In past years, waiting until the end of the energy year to sell spot SRECs has always brought higher prices for sellers. This year things may not be that straightforward because it is the first year that there are more SRECs produced than electric producers are required to purchase. The energy year in New Jersey runs from June until May. Traditionally the prices have been highest in the summer month’s right after the end of the energy year and before compliance payments are due. Energy Producers are required to purchase SRECs or make compliance payments to the State of New Jersey for any shortage of SREC purchases. Buyers have stopped buying SRECs in late August in past years to give enough time to complete filing paperwork. This year buyers will stop buying when they have fulfilled their requirement. It is difficult for sellers to determine when, and at what price the buyers will finish.
This energy year (2012) the SREC market is estimated by some to be oversupplied by over 200,000 SRECs. The purchase requirement is for 442,000 SRECs but the Statewide installed solar capacity may produce somewhere around 650,000 SRECs. The only hope to support and possibly push prices higher for a few years is for the State of New Jersey to pass some type of legislation to increase the RPS (renewable portfolio standard). The RPS dictates the amount of SRECs that need to be purchased. Because of this oversupply, waiting until the summer months to sell all your SRECs could be a mistake. Buyers may have already met their compliance by then and not need to buy any more SRECs for this energy year.
Banking SRECs is a topic that has come up quite often. NJ SRECs can be used for compliance in the energy year that they are produced and two subsequent energy years. Since the SRECs are usable for three energy years compliance buyers have the option to purchase SRECs for future compliance. They will only do this if the price of the SRECs is low enough to justify purchasing and holding SRECs for the next few years. Anyone who banks SRECs should keep in mind that if the installation of new solar continues at current rates, prices may never go back up significantly without some type of legislative intervention. Holding your SRECs may leave you exposed to the decay of time. SRECs that have less of a life have a tendency to be discounted. Energy year 2012 SRECs held over for next year may be worth about $20 to $30 less than the spot market 2013 SRECs. Regardless, without a change is legislation, approximately 200,000 SRECs will have to be held by a combination of sellers holding and buyers banking.
Selling at the highest price is generally the luck of timing. Selling SRECs on a monthly or quarterly basis will reduce the likelihood of selling all of your SRECs at the market lows.
Even if you sell SRECs at low prices now, and prices increase in the future, at least you get to participate at the higher prices for future SRECs that you generate. If you hold all of your SRECs and the prices continue to drop you will have all your SRECs to sell at low prices. Your system produces SRECs for 15 years in NJ.
We may see some type of legislation introduced this spring/summer similar to the bill that failed to be posted in the last State Legislature. That legislation called for an increase in the RPS. If that bill was introduced and passed by the Legislature we understand that the Governors office was willing to negotiate and pass a bill supporting the SREC market and those residents, business, schools and municipalities that invested in solar. The prices were expected to be supported and trade between $300 and $400 if that bill was passed. The future legislation is not expected to increase the RPS until 2014 because the BGS auction was just conducted. The details of this potential legislation will dictate the level of support. It may be expected to support the spot SREC market in the $200 to $300 range due to the delay until 2014. If no legislation is passed, it is expected that the SREC market will remain weak and stay that way for years.
There is an outside chance that SREC prices could rally if a large segment of the marketplace holds out to sell for higher prices. This year energy companies have already secured SREC supply from long term contracts, spot purchases during the last seven months and SRECs sold through the EDC auctions. (Two weeks ago the EDC’s sold over 26,000 SRECs at $171.63) The rest of their purchases will have to come from the spot marketplace. We estimate that there are approximately 250,000 SRECs that need to be purchased on the spot market this year. If the oversupply is 200,000 SRECs then the market will only become short if the spot sellers collectively hold back 45% of their production. Based on conversations with many of the sellers we feel that the market as a whole is unconsciously collectively doing just that. Our trading screen is loaded with sellers who have placed orders going back to last August at higher prices. As prices go lower the volume of selling on Flett Exchange has decreased. There will be a price point in which buyers will not be able to procure enough SREC for this year’s compliance. We are not sure if that price is $150 or $100 but we are approaching it soon. The answer to that will lie in what price level are sellers willing to hold onto 200,000 SRECs for one more additional year. We don’t place a high probability on a significant rally. We decided to write about it here only to hedge against the possibility of it happening and being criticized by sellers if a significant rally scenario materializes.
Since solar install costs have decreased substantially SREC expectations should be recalibrated to the $150 to $350 range for the long term. There may be a possibility of prolonged periods of lower prices if the capacity remains overbuilt compared to State goals.
We will keep our customers up to date on any legislation as it becomes available. Flett Exchange representatives will also stay engaged on the legislative front to communicate the supply/demand dynamics of the SREC market to the State Legislature and Governors Office. We are committed to protecting our customers who have installed solar so that they are not disenfranchised by future policy decisions. We also support legislation and policy that rewards those who took risk to install renewable energy but not legislation that shifts risk to ratepayers or energy providers and guarantees fixed subsidies.
I know this is complicated for many of the sellers. Feel free to call us here on the trading desk if you have any questions. If you would like to sell SRECs you can log onto the trading platform with your user name and password or call one of us on the trading desk and we can execute the sale for you. You can also transfer SRECs to us on GATS and we will execute the trade for you if you have an account. Check our homepage for our “sell now” price. We will issue the check the following day. Our number is 201-209-0234. Live prices are available on our trading platform 24 hours a day. We provide daily settlement prices for SRECs on our website as well at www.flettexchange.com.
More About Flett Exchange:
Flett Exchange is a leading environmental exchange and brokerage firm. Our online trading platform brings transparency, price discovery, and liquidity to Solar Renewable Energy Certificates (SRECs). Our knowledgeable staff is also available to assist you in selling your SRECs for you. Over 4,000 active clients utilize Flett Exchange to negotiate the price, quantity, and details of SRECs through our brokers or on our online trading platform. Upon each SREC transaction Flett Exchange remits immediate payment to our sellers. Flett Exchange operates SREC markets in NJ, PA, DE, MD, OH, and DC supported by trained solar professionals with specialized knowledge and proven experience.
Flett Exchange also brokers bilateral long-term SREC contracts between qualified counterparties. Flett Exchange buyers and sellers can secure price, quantity, and terms of SREC contracts 1-5 years in duration. Our stringent vetting process ensures that quality solar projects are presented to the market in a skillful manner. Buyers and sellers utilize Flett Exchange for long-term SREC contracts gain direct access to large pools of SRECs, while mitigating risk and locking-in profits. Please visit www.flettexchange.com to learn more about our services. (201) 209-0234.
DISCLAIMER: This article contains forward looking statements. Actual market action could differ materially from those anticipated. Sellers of SRECs should do their own research. Actual SREC production may differ significantly from those estimates. The company assumes no obligation to update any forward-looking statement.