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.
The State of Connecticut has two proposed bills that could potentially affect Renewable Portfolio Standards (RPS). On January 22, 2013, Rep. Lawrence Miller (R) introduced House Bill (HB) 5475, which aims to provide additional time for compliance with the RPS requirements by extending each deadline beginning in 2016. On January 25, 2013, Rep. John E Piscopo (R) introduced HB 6086 with the purpose of amending general statutes to “include all types of hydropower as a Class I renewable energy source”. All hydropower currently defined as Class II renewable energy sources would be included in the Class I renewable energy source classification, according to the bill’s statement of purpose.
Maine Governor LePage (R) recently indicated that the evidence from the report “The Economic Impact of Maine’s Renewable Portfolio Standard”, suggested the program was raising costs on the state while providing little environmental benefits. As many reviewers point out, these conclusions run counter to those of similar studies completed that indicate no increase in rate payer costs due to RPS programs in other states. With Democrats taking control of both the Maine Senate and House, coupled with Senator Angus King deciding to caucus with Democrats, it seems likely that political support for renewables will continue in ME on a state and federal level. Despite this likely ongoing support, ME prices have continued to decline due to NEPOOL supply flowing back into ME.
The Massachusetts and Connecticut Class I REC markets experienced the expected seasonal downturn in supply, with wind REC generation dropping the most of all technologies. Year-on-year quarterly generation was up for both biomass and wind, while LFG declined by approximately 45,000 RECs.
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.
Pricing in the CT Class 1 REC markets have retreated on the back of impending policy developments. Connecticut Senate Bill (SB) 450 contains a proposal supporting the development of Micro-Grids, providing for Combined Heat and Power (CHP) generation to qualify as Class 1 Renewable Energy Credits (RECs). Micro-Grids are defined as small-scale localized grids located in the state of CT. CHP is currently classified as a CT Class 3 REC. Ahead of this news, Class 3 RECs were well offered, with value pegged just above the market floor of $10.