As the growth of the Maryland solar market continues to outpace the state’s RPS framework, the Maryland SREC market has become more and more challenging to navigate.  The SREC market is clearly oversupplied and the market is trading in line with expectations that this will continue well into the future.  In order to better inform the conversation around the true state of the MD SREC market we’ve taken a closer look at data made available by the PJM GATS regarding the rate at which new solar capacity is being brought online in the state.

You can find a copy of our updated Maryland capacity presentation here.

Through August 2016 there were 157,377 SRECs left over from compliance years 2014 and 2015.  Thus far in 2016 (through July 2016 generation), 344,792 CY2016 SRECs have also been issued.  Assuming that the observed average monthly build rate of 21.4 MW/month continues through the year, we project that 293,183 additional SRECs will be generated in compliance year 2016.  Taking together the existing inventory of available prior-period SRECs together with the projected production for the remainder of 2016, we foresee an oversupply of 363,600 SRECs, or approximately 84% over the total 2016 RPS requirement, by the end of the year.

There are a few important trends to note here.  First, while the trailing twelve month (TTM) average monthly build has technically increased since our last Maryland capacity update in June (21.4MW/month now vs. the 19.6MW/month reported in June) this is actually due to the lower build rates of Q2 2015 falling out of the TTM measurement.  The most recent data shows that the build rate actually peaked in the three months of December 2015 through February of 2016.  Those three months averaged a 35.9MW/month build rate, while the three months immediately following dropped to a significantly less aggressive 17.5MW/month average.  This shows that the rapid growth witnessed in the Maryland market has indeed begun to slow due to weaker support from the SREC market.

Secondly, this recent slow down also has significant implications for the likely path the Maryland market will follow over the coming years.  As we have already seen monthly build numbers retreat from their Dec15-Feb16 highs, we are more confident that the Maryland market will fall into a long term trend somewhere between 50% and 75% of the current TTM average of 21.4MW/month. The enclosed analysis includes two scenarios, the first with the RPS requirements as currently set and the second with the RPS increase as proposed under SB0921/HB1106.  The RPS increase proposed was vetoed by Governor Hogan in May of 2016. While industry stakeholders continue to advocate for an RPS increase, it is uncertain what form a new piece of legislation could take. For purposes of showing the state of the market under current and the vetoed legislation (i.e. some form of increase), supply and demand scenarios have been presented under both RPS requirements. Assuming a build rate decline of 50-75% of current TTM average, the market will be in a persistent state of oversupply within the range of approximately 50% to 115% through 2018 under both RPS requirements.

We want to emphasize that these projections are derived entirely from available historical data based on observations of assets built and registered with PJM GATS.  The monthly build rates remain subject to change for some time into the future as the registry receives and processes new project registrations.  Also, these numbers do not incorporate data from the PJM interconnection queue.  While this queue is noteworthy due to the presence of multiple relatively large utility-scale installations, it is impossible to predict which of these will indeed come online and which will fall away because of deteriorating project economics.  We acknowledge that if even one of the largest five projects listed in the interconnection queue comes online with SREC eligibility our projections would need to be significantly revised.

We will continue to track the state of the Maryland SREC market as more data is made available.  Please feel free to reach out to anyone on the SRECTrade brokerage team to discuss this analysis or any of the assumptions used herein.

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