More SREC Uncertainty

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There was a recent blog post on Renewable Energy World’s website which, while showing some recent upward movement on SREC prices, predicts that long-term pricing will remain below the $285 floor.

The post is entitled Massachusetts Solar Market Projections: SREC Prices Rally, Uncertainty Remains and was written by Alex Anich, the Director of Research at Karbone, a firm specializing in the Renewable Energy and Environmental Markets.

In it, he acknowledged the recent upward movement of SREC prices to a high of $230 before falling back slightly to $220. But he then went on to try to predict where the market would be once 400MW of solar has been installed and the current solar incentives end, affectionately known as the “sunset period”.

According to his estimates, once the market reaches its 400MW cap, it will be in a fixed state of oversupply for the remainder of its lifetime. This is contrary to previous assumptions that the market would be balanced or even in undersupply.

As such, he predicts long-term SREC pricing will be in the range of $150 – $285, with the midway point being near $220.

I also recently asked Amber Rivera, Renewables Trader at Sol Systems, her opinion about SREC pricing in a post-400MW world and here was her take:

Once the market reaches 400 MW and is in equilibrium, we think SRECs will be priced in the $225-$240 range. There will still be some discount to the $285 auction “floor” for time value of money and RPS risk in general. Additionally, long term prices will be below $285 as well, and will have some effect on spot market prices. We’re expecting the 400 MW cap to be reached sometime in 2014 or 2015.

So what do I think?

In the short-term, I think that as we get closer and closer the the Last Chance auction, you will see the market price for SRECs getting much closer to $285. Buyers will be forced to purchase enough RECs to meet their requirements at $300 each at the Last Chance Auction and clearly they would rather pay any amount less than that if they can. I would not be surprised to see pricing in next quarter’s auction north of $240.

Long-term it really depends on what the Mass DOER wants. The market is either going to be slightly undersupplied or slightly oversupplied, with a massive difference in SREC pricing depending on which scenario occurs. As they demonstrated when they adjusted the 2013 SREC requirement upward to reflect the more rapid than expected adoption of solar, they are not afraid to change the rules mid-stream provided it doesn’t upset the applecart.

Personally, I am hoping that they choose to reward the early adopters of solar by either tweaking the formula to yield a slightly undersupplied market or setting a fixed price on SRECs. That would seem to accomplish the goal of having an SREC floor of $285, which was the original plan. It seems that if they don’t make a slight adjustment in the rules, that they are removing the foundation upon which they stand and they are going to find continued solar purchases by Massachusetts residents hard-going and will continue to see a market dominated by third-party ownership by the Sungevitys of the world.

Gary

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