New Jersey spot Solar Renewable Energy Certificate Prices traded and settled above $200 on the Flett Exchange market yesterday. The official Settlement price was $205 for the energy year 2012 SREC. (2012 energy year is energy generated between June 1, 2011 and May 31, 2012). This is the first time the market settled above $200 since August 2, 2011. The lowest settlement price was $151 between August 16th and the 18th.
Light Selling Volume
According to daily activity on the Flett Exchange marketplace during the last two months the main contributing factor to the recent rally is a lack of selling volume. Daily volume for the energy year 2012 SRECs has dropped approximately 85% on the Exchange since the first 2012 SRECs were minted at the end of July. According to conversations with sellers the drop in volume is directly correlated to the low SREC prices, not supply and demand analysis. Our homeowner clients are just not selling at all. They are calling, getting the prices, and are in disbelief. We explain to them that the state SREC volume mandates have been recently inundated due to a surge in solar installations. Their reaction is that they will just “wait it out”. Our mid-size, independent clients (individuals who own moderate sized installations, 50 to 250 kW, on their business or realty holdings) sell a little more however, the majority of responses are “I am not selling at this low of a price… I don’t need the money today, I am not selling the low”. Our corporate and investment clients, who own large installations or a portfolio of projects, sold most of their SRECs but look for us to hold their hands and really try to squeeze every dollar out. These larger clients have been closely watching the market over the last year and have either sold some production through us on a forward basis or at least have been aware of the build up situation and declining install costs. They don’t like the current prices but want to continue to participate based on the fundamentals. Our public entities are taking a more systematic approach and employing a consistent selling approach to avoid the “Monday morning quarterback” criticism of market timing if they don’t sell and the market drops further. Energy companies with an RPS are showing solid bids to purchase in the mid to high $100s.
“90 megawatts in 90 days”
The fundamental (supply and demand) factors during the same 2 month period have gotten worse. Install rates during the past three months have been staggering. We termed it “90 mw in 90 days”. The past 3 months have seen 40 mw installed state-wide in June, 19.5 mw in July and 31 mw in August. This rate of installs is 300% higher than the average increase dictated by the State RPS (renewable portfolio standard). State law requires 596,000 SRECs purchased for energy year 2013 which is 153 mw above the 442,000 SRECs required in energy year 2012. An average monthly build-rate of 10mw would keep the market balanced. From what we have seen in the marketplace this build-rate will remain strong and add to the oversupply through the end of the year based on Federal depreciation incentives. Even if spot SREC prices continue to remain weak, projects awarded fixed rate 10 year contracts via the BPU approved JCP&L, RECO and ACE will continue to be installed well into next year. The market as a whole will continue to be over-flooded with projects holding these risk-free 10 year contracts, ALL of which were awarded more than double the prices found in the competitive non-ratepayer supported market. Investors in solar without these fixed rate contracts will have to absorb the lower SREC prices and the ratepayer will absorb the losses on the contracts as the SRECs are auctioned off into the oversupplied spot market.
