The NJ SREC market has been active this week as traders gear up for tomorrow’s start to the annual BGS auction. In the auction, electricity providers will be awarded parcels of load to be served across the state by the four major Electric Distribution Companies (EDCs) – Public Service Electric & Gas (PSE&G), Atlantic City Electric Company (ACE), Jersey Central Power & Light (JCP&L), and Rockland Electric Company (RECO) – between 2017 and 2019. As wholesale power providers find out their future obligation for electricity production, they also begin to hedge their forward exposure to the RPS SREC obligation. This auction has traditionally been the single biggest liquidity event of the year for the NJ SREC market so we believe this to be a timely opportunity to update our capacity models.
Our New Jersey SREC Update presentation can be found here.
The trend in build rate has kept largely in line with our October 2015 update, when we emphasized that the market is projected to be fundamentally balanced on average through 2018, with the maximum range of 10.6% undersupply to 7.3% oversupply. The trend in 2019 and beyond, however, begins to turn towards oversupply in 2019 and 2020 as the RPS percentage growth slows. In the medium term we expect to see NJ SREC markets trade largely in line with the average price range witnessed in spot vintages. In the short term, however, the renewed source of demand from compliance buyers shifting their focus to 2017 and 2018 obligations should be extremely supportive for prices.
One final observation pertains to the potential impact that a steadily more risk-averse attitude towards credit exposure could have on the ability for members of the solar industry to access liquidity in both OTC and electronic SREC markets. As many firm’s credit requirements become more stringent, we have noticed a delineation in the market where the price that is being traded between two investment-grade (IG) counterparties is growing further and further away from the levels that are accessible to non-IG solar developers and asset owners.
As always, this document is informational in purpose to assist in explaining the focus on NJ Solar RECs over the coming weeks.
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