New Jersey SREC Overview - Spring 2017

SREC Prices are Stable – For Now……
After rallying to $250 in the beginning of January the SRECs moved down to $210 and are now steady in the $225 to $230 range.
SREC Supply / Demand for This Year
SREC supply for RY 2017 is expected to be sufficient.  According to our estimates, SRECs produced this year ending in May along with supply left over from previous years will be about 4% more than what is needed by electricity suppliers. This justifies the prices that have been trading in the $200 to $250 range during the past few months.
SREC prices for Future Years – (Actual)
The following are current prices for SRECs trading between large commercial solar owners and electricity suppliers in the over-the-counter market.  You will notice that prices decrease in coming years.
Ry 2018: $200   (June 2017 to May 2018)
Ry 2019: $160   (June 2018 to May 2019)
Ry 2020: $130   (June 2019 to May 2020)
Ry 2021: $85     (June 2020 to May 2021)
3 year strip: $163

4 year strip: $143
SREC oversupply estimates for Future Years – (Flett Exchange Estimates)
Based on our supply / demand models we expect the supply of SRECs to continue to outpace the requirements in an accelerated fashion. This oversupply will put pressure on SREC prices. An oversupply of SRECs is a result of investors and developers installing more solar than is required by law. The only two ways to avoid an oversupply is for:
1. Investors and developers to not overbuild
2. The legislature in New Jersey pass a law to increase the solar requirements. (This happened in 2012)
Multiple years of overdevelopment of solar creates an overabundance of SRECs that never go away.
Ry 2017: 4% oversupply
Ry 2018: 10% oversupply
Ry 2019: 20% oversupply
Ry 2020: 34% oversupply
Ry 2021: 50% oversupply
SREC Price Projections for Future years – (Flett Exchange Estimates)
If the oversupply estimates in our models are correct our price estimates are as follows. We expect a drastic drop-off to occur between 2019 and 2020. Our low price may seem extreme but we base it on price action in other states that have become oversupplied – PA – $5, MD $8 and OH – $6.
Ry 2018: $140-$220      (this starts this summer)
Ry 2019: $90 to $180
Ry 2020: $40 to $130
RY 2021 on $5 to $85
3 year strip estimate: (ry 18 – ry 20): $90 to $176

4 year strip estimate (ry 18 to ry21): $55 to $123
The goals for solar installations set out by New Jersey law under the SREC program have worked perfectly.  The free market price of SRECs has saved the ratepayers of New Jersey hundreds of millions of dollars while it encouraged new investors to install new solar at ever cheaper prices. Outside of a minority of failed (overpriced) fixed price SREC contracts encouraged by solar developers with the blessing of the Board of Public Utilities the ratepayers of New Jersey have benefited from the freely traded SREC market and will continue to benefit for decades to come. Based on SREC market prices the solar development industry in New Jersey passed its inflection point last year and is now starting to turn. This is caused by the decrease in the rate of new solar development under current legislation. For years the legislation encouraged significant new solar development during a time when solar costs have decreased significantly. That law now calls for a lower amount of solar growth. Developers and investors must re-calibrate and develop at a slower pace equal to the mandates by this law. If not, solar development in New Jersey will halt and all investors will suffer. Ratepayers will have to pay more in the future in solar subsidies to jump-start new solar development if confidence by investors in New Jersey solar is lost.
If you already own solar in New Jersey and rely on SREC payments to make your investment whole you are at the mercy of new solar investors. If the new investors in solar install at a cheaper price or are willing to accept a lower return on capital then they will continue to push SREC prices lower.  That is only fair since it is an open market and anyone is allowed to invest in solar on their property.
Outside of a purely competitive, slight oversupply of SRECs caused by market efficiency there are two (2) controllable factors that can cause an overinvestment above legislated goals. If they are not addressed the result will be a protracted oversupply of SRECs ($10 SRECs):  (Prices in NJ dropped to $60 in 2012 when the developers overbuilt.)
1. A lack of knowledge by new solar investors about the amount of solar required under the law. Let’s get down to it. Solar is sold by salesmen. If they want to make the sale they will not give the customer the full story about the risk of SREC oversupply and their ability to repay with SRECs. (To most solar sales people credit they probably don’t know the risk themselves) By the time most people who are signing contracts this spring get the array installed they will get a year or less of $200 SRECs. Their systems will just add to the oversupply of SRECs.
2. Fixed, long term, above market priced contracts for SREC granted by the BPU are being awarded and will continue to be awarded as the market gets oversupplied.  The New Jersey Board of Public Utilities actually awarded 10 year fixed contracts just recently at $165 for 10 years fixed. Above market pricing similar to this also happened in 2011 exacerbating the oversupply of solar at that time. The overpayment of SRECs above the free market is absorbed by ratepayers which they will never know. Equally damaged by these contracts are solar investors like yourself that are not lucky enough to have an installation available at the time of the BPU solicitation. This will add uncompetitive solar installations to an oversupplied market and force SREC prices lower for all other solar investors outside of those whose losses are absorbed by the ratepayers.
Call to Action:
As for solar owners we suggest to sell your SRECs on a monthly basis and not bank any SRECs. The sale of your SRECs at prices in this $200+ area will be needed to average out your sales over the years. Future years need to be discounted based on the high probability of significantly lower prices 3+ years out. In the beginning of August your first 2018 SRECs will be minted. Those prices will be $20 to $30 less than the ones you will be selling in July. We suggest to not hold those and continuously sell them even if they are under $200. Remember, our price estimate for ry 18 (June 2017 to May 2018) is $140 to $220. With that estimate a $190 SREC is still in the middle of the range.
As we have since 2007, we will continue to monitor the New Jersey SREC market for you, provide transparent and actionable pricing via our exchange and offer information to help you make the best of your solar investment. In 2012 members of our team testified numerous times at the New Jersey Statehouse during the last update to solar legislation. Hopefully, through transparency of information the market will not get oversupplied as it was last time and solar investment can proceed at the legislated pace.  We will update you with SREC supply and price projections as they develop.

DISCLAIMER: This article contains forward looking statements. Actual market action could differ materially from those anticipated. Sellers of SRECs should do their own research. Actual SREC production may differ significantly from those estimates. The company assumes no obligation to update any forward-looking statement.

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