Massachusetts SRECs Headed for Over-Supply

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Due to the quick adoption of solar panels by both residents and businesses, Massachusetts is reaching its goals for solar production ahead of schedule.  As a result, SRECTrade released an analysis of the Massachusetts SREC market in June, 2012, and it confirmed suspicions that the SREC market is rapidly becoming oversupplied, which will result in downward pressure on SREC pricing.

Solar REC under supply in previous compliance periods led to SRECs pricing just below the Solar Alternative Compliance Payment (SACP). Pricing right below the SACP is common in the early stages of a market with a Solar Carve-Out requirement in a state’s Renewable Portfolio Standard (RPS). As the market matures and attracts more participants, typically due to high SREC prices, the market sees an overbuild of solar which quickly turns to an oversupplied market and pricing declines. As the Massachusetts 2012 compliance year moves on, the prospect of oversupply has become apparent.

Their analysis includes three separate projections, one in which the rate of new projects decreases, one in which it remains constant, and one in which it increases. In all three scenarios, the 2012 market will become oversupplied.

Thankfully, the Mass. CEC had the foresight to establish a price floor of $300/SREC.  So even if the worst case of oversupply were to occur, SRECs would still sell for that price, which is reassuring.

Gary

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2 thoughts on “Massachusetts SRECs Headed for Over-Supply

  1. Gary,

    Unfortunately the $300 floor price is meaningless. The problem is that no one is forced to buy them. What happens is that your SREC is returned with a new 3-year shelf life. You then have to sell it on the spot market. It cannot be re-offered on the clearance auction. SRECs are currently selling in the $210-240 range. Thoughts?

    Steve Tofel
    First Sun Solar Co.

    • I agree that there is that risk, which explains why people are willing to sell them on the spot market for less than $285 now. However, the state is supposed to make the SRECs for sale in the clearance auctions progressively more attractive to buyers. How they’re going to do that remains to be seen but they’ve done a good job incentivizing solar thus far. I should have a blog post answering some of these questions by the CEO of SRECTrade later this week that may shed some light on this.

      Thanx for the question!

      Gary

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