If commercial-sized solar projects that have been announced in Pennsylvania are built within the next 12 months, Pennsylvania could experience a significant oversupply of solar renewable energy credits in 2011. In other words, there may be more than enough solar renewable energy credits (SRECs) available for Pennsylvania energy suppliers to meet their solar energy mandates as dictated by the Alternative Energy Portfolio Standard (AEPS).

By June of 2011, Pennsylvania energy suppliers are supposed to generate or purchase an estimated 33,000 SRECs pursuant to the requirements of the AEPS. This is equal to 33,000 megawatt hours of solar-generated electricity, and equates to around 27.5 MW of nameplate installed capacity.

What may be surprising is that there is already enough solar capacity registered in Pennsylvania to produce approximately 46,440 SRECs.

In addition, there have been project announcements for more than 60 MW of new commercial-scale solar projects for corporations like GlaxoSmithKline, Nestle Waters, and Air Products & Chemicals as well as systems for government organizations such as Bethlehem Area School Districts, Colonial Elementary School, and the Tioga Marine Terminal.

These large projects alone could add 72,000 SRECs to the Pennsylvania market, but SRECs from new smaller residential projects will grow as well.

What’s difficult to predict, however, is the number of large scale solar projects that will actually be built. Many states see an attrition rate of 50% or more within their grant programs. It’s likely that the termination of the Treasury ITC grant program will push construction forward in the short term, creating a bump of SREC supply in the early part of 2011, but that may undermine solar development through the rest of the year.

If both residential and projects expand to their full potential, Pennsylvania could see an oversupply of more than 100,000 SRECs in 2011-12.

What does this mean for SREC prices in Pennsylvania? 
Basic economics tell us that a rise in supply with no change in demand puts downward pressure on prices. However, it’s hard to say with certainty what will happen to SREC prices because Pennsylvania’s unique legislation dictates that the Alternative Compliance Payment (ACP) for energy suppliers who do not meet the AEPS must pay a penalty equal to 200% of the prior year SREC prices. Because the ACP is not fixed at a certain rate (like New Jersey), SREC prices in Pennsylvania have more variability.

Actual SREC prices depend on when energy suppliers contract for SRECs and what prices they negotiate with solar energy system owners. Energy suppliers and solar owners can mitigate the risks of volatile SREC prices by locking into fixed rate SREC contracts such as the ones offered by Sol Systems. Or, they can gamble on SREC prices by using the spot market. In either case, it’s important for SREC buyers and sellers to understand their options and market dynamics before they make a decision.