation closing the DC market borders and increasing requirements take effect on the market.

For historical pricing please see this link. The order period for the December auction will close on Wednesday, November 30, 2011 at 5:00 p.m Eastern. For more information, please visit

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.