The current 2012 SREC market.

As is now a well know reality, New Jersey 2012 SRECs are currently worth much less than SRECs were worth for the previous several years where SRECs usually traded in the $600's. It should be noted that in the initial years of the New Jersey program SRECs traded $145 to $280.

To understand what the price of an SREC can be, there are several concepts that should be understood as follows:

SREC highest and lowest price: The theoretical high for SRECs is the SACP, solar alternative compliance payment or "utility penalty". In the last few years the SACP value was set between $675 and $711. In the earlier years the SACP was $300. The New Jersey SREC market in a free trading market and the theoretical low price for an SREC is $0.00. The price for an SREC will typically travel within the bounds of the SACP and $0.00 depending on market conditions and supply and demand.

New Jersey Solar Market success: While solar generators who now see lower revenue for lower value for their SRECs are certainly disappointed, the lower price of New Jersey SRECs is actually a confirmation that the New Jersey Solar Program has been a success. New Jersey is second only to California in the amount of operating solar facilities. The price of SRECs moving higher and lower was thought to be the throttle mechanism that slowed solar down or increased the pace of building so a balance would be attained with New Jersey RPS, Renewable Portfolio Standard, requirements. The SREC program was not designed to always be at the high end and remain near the SACP. It was anticipated that lower SREC prices would slow growth in the solar market in New Jersey and balance the program.

Supply and Demand: In all energy years previous to the New Jersey 2012 energy year the market has been short and there have not been enough SRECs to meet the demand for them as required by the New Jersey RPS. The 2012 Energy Year which started with 2011/06 SRECs is predicted to be significantly long. There will be too many SRECs. It is thought the SREC market could be oversupplied by as much as 40% this year. New Jersey requires approximately 384MW of solar capacity by the end of the 2012 energy year, May 31, 2012. As of the end of August, 430.4MW has been completed indicating we are already 12% oversupplied. This oversupply prediction which has increased progressively each month has resulted in a significantly lower price for 2012 energy year SRECs. Please see the chart below which is provided by the New Jersey Clean Energy Program:

Note: We believe that solar capacity installed as of sometime in December will determine the average amount of SRECs produced for the 2012 Energy year as that is the probable midpoint in solar development. Solar capacity in kW or MW is not the same as how much power is being produced by that capacity as measured kWh, MWh or GWh which are the measurements that SRECs are measured in. One MWh produced equals one SREC. A project approved 6/1/2011, the first 2012 energy year day, makes SRECs throughout the entire 2012 energy year while a project approved 5/31/2012, the last 2012 energy year day, makes no SRECs for the 2012 energy year. Therefore we use December as a mid-year point for an estimate of how many SRECs can be produced for the full energy year.

Future Pipeline: The amount of projects the NJ BPU, New Jersey Board of Public Utilities through the New Jersey Clean Energy Program, has approved for building in the future also has an effect on both 2012 energy year prices and future energy year prices. Currently there are 541MW of approved project to be built in the approved by NJBPU pipeline. You can see in the data below provided by the New Jersey Clean Energy Program, if all the projects were built, in theory, within a year, we would have all the solar capacity, as defined by RPS requirements in A3520, needed complete almost to the end of the 2016 energy year, May 31, 2016 which calls for a total of 1,000MW. While we don't expect all of the additional 541MW to be built, if even 50% of them, not to mention more projects will be added, were built, we would still have enough solar capacity built to fill New Jersey RPS requirements for the next two and a half years through the end of the 2014 energy year, May, 31 2014.

Note 1:  The projects summarized above and contained in the Project List tab are all NJCEP approved solar projects that have not yet reached the "Installed Project" status. The approved projects listed in this report are NOT included in the installed project report for the same period.

Note 2:  In addition to the Approved projects, the Projects List tab also contains projects that are at the "Data Entry" status. These applications are under review and have not been issued a project acceptance letter from the NJCEP, they are reported in the Solar Projects Pipeline table above but may be subject to change.

