Formal Rulemaking Process Begins for Massachusetts SREC-II Program

7 Jan 2014

On January 3, 2014, the Massachusetts Department of Energy Resources (DOER) announced that they filed revisions to the Renewable Portfolio Standard (RPS) Class I regulation, thus beginning the formal rulemaking process for establishing a framework for the SREC-II program.  The official version of the draft regulation will be published in the Massachusetts Register on January 17, 2014, but in the meantime, the DOER has provided an unofficial version on their website.

Timeline for the Formal Rulemaking Process

The formal rulemaking process begins with a public comment period which includes holding a public hearing.  Written public comments will be accepted from January 3 through 5:00pm on January 29, 2014 and the public hearing will be held on January 24, 2014 from 1:00 to 3:00 pm in the Gardner Auditorium of the Massachusetts State House in Boston.  Following the public comment period, the DOER will submit this proposed final regulation to the Joint Committee on Telecommunications, Utilities and Energy and will incorporate any changes deemed prudent from the public comments.  Within the following 30 days, the Joint Committee will review and submit comments on the regulation back to the DOER.  To conclude, the DOER must consider the Joint Committee’s comments for a period of not less than 30 days, and thereafter, the final regulation will be promulgated as soon as possible.  Based on the estimated outline in the table below, the SREC-II program should become effective in April 2014.

Table 1. Estimated Timeline for the Formal Rulemaking Process 

Estimated Timeline for the Formal Rulemaking Process

SREC-II Key Design Features

In our previous blog, Sol Systems provided an outline of the key design features (unchanged and changed) and policy objectives.  Most of these items remain unchanged, but we would like to take this opportunity to re-emphasize the major changes to the SREC-II Key Design Features and include some interesting design features that have been more defined in the recently filed draft regulation.

            1. Market Sectors and SREC Factors

SREC Factors remain a vital design feature in the SREC-II program to provide differentiated financial incentives based on market sectors; however, the market sectors have been condensed and simplified in the newest draft regulation.  The Factors level the playing field, and make smaller projects more competitive with larger projects. Moreover, the Factors help keep supply growth in check, which helps reduce price volatility in the SREC market.

The SREC Factor for the residential sector has increased to 1.0. The Managed Growth Sector will now no longer be a structure that is set by a competitive solicitation and will instead have a fixed SREC Factor of 0.7.  Qualifications of the Managed Growth Sector will still be limited to a certain amount of capacity in the form of Annual Blocks, which will be made available on a two year forward schedule set by the DOER and informed by the Cumulative Installed Capacity Targets.  In the most recent draft regulation filed on January 3rd, the annual capacity for Compliance Year 2014 will be 26 MW, and for Compliance Year 2015, the annual capacity block will be 80 MW.  In addition, the DOER will conduct an evaluation no later than March 31, 2016 to accommodate market and policy changes.  The market sectors are set out below in Table 2.

Table 2. Market Sectors and SREC Factors 

Market Sectors and SREC Factors

            2. Forward Minting and Direct-Ownership

In addition, Forward Minting has been eliminated and, instead, the residential direct-ownership market will be addressed with a financing program, initially funded using ACP funds.  The DOER expects this program will need to be supported by $20-50 million in loans annually at the start of the program, and $300-600 million cumulatively through 2020, which will provide a significant opportunity for the financing/banking industry to get involved as the ACP funds diminish.

            3. Cumulative Installed Capacity Target

The newest form of the draft regulation also includes a detailed structure for how the Cumulative Installed Capacity Target will be determined through 2020.  The Cumulative Installed Capacity Target will have an impact on how the Compliance Obligation is set for a given year, as well as the annual capacity block for the Managed Growth Sector.  The scheduled outlined in the draft regulation is as follows:

Table 3. Projected New Supply 

Projected New Supply

            4. Compliance Obligation

In addition, the total compliance obligation for Compliance Year 2014 has been set at 41,279 MWh, which was calculated as the amount of Solar Carve-Out II SRECs generated by 85 MW of capacity installed across market sectors differentiated by SREC Factors during the course of the compliance year with a capacity factor of 0.1321 or 13.21%.  For Compliance Year 2015, the total compliance obligation will be 161,958 MWh, which was calculated as the amount of Solar Carve-Out SRECs generated by 230 MW of capacity installed across market sectors differentiated by SREC Factors during the course of the first two compliance years with a capacity factor of 0.1321 or 13.21%.

For each subsequent Compliance Year, the total compliance obligation will be equal to the sum of the following five quantities of generated and project SRECs:

  1. Installed SREC II Supply
  2. Qualified, but not Installed SREC II Supply
  3. Project New Supply (as calculated in Table 3)
  4. Rollover Volume (SRECs that remain available for compliance, either re-minted or bank SRECs)
  5. Third Round Auction Volume Doubling

            5. Auction Price and ACP Rate Schedule

Finally, for reference, although these values have remained unchanged since the last announcement, we have provided a table outlining the Auction Prices and ACP Rate Schedules set for the SREC-II Program.

Table 4. Auction Price and ACP Rate Schedules

Auction Price and ACP Rate Schedules

Pricing Expectations

It is way too early to know the exact price level SRECs will open at for SREC-II. Sol Systems’ SREC team expects to see higher than normal volatility during the initial months since both sellers and buyers will be uncertain of fair value. However, as SREC-II matures, and market participants become more comfortable, volatility should quickly taper off.

The DOER has done a great job studying successes and failures of previous SREC programs, and SREC-II should provide reliable SREC pricing, reduced SREC price volatility and robust solar installation growth.

Sol Systems will continue to track the progress of the SREC-II regulation and will post any updates to our blogDevelopers interested in financing options for commercial Massachusetts solar projects can contact our project finance team at or (888) 235-1538 ext. 1. Our team is happy to discuss your project with you and assess financing opportunities.  Solar installers with customers in need of SREC options in Massachusetts can contact our SREC services team at or (888) 235-1538 ext. 1.

About Sol Systems

Sol Systems is a boutique financial services firm that offers investor clients direct access to the renewable energy asset class and provides developers with sophisticated project financing solutions. Founded in 2008, Sol Systems focuses on meeting the most critical needs of the industry, including SREC monetization, capital placement, tax equity, and New Market Tax Credits. To date, the company has arranged financing for thousands of projects and facilitated hundreds of millions in investment on behalf of Fortune 100 companies, private equity, family offices and individuals.

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Anna Noucas

Anna Noucas