Massachusetts solar saw a number of important developments in Q3: SREC I finalized its Program Cap, held the first successful Solar Credit Clearinghouse Auction, and experienced dramatic price appreciation for forward vintage SRECs. SREC II nearly avoided major legislative changes, received an incremental increase in net metering caps, and had DOER growth projections suggest a re-orientation of the market away from Managed Growth-type projects.
On June 11th, key solar policy decision makers unveiled a Proposal that would radically transition solar incentives in Massachusetts away from the SREC market and towards a more feed-in-tariff type regime. The Proposal outlines a Declining Block Solar Incentive Program that would supplant much of the recently launched SREC II program. If implemented, we estimate that the SREC II market size could be reduced from roughly 1 GW to closer to 300 MW.
Mark Sylvia, MA DOER Commissioner, on December 13 presented to the Electricity Restructuring Roundtable the final policy design for the RPS Solar Carve-Out II Program. The presentation included important developments in the market structure, such as SREC Factor changes, an ACP funded financing program, and raising the Net Metering (NM) Cap, which Karbone will cover in this report.
The following research brief will focus on the recent developments in the NJ SREC market, including pricing and installation trends, followed by comparisons against the MA SREC market.
To address the oversupply of project applications for the Massachusetts Solar Carve-Out Program, the Department of Energy Resources (DOER) announced in its June 7, 2013 Stakeholder Briefing that it is instituting an Emergency Regulation to expand the current 400 MW Program cap. This expansion comes in response to the estimated 900 MW of current cumulative project pipeline capacity. The excess of potential Program supply is a result of rapidly accelerated Qualification Application rates, particularly since April 2013, as developers have rushed their efforts to get projects included within the 400 MW cap. MA qualified capacity as of May 20, 2013 was 287 MW, of which 217.9 MW was currently operating.
MA SREC prices have rallied since mid January, with Vintage 2012 prices increasing from $205 to trade as high as $235 this month. Over the same period the vintage 2013 SRECs rallied stronger than 2012’s, moving from $155 to $215, with the spread narrowing from $50 to $20.
The MA market currently has three uncertainties that require clarifying. In the short-term, the focus is on which proposed rule changes will be adopted, and how the Solar Credit Clearing House Auction (SCCHA) will play out. In the medium/long-term, parties are concerned with what happens when the market hits the 400 MW cap. This analysis will seek to analyze these uncertainties.
On August 29, 2012, the MA DOER released the proposed CY 2013 RPS Class I Solar Carve-Out Minimum Standard of 135,495 MWh, up from the 2012 Minimum Standard of 81,559 MWh. The DOER currently projects the 2012 SREC generation at 109,465 MWh. The DOER estimated operational capacity of 45.7 MW at the start of January and 98.9 MW at the start of August, an average increase of 7.6 MW per month. Karbone projects that continuing this monthly average build for the remainder of 2012 would bring total installed capacity 137 MW at year-end.
The MA Class I market remains the most attractive NEPOOL REC market with record high prices, trading just below the ACP of $64.02 for the first half of 2012. The delay in production data release of three and a half months has kept prices at these highs, despite the market expectation that supply in Q1 2012 would remain at Q4 2011 levels. The shared market sentiment on the buy-side is that these prices could come off, as high NEPOOL Q1 2012 production data of the three key Class I technologies – Biomass, Wind and Landfill Gas (LFG) – met expectations by exceeding Q4 2011 supply (Table 1). Coupling this with strong potential supply estimates for the remaining quarters of 2012 and a robust bank of 2011 RECs, 2012 REC supply for the balance of the year in NEPOOL seems well positioned to meet the modest increase in the MA Class I RPS obligation.
The Massachusetts DOER hosted a webinar on May 16 providing an overview of the key components of the new regulatory framework for biomass. While adoption of the new regulation will limit biomass as a proportion of the RPS, key components still present trading and compliance opportunities. The new framework will be constrained by a new green house gas (GHG) emissions target. The following brief provides an overview of biomass GHG accounting, followed by a summary of other key elements from the webinar.
The Massachusetts Solar Renewable Energy Credit (MA SREC) market presents the opportunity for 70 MW of solar project development through the end of 2012. Many market participants believe this to be an easily achievable target, given the rapid build rates shown in New Jersey, Pennsylvania and California over the last year. However, our discussions with developers who have completed projects in Massachusetts and have robust pipelines, show that the project development process incurs delays that will limit rapid build rates and the potential for oversupply in 2012. These delays come mainly during the permitting and interconnection approval processes and can require between one to two years for completion.