The preceding information outlines what market factors and realities are affecting the price of current 2012 SRECs.

What are some of the current forces that can raise or lower current 2012 SREC prices?

Some reasons 2012 SREC prices could go higher:

• There is proposed legislation to move the 2014 RPS, A3520 requirements into 2013 and move each year following up one year in turn. Most market participants do not think this will happen but if this or something like this is certainly possible at some time. Utilities and the rate payer advocate will certainly influence and attempt to restrict this type of proposal and any proposal to advance or add to the RPS requirements will have to be fair to all stake holders. Keep in mind all of us pay for the solar program through a fee on our electric bills. If there is an advancement or addition to the RPS for the 2013 energy year, there will likely be some brush back effect on the 2012 energy year but more so on the 2013 energy year. Others believe an advancement in the RPS or addition to the RPS, the amount of solar required, if put in place, will serve to accelerate project construction thereby having limited effect on SREC prices.
• Emotions can and are currently affecting SREC prices. Many believe the current SREC price is higher than it should be as a result but emotions could continue to buoy 2012 SREC prices.
• 2012 energy year SRECs have a two year life beyond the close of the 2012 energy year trading period. The 2012 energy year closes 5/31/2012 and the trading period closes 10/1/2012 as LSE's have to report by that date. 2012 NJ SRECs are therefore tradable to 10/1/2014 based on current legislation, A3520. Certain market participates believe that if they hold their 2012 SRECs to sell in future years, less 2012 SRECs will be in the current market and that will serve to raise prices for others that chose to sell them for 2012 energy year compliance. They also believe that they will get higher prices for their SRECs if they sell them in a future energy year.

Some reasons 2012 SREC prices could go lower:

• Emotions can bring the 2012 SRECs lower as quickly as they could bring them higher. This was seen in August where they dropped from $175 to $140 in one day on market news that 31MW of solar had been built in one month. If you review the chart from New Jersey Clean Energy above, you will see that New Jersey clean energy speculates 28MW of solar will be built each average month throughout calendar 2012 on their high side which has been the trending build rate.
• Many SREC are under contract for large facilities and in addition the PSEG loan program and the EDC, Electric Distribution Company, auction program for JCP&L, ACE and RECO. It is thought that the available SRECs that trade in the spot market are 30% to 40% of the total SREC market. As such, a strategy of holding SRECs to sell in future energy years in a market that is likely 40% oversupplied will likely have limited affect on 2012 SREC prices. Solar generators who chose to hold SRECs to sell in future energy years also need to realize that historically these older SRECs have received a lower price than current year SRECs as they have a shorter life. This has been true even in previous markets which were short SRECs. While it is unknown what older SRECs will be worth for compliance forward, it is conjectured that their value could be less or even significantly less forward if the forward market they are selling into is oversupplied also. At any rate, older SREC values sold for future energy compliance will be determined by the LSE's, who are the required buyer's of the SRECs.
• If the pace of solar development increases it will serve to bring prices lower.
• If the amount of solar projects accepted by the BPU escalates it will serve to bring prices lower.
• Commercial solar developers can "safe harbor" the current 1603 Federal grant by having 5% of a project paid for by December, 31 2011 and completing their project by October 2012. They can also qualify for 50% accelerated depreciation on the 5.5 year MACRS depreciation schedule. Locking in these Federal incentives is very beneficial to commercial projects and will likely result in many commercial projects being constructed even in light of current depressed SREC prices.
• Equipment costs for solar projects are currently lower than they have ever been due to our depressed economy, a poor European economy and the lowering of European incentives to build solar projects. Low costs to build solar projects combined with still beneficial Federal incentives may also lead to more solar projects and increase the oversupply of SRECs.

NJSREC.com endeavors to provide a fair market price based on current New Jersey market conditions. We hope you found the preceding information useful.