Laissez Faire vs New Legislation
We see only 2 things that will bring the SREC market back (barring any significant reduction in Federal incentives). They are time and/or a change in legislation. Left alone, we expect the SREC market to remain weak for years. That leaves a legislative change from the New Jersey State legislators, with the blessing of Governor Christie, as the only hope to support the market in the next 6 to 8 months. We believe there will be some type of new bill written this fall to take advantage of the recent surge in investing in solar in NJ that has outstripped the demand set by current legislation. The mature solar market in NJ has attracted cheap capital to the Garden State in the past years which has enabled installation companies to increase employment. This build-up in infrastructure has brought significant competition and the end result is that solar installation costs have dropped significantly. When the original law was written in NJ to build out solar, the assumption was that solar install costs would decrease to the tune of 2 to 3% a year. This low decrease in the cost of solar is why the current law set the ultimate goal of 5,316 gwh in year 2026. This would bring the lowest cost over time to the ratepayer. Since installed costs have plummeted due to lower panel prices, low interest rates, healthy federal incentives, and a competitive installer base in NJ there is an argument to move the ultimate goal forward 5 years to 2021. A change in law moving the goal forward would require more solar to be installed in the next few years and take advantage of the low cost of solar now before things change. This would increase demand for SRECs and enable the positive momentum of solar build-up in the State to continue. Any proposal to increase the demand for solar will increase costs as opposed to leaving the law the way it is. We can expect the Christie Administration to require that the ratepayer be protected from runaway costs. A compromise of lowering the current fine of $653 down to $500 (SACP- solar alternative compliance payment) coupled with decreasing the ultimate goal of 5.35 gwh to 4.9 gwh may be a starting point in creating a bill that includes a “net benefits” to the ratepayer as referred to in the revised Energy Master Plan put out by the Christie Administration. There also has to be consideration given to the competitive retail electric suppliers. These suppliers have recently expanded in New Jersey in the last few years and have brought added competition and choice to electricity users in the state. If a law is passed to speed up the rate of installs in New Jersey these competitive suppliers would be saddled with most of the cost of the incremental demand over the previous laws’ SREC requirement. This is due to the fact that the BGS suppliers enter into 3 year contracts to supply power and would not have to buy the incremental SREC demand. The compromise to lessen the strain on competitive suppliers would be to ramp up the demand for SRECs gradually over the next 3 years, not all in the first year.
Players in Trenton
All eyes will be on Trenton in the next few months. The usual players will most likely be involved. They are State Senator Bob Smith, State Assemblyman Upendra Chivakula, and the Board of Public Utilities, all under the watchful eye of Governor Christie. It is my impression that there is a willingness in both the legislature and the Christie Administration to make legislative changes that will add certainty and continued growth in the solar industry and jobs in New Jersey.
Future of SREC values
What does that all mean for SREC values? If a law is passed to increase the amount of solar gradually over the next 3 years, coupled with a decline in the current SACP then energy year 2012 SRECs should rally slightly, but not as much as if an increase in the amount of SRECs is done immediately in ey 2013. A more gradual approach would lift values higher in forward years of 2014 to 2017 and potentially give investors the chance to lock into 3 to 5 year contracts in the low $200s compared to the mid $100s currently. We highly doubt that under any change in legislation there will be a return to $600+ SRECs.
Solar owners and electric companies utilize the Flett Exchange market to buy and sell SRECs in a transparent and competitive fashion on the Flett Exchange Internet trading platform. The market is available 24 hours a day on the Internet and is staffed 5 days a week by professionals here in our Jersey City offices. We also broker long term contracts for large facilities directly with energy companies who sell electricity in New Jersey.
More on Flett Exchange:
Flett Exchange is a leading environmental exchange and brokerage firm. Our online trading platform brings transparency, price discovery, and liquidity to Solar Renewable Energy Certificates (SRECs). Over 3,300 active clients utilize Flett Exchange to negotiate the price, quantity, and details of SRECs in a secure and seamless online trading platform. Upon each SREC transaction Flett Exchange remits immediate payment to our sellers Flett Exchange operates SREC markets in NJ, PA, DE, MD, OH, MA, and DC and supported by trained solar professionals with specialized knowledge and proven experience.
Flett Exchange brokers bilateral long-term SREC contracts between qualified counterparties. Flett Exchange buyers and sellers can secure price, quantity, and terms of SREC contracts 1-5 years in duration. Our stringent vetting process ensures that quality solar projects are presented to the market in a skillful manner. Buyers and sellers utilize Flett Exchange for long-term SREC contracts gain direct access to large pools of SRECs, while mitigating risk and locking-in profits. Please visit www.flettexchange.com to learn more about our services.
Flett Exchange is the only environmental exchange to publish a daily cash settlement price for Solar Renewable Energy Certificates (SRECs). Flett Exchangeâ??s settlement price is a daily volume weighted average for SRECs traded on the proprietary Flett Exchange Internet Trading Platform. Our settlement price is a transparent, fair, and orderly price of SRECs based on free-market competition. Settlement prices are calculated every business day, transmitted to major newswires, and employed by sustainability teams to ascertain the most accurate SREC prices.
Disclaimer: Flett Exchange cannot be held liable for any of the estimates or forecasts listed in this article. All information is estimated and data errors may be significantly impact projections.