Over the past year, the Massachusetts SREC-II program has been facing significant programmatic risks as both the net metering and the solar carve-out caps were quickly reached. In April, Massachusetts lawmakers finally passed net metering reform that increased the private and the public caps by 3%, allowing the build of a large number of commercial solar projects that had accumulated on the waiting list for months. In the same month, the Department of Energy Resources (DOER) filed an emergency regulation after receiving a quantity of SREC-II applications in-excess of the available remaining capacity under the SREC-II program cap. The emergency regulations contained several key provisions that aimed to address market uncertainty and establishing a smooth transition to the next incentive program beyond SREC-II.
Despite a post-BGS retreat, New Jersey SREC prices have climbed steadily since the beginning of the spring through much of Q2 2016, retesting four-year highs for front-of-the-curve vintages.
A group of policy makers in Maryland gathered in December to draft a plan to expand and accelerate the state’s existing Renewable Portfolio Standard (RPS) program. Introduced as amendments to the Maryland Clean Energy Jobs Act of 2016, a draft of the proposal circulated in the marketplace early last month. On February 5th, S.B. 921 was introduced in the Senate, proposing to boostthe current RPS to a 25% goal by 2020 from the current mandate of 20% by 2022.
New Jersey SREC pricing has reached four-year highs, recording levels not seen since December 2011. Breaking through what appeared to be 2015’s $250 resistance level in early November, front-of-the-curve pricing and liquidity have strengthened ostensibly through the end of the year and start of 2016. The first week of January saw EY2016 and EY2017 SRECs trade north of $290 before settling in the $285 context by the week’s end. In light of the considerable surplus of SRECs in circulation, this price rally seems to render the market paradoxical.
After the recent failure of the Massachusetts legislature to pass a compromise bill to raise the net metering cap before winter recess, many projects are at risk of heading off a cliff. Coupled with the Investment Tax Credit (ITC) step-down from 30% to 10% for commercial projects, the delay in raising the net metering cap may jeopardize the installations of over 115 MW in 2016. In this Report, the Karbone Research Desk addresses the impact of these recent developments on the SREC-II market and discusses forward build rates scenarios, historical pricing trends, and the impact of legislative uncertainty on market fundamentals.
Behind-The-Meter (BTM) installations continued to drive forward the New Jersey solar market, adding approximately 13 MW last month. July had no Direct Grid- Supply completions, contrary to NJCEP’s estimates of around 13 large-scale projects to be in service by July. New Jersey SREC levels experienced an uptick in price volatility in the first two months of Q3. RY 2015 and RY 2016 prices started the quarter in the mid-$230 area but ultimately traded in a range as wide as $20 since the start of July.
The third Massachusetts SREC I Auction cleared in the first round for the first time amid overwhelming demand. Preliminary results of the Auction indicated mixed implications for forward supply and demand scenarios. Can the SRECs sold in the Auction help satisfy the projected shortage in 2015 Compliance Obligation? Will enough of the reserve of re-minted SRECs be held out for future usage to relieve the perceived tightness in 2016 supply? The Karbone Research Desk addresses forward supply & demand dynamics, pricing, and market balance concerns in this report.
Grid-Supply projects in the development pipeline have finally impacted the market bringing last month’s new solar build number up to approximately 14.4 MW. June had two new Direct Grid Supply projects with total capacity of 5.86 MW – compared to only one Grid Supply project since February, previously the only Grid Supply project YTD. With relatively anemic total build numbers for Q2, New Jersey SREC prices have shown an expected resilience in the front end of the curve from early spring through mid-summer.
The strength in this spring’s New Jersey SRECs rally has pushed spot prices to their three-and-a-half-year high. Since post-BGS lows of $190, the front of the SREC curve has marched to the high $230s range following the June 9th EDC Auction and monthly solar installation data release for May.
NJ SREC pricing has appreciated to levels not witnessed since Q1 2012. Breaking past the $200/SREC threshold in the last weeks, forward vintage pricing and liquidity have strengthened ostensibly in advance of the state’s focal Basic Generation Service (BGS) Auction. With the Auction still over two months away however, questions remain as to how high the price rally will reach, and what other forces could be behind it.