NJ SREC Prices Drop in Anticipation of an Oversupply

The New Jersey Energy Year 2012 (June 1st 2011 – May 31st 2012) SREC prices have experienced a sharp decline. The precipitous drop in price is due to an expectation of an oversupply of SRECs for New Jersey in the next 12 months. Solar development has quickly outpaced state mandates. New Jersey is second only to California for installed solar capacity and now has over 9,000 statewide solar installations, which equates to 330 Megawatts (MW) of distributed generation. The Board of Public Utilities (BPU) recently announced that 29 MW of solar was installed in April 2011. This monthly record build will assist New Jersey in meeting and exceeding its Renewable Portfolio Standard (RPS). The prior record build was 25 MW which was set in December 2010 and installed solar capacity has averaged 15MW per month since September 2010.
In order to quantify the oversupplied scenario let’s review the NJ SREC supply and demand situation. As of April 2011, 330 MW of solar was installed in NJ which equates to approximately 396,000 annual SRECs. If the NJ solar industry stopped installing solar right now, the market would remain short compared to the required demand. However solar installations are gaining momentum and continue to be installed at a robust pace which could quickly oversupply demand. The build-out rate will dictate the severity of the oversupplied situation. This leaves the most important question: will the market continue to build at the current rate or will the market participants assess the oversupply risk and throttle back on installs? Our conservative estimate of an annual monthly build out rate of 7 MW per month starting in July would produce approximately 501,000 SRECs for EY 2012. Another estimate of a 17MW per month build out rate would produce 564,000 SRECs for EY 2012. Load Serving Entities (LSEs) need to purchase 442,000 SRECs for Energy Year 2012. If LSEs do not purchase enough SRECs in the spot market to satisfy their state mandated obligation, they are subject to pay a Solar Alternative Compliance Payment (SACP) of $658.00. In past NJ Energy Years SREC demand has outstripped supply, creating a tight market and allowing the SRECs to trade between 92%-97% of the SACP. However this should not be the case for Energy Year 2012. The above estimates create an oversupply situation of 59,000-122,000 SRECs for Energy Year 2012.
The Pennsylvania SREC market is an example of what can happen to an SREC market when it goes oversupplied. In EY 2010 PA SRECs were trading in the $300s, when the market went oversupplied and prices declined swiftly and lost 70% of their value in a year. This is a good lesson for NJ solar generators and demonstrates that SREC markets can be volatile and illiquid by nature and that the best way to sell SRECs is on a regular basis or “hit bids” as the market moves lower. Some PA solar generators failed to sell their SRECs as prices moved lower, only to capitulate at lower prices. Waiting until the end of the Energy Year to transact your NJ SRECs at a premium price is now a thing of the past. NJ solar generators should be pro-active with their NJ SRECs and should sell as prices move lower to achieve a healthy dollar cost average to ensure a steady revenue stream.
It is also important for participants realize that SREC markets were established to self correct. When too much solar is developed there is an oversupply of SRECs and prices go down. When not enough solar is developed SREC demand increases and prices go up. When a SREC market corrects to the downside, only the most cost-effective installations will be brought to market, since they have the ability to install solar at a lower SREC price and receive a lesser return. Going forward, installations who accept a lesser return-on-investment and embrace more SREC risk will be the ones being developed in New Jersey.
There are two ways to prevent the SREC market from being oversupplied. First is to slow the pace of solar development and second is for New Jersey to increase the amount of solar needed. State RPS goals for 5 Giga Watt Hours of solar by 2026 should be moved forward. New Jersey is a clear leader in solar energy and hopefully the revised Energy Master Plan will recommend an increase in solar in a shorter amount of time.
New Jersey SREC prices for Energy Year 2012 are currently being quoted on the Flett Exchange. Our customers can utilize Flett Exchange’s online trading platform to price their first delivery of 2012 SRECs, which occurs in late July 2011. The current EY 2012 NJ SREC market is $400 bid and offered at $500. Please go to www.flettexchange.com to review daily SREC settlement prices.
More on Flett Exchange:
Flett Exchange is largest volume SREC exchange and brokerage firm. Our online trading platform brings transparency, price discovery, and liquidity to Solar Renewable Energy Certificates (SRECs). Over 2,800 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 (its simple sell a SREC and receive a check!) Flett Exchange operates SREC markets in NJ, PA, DE, MD, OH, CT, 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.
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.

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