SRECTrade’s Forward Contract Opportunity – Analysis

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Selling SRECs is not a game you can win. You can only try not to lose too much.

When the price is essentially capped at $285 per SREC, the best you can do when the market is not undersupplied is to sell your SRECs for exactly $285. Any sales made at lower prices are just different degrees of losing.

Many of you recently got a very interesting email from SRECTrade in which a third party, SkyView Ventures, has offered to buy not only all 2013 SRECs for the full $285 but also the next 5 years worth of SRECs at $245, paid quarterly. At first glance, this opportunity seems too good to pass up, especially considering that a little over a year ago, SRECs were still trading close to $200.

However, as we know now, that $200 price was clearly an over-correction as the DOER paid a full $285 for those that kept their SRECs until the Last Chance Auction. These days, the market price is hovering around $250.

So what about SRECTrade’s offer?

My thoughts are that if someone is willing to guarantee me $245 up front, then my SRECs must be worth at least that much. If they were going to pay me for the entire 5 years up front, I probably would do it. But since I have to wait to get paid quarterly, I don’t see any great incentive. I am already trading my own SRECs now – I just recently needed some cash for my daughter’s camp so sold 4 2013 SRECs for $255 each (afterwards, I changed my sell price to $270). So the only difference I see is that I will get less money but I will get it quarterly instead of when the market is ready to pay my price. To me, that little bit of regularity is not worth the lost income. To others, it may be worth it.

Let’s check out the math.  In my case, producing 6 SRECs annually, the most I could receive is $285 apiece. $245 represents a difference of $40, so if I were to accept their offer, in the worst case I would lose $240 annually. But let’s be realistic and assume I could get $265 on the open market instead. Is it worth it to me to receive quarterly payments for the next 5 years at a cost of roughly 6 x $20 or $120/yr?

And what’s the worst case if I don’t sell? That SRECs will trade below $245 on the open market. I really don’t see that happening, especially now. One company holding onto a block of SRECs that they bought at $245 can only put upward pressure on the market price as they try to eek out every ounce of profit from their investment. Clearly they’re not going to be selling any of their purchased SRECs for $240.

Bottom line, if the peace of mind of quarterly payments is worth $20/SREC annually to you, then I would suggest you accept their offer. Personally, I’m going to continue to “let it ride” and hope that I lose less than you.

Gary

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2 thoughts on “SRECTrade’s Forward Contract Opportunity – Analysis

  1. Hi Gary,
    My reserve price was $270 .. I just got an email that they were all sold.

    Happy ..but confused… I thought the auction was 2 weeks back.. and the price was $250ish.

    Did yours sell ?
    -DB

  2. Hey Dev!

    Congratulations!

    The auctions are theoretically held quarterly, but that’s not really true. SRECs are available to be sold all year long. It’s just quarterly that SRECs become available to sell and when the Mass. CEC documents the current market price. At any time during the year, if the market price meets your minimum, your SRECs can be sold. So if you’re going to manage your own SRECs, you should increase your price as you approach the July Last Chance Auction (LCA).

    That is the only true auction held and when the utilities have the greatest incentive to purchase your SRECs for $285 each. “Auction” however, is a misleading name as they can only purchase them for a set price, with increasing penalties for not purchasing them across three rounds.

    To elaborate more on the price escalation strategy, SRECs that become available in October should be discounted to say $250, since you’re going to receive the money 10 months before the LCA. By January, you should increase your price to say $260 since you’re only receiving the money 7 months early. And by April, you should increase your price to say $270 since you’re only receiving your money 4 months early. By July, you should be at $280 since there’s only a 1-month difference. It’s just a time-value-of-money thing taking into account how much interest you could earn by receiving the money earlier and investing it.

    I still think $270 was a good price in May. Congratulations and enjoy your money!

    Gary

    P.S. Don’t forget that your aggregator is going to take their 5% cut. You still get hit with that even if your SRECs sell on the open market.

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