Flett Exchange customers consistantly sold their SRECs for $50 above the clearing price of a SREC Auction site. The Auction site, SRECtrade.com, conducts an internet auction once a month. The clearing price for the December 12 auction was $600. Flett Exchange customers had been selling SRECs for $50 higher including the commissions for the week of the auction. Prices on Flett Exchange had been above the $600 mark for well over a month.
The price differential is an example of how inefficient auctions can be compared to a transparent and continuous marketplace. We have seen comparable price dislocations from market prices during auctions in the past. One in particular is the Regional Greenhouse Gas Initiative Auction. In this auction States sell their credits on a quarterly basis. There is a transparent over-the-counter market along with a liquid futures market on the Chicago Climate Exchange. We have noticed that when the states sell during the auction that the prices are depressed compared to the prices on the transparent marketplaces. Auctions also dump large blocks of volume on the market at one time which has a market moving effect.
It seems that governments prefer auctions to continuous marketplaces. Most of the bias towards auctions is the belief that it prevents manipulation. This is less true when the goods auctioned are continuously created like solar credits or greenhouse gas credits. Most “experts” consulted by governments are from academia and that is where we find a leaning towards auctions vs open competitive marketplaces.