Maryland SREC Market and Out-of-State SRECs

The March SREC auction saw a drop in pricing in Maryland that accompanied the more predictable price drops in DC and Pennsylvania. March marks the first month that 2011 SRECs are available for sale in Maryland and it is not uncommon to see a slump in SREC pricing at the beginning of the trading year. However, there were a few notable changes to the SREC market in Maryland over the past few months. As we pointed out earlier, there has been a lot of uncertainty around how the state was interpreting a seemingly contradictory law with respect to out-of-state SRECs. It seemed that the state would allow SRECs from anywhere within the PJM region and adjacent areas, which could be interpreted to include New York and North Carolina.

In the past few months Maryland approved facilities grew from our December report of 12.2 MW total (2.3 MW from out-of-state) to our January report of 27.6 MW total (15 MW from out-of-state). The majority of that increase comes from the inclusion of the 10 MW Exelon solar farm in Chicago. That project resides in the PJM Region and is therefore eligible for the Maryland market. In addition to that project, an additional 2.7 MW of out-of-state facilities were approved, an indication that Maryland is definitely taking on out-of-state facilities, and at a fast rate.

Maryland may have also clarified what constituted an “adjacent” area to the PJM region. On February 10th, GATS sent out an update that included the following: “There are also some MD facilities that are no longer eligible beginning January 2011 and those certification numbers will be removed prior to the certificate creation this month.” This would explain why our January report of 27.6 MW total (15 MW from out-of-state) turned into a February report of only 26.7 MW total (13.9 from out-of-state). It seems  a big part of that reduction came from the exclusion of the SAS 1.2 MW facility in North Carolina. So at the same time that the out-of-state supply was growing in Maryland, some facilities were removed from eligibility.

For the time being, Maryland is a market open to out-of-state facilities, but according to the law:

(a) Utilities must prove that they are unable to meet their requirements with in-state SRECs: “only to the extent that Maryland Tier 1 solar RECs are insufficient, a supplier may satisfy the statutory requirement with RECs from a solar renewable energy facility not connected with the electric distribution grid serving Maryland.”

Note: The concern here is how does a utility demonstrate that they are unable to procure from in-state prior to purchasing out-of-state? In 2010, according to one contact at the PSC, it seemed that the utilities were not willing to make the effort. Perhaps this has changed in 2011.

(b) Starting in 2012, the market becomes an in-state market only: “On or after January 1, 2012, a supplier’s Tier 1 solar REC obligation under Public Utilities Article, §7-703, Annotated Code of Maryland, shall be satisfied only with RECs from a solar renewable energy facility connected with the electric distribution grid serving Maryland.”

Note: This statement is clearly intended to close off the Maryland SREC market only to in-state solar after 2011, but the “electric distribution grid serving Maryland” is not clearly defined in the law. Based on discussions with the PSC, the likely interpretation is that, although the “transmission” grid serving Maryland (used in other places in the law) can include the rest of the PJM region, the actual distribution grid is most likely limited to Maryland. The likelihood of distribution level facilities originating in a bordering state would be rare, if non-existent, according to the PSC.

To summarize, there has been a significant uptake in out-of-state facilities being registered in Maryland, but the law should protect the in-state solar market from being affected by these facilities. In addition, those facilities should be ineligible for the market from 2012 onwards, so the long-term outlook for in-state solar should be secure. Barring any alternative interpretations of the Maryland RPS, the in-state Maryland solar market should be healthy in 2011. There are currently ~13 MW in Maryland and the state needs to have ~30 MW on average in 2011 to meet the requirement of approximately 34,000 SRECs in 2011. If the state can get there on its own, then it limits the opportunity for Exelon and other out-of-state facilities. If Maryland falls short, their will be a market for out-of-state facilities but only in 2011.

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Tags: Maryland out-of-state SRECs, Maryland SREC prices, Maryland SREC pricing