In July 2010, Pennsylvania Solar Renewable Energy Credits (SRECs) were trading at around $300 each. Systems located in Pennsylvania as well as adjacent states, such as Virginia and Delaware, could register their solar energy system with the Pennsylvania Alternative Energy Program (PA AEPS), receive a Pennsylvania certification number, and create SRECs valued of around $0.30 per KWH.
Prices for Pennsylvania SRECs remained high for several months. In November 2010, spot prices were still trading above $300. During this period, Sol Systems was offering a 5-year fixed price contract for $280.00 per SREC and I often heard potential customers and system owners ask why the price was so low. Many system owners expected SREC prices to rise, and in place of electing the long-term contract, these system owners determined to sell their SRECs on the spot market.
As of today (April 1, 2011), SREC market conditions have changed and Pennsylvania SRECs have dropped dramatically. SRECs sold on the spot market are clearing on the spot market for approximately half of their July 2010 value (i.e. $150 per SREC) — when they are clearing at all.
The decline in Pennsylvania solar REC prices can be explained very simply. Approximately 72 MW of solar capacity was registered to produce SRECs in Pennsylvania; however, the SREC demand, as dictated by Pennsylvania’s Alternative Energy Portfolio Standards Act, requires only 34 MW of solar capacity in order to meet the solar-carve out for 2011 Compliance Year. (The Pennsylvania Compliance Year is between June 1, 2010 and May 31, 2011).
The 38 MW differential between the compliance appetite (SREC demand) and the systems actually registered in Pennsylvania (SREC supply) has created an oversupply of PA SRECs. As compliance commodities, SRECs (which are simply the environmental attributes associated with 1 megawatt hour of solar electricity) have no intrinsic value. In other words, if there is no buyer for the solar REC, it is worthless. With the 2011 Compliance Year coming to a close, and regulated entities shoring up their purchases of SRECs, the PA SREC market is suffering. (Perhaps this explains why only 1 of the 396 PA SRECs offered for sale cleared in the January 2011 PJM SAGE Auction).
The oversupply of SRECs in Pennsylvania is also having a spill-over effect in linked markets (SREC markets are linked when you can use a credit from one state for compliance in another state). For example, some states allow a portion of their solar-carve out (solar demand) to be satisfied with SRECs from other states. However, as Pennsylvania became oversupplied, these other states also became oversupplied, and the result is deflated SREC spot market prices across several markets.
At Sol Systems, we understand and monitor the dynamics within SREC markets, and do our best to mitigate risks for system owners by registering their system in multiple states and by providing them with various options for monetizing their SRECs that provide them with the appropriate level of risk or security through products like Sol Brokerage, Sol Annuity, and Sol Upfront. For example, we have many customers in Pennsylvania that signed up for a 5 year contract who are receiving $280 for every SREC that their system generates. These customers have ensured that they will meet their solar investment goals regardless of market conditions.
About Sol Systems:
Sol Systems is a solar energy finance firm. With thousands of customers and hundreds of partners throughout the United States, Sol Systems is the largest and oldest SREC aggregator. We provide homeowners, businesses, solar installers, and developers with sophisticated financing solutions that help make solar energy more affordable. Sol Systems also helps energy suppliers and utilities manage and meet their solar RPS requirements by providing access to diverse SREC portfolios. For more information, please visit www.solsystemscompany.com.