With the close of the Maryland 2017 compliance year approaching, we thought it would be relevant to provide an update on where the current market stands, including recent happenings that could impact the future Renewable Portfolio Standard (RPS) requirements. Click here for our full presentation.

This year started off slightly more positive as the market moved up off its early Q4 2017 lows of about $5.00-6.00/SREC. Recent spot transactions have been ranging between $7.00-7.50/SREC. Additionally, the MD2018 and MD2019 forward markets have trended up into the $8.50-$10.50/SREC range depending on vintage and transaction size. It is likely that a combination of the 2017 compliance year coming to a close as well as standard offer service electricity load auctions taking place in late January had a positive price impact through increasing buy side demand.

Under the current RPS requirements, the MD SREC market is fundamentally oversupplied. Solar build rates remained strong through the end of 2017 and the 100 megawatt (MW) Great Bay project is now registered in PJM GATS. Excluding the Great Bay project, however, the market experienced a 15.7% decline in average MW build per month in the last 6 months versus the last 12 months (through November). Even though the rates per month are declining, the market saw a push of project registrations heading in to the close of 2017, which is typically normal at year end (i.e. excluding Great Bay, 33.9 MW were registered in GATS through November 2017 vs. 26.7 MW through August 2017).

The most meaningful news for the Maryland RPS is the introduction of Senate Bill 732. The bill aims to increase the overall RPS requirements to 50% by 2030 and increase the solar carve out requirements to 14.5% by 2028, with a large step up to 5.5% in 2019. In addition to increasing the MD RPS, the bill also reduces the Alternative Compliance Payment (ACP) for both the Tier I and solar carve out requirements. Summary charts below outline the proposed changes to the solar carve out portion of the RPS, including both RPS % increases and ACP decreases.

The bill had its first reading in the Senate Finance Committee in early February. It is scheduled to be heard in the house (HB1453) on March 5th and then in the Senate on March 6th. As demonstrated in the Maryland SREC Update presentation above, the increase in the RPS % under SB732 would allow for Maryland’s solar market to continue to build at rates in excess of current last 12 month averages (i.e. 20.3 MW/month). This would allow the market to develop a variety of project types including larger, utility scale projects that the state has seen over the past few years. While the step up to a 5.5% solar requirement in 2019 is substantial, our presentation does not take into consideration the impact of exempt electric load that would only be eligible under the old RPS schedule given already signed electricity supply agreements. Exempt load would reduce estimated demand in the earlier years of the RPS increase under SB732, but nonetheless the RPS increase would have a substantial effect on increasing the demand for SRECs and solar supply in the state of Maryland.

SRECTrade will continue to track the status of this legislation. In the meantime, please feel free to contact us with any questions.

A new campaign set forth by a coalition of environmental advocates and energy leaders in Maryland, calls for a doubling of the state’s current Renewable Portfolio Standards (RPS). The campaign, dubbed the Maryland Clean Energy Jobs Initiative, aims to increase the current target of 25% renewable energy by 2020 to 50% by 2030, stimulating regional job growth, especially in low income communities, and promoting “environmental justice”. The program would require utilities and Load Serving Entities (LSEs) to purchase renewable energy certificates (RECs) representing one megawatt-hour of renewable electricity in order to comply with these standards. While the coalition acknowledges the political obstacles ahead, they are optimistic, attributing much of the political “momentum” to recent natural disasters and impacts of climate change. Organizations that have expressed support of the campaign include the NAACP, Interfaith Power and Light, SEIU 119, and the MDV SEIA.

After the recent move lower in Maryland spot SREC prices, we decided to refresh our capacity models and market projections with the latest data available from PJM GATS.  You can find our updated presentation here.

The Maryland SREC market remains significantly oversupplied after a record breaking 2016.  Through the 2016 calendar year the Maryland solar market installed an average of 23MW/month for a grand total of 278MW over the course of the year.  Comparatively, in CY 2015 the monthly build rate was just under 14MW/month for a total of 164MW.  That 70% increase in installed capacity had a pronounced impact on market pricing for MD SRECs, with MD16 SRECs declining in value from $150 in late 2015 to $20 in late 2016.  In recent weeks, as the market continued  to digest the true scale of oversupply, the price for spot MD SRECs has declined to between $10 and $15.

                         Source: SRECTrade Market Insights

Turning our focus to calendar year 2017, the current market is still reflective of the significant supply of SRECs generated in previous years which is still eligible to be brought to market for 2017 compliance obligations.  The available supply of MD15 and MD16 SRECs is just shy of 400,000 SRECs, representing a full 56% of the 2017 SREC compliance obligation.  An additional 70,000 SRECs were issued through Q1 of 2017, and using the current trailing twelve month average (TTM) build rate in MD, we project that another 730,722 SRECs will be produced over the balance of the 2017 calendar year.

This adds up to a 2017 oversupply of roughly 490,700 SRECs, or 69% of the 2017 compliance obligation.  One important point to consider, however, is the sustainability of the current 17.5MW/month TTM build rate in the current SREC environment. We have seen a marked deceleration in the addition of new capacity as many projects – mostly those who would receive the wholesale rate of power as opposed to the retail rate – no longer pencil economically with $10 to $20 SRECs.  Given this reality, we chose to present our projections below with the current TTM representing the “bull case” for future build, while significantly lower monthly capacity additions of 8.8MW/month and 13.1MW/month make up the bear and base cases, respectively.

As we can see by looking out along the timeline, the expected slow down in build will result in the market eventually rebalancing itself, with supply beginning to match demand in 2020.  However, even in this “best case” scenario, the Maryland market will still be a difficult place for developers unable to source PPAs with robust power pricing to successfully build new solar assets. The persistent oversupply will continue to keep SREC pricing depressed through the short to medium term.  However, hope is not lost entirely. This trend could quickly be reversed by any sustained effort to support and pass an expanded RPS schedule with more aggressive percentage targets for solar’s share of the state energy mix.  Expect markets to quickly turn should a viable legislative plan be proposed and adopted over the coming months or years.

As always, we will continue to monitor the state of the Maryland SREC market and offer our opinions when we believe they will be useful.  Feel free to reach out to the SRECTrade brokerage team to request the data used to build our models or to inquire about our projections for the Maryland SREC market.  Additionally, feel free to consult the Markets section of our webpage for quick facts regarding the current RPS framework and specifics about the SREC program.

Disclaimer. This document, data, and/or any of its components (collectively, the “Materials”) are for informational purposes only. The Materials are not intended as investment, tax, legal, or financial advice, or as an offer or solicitation for the purpose or sale of any financial instrument. SRECTrade, Inc. does not warranty or guarantee the market data or other information included herein, as to its completeness, accuracy, or fitness for a particular purpose, express or implied, and such market data and information are subject to change without notice. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Any comments or statements made herein do not necessarily reflect those of SRECTrade, Inc. SRECTrade, Inc. may have issued, and may in the future issue, other communications, data, or reports that are inconsistent with, and reach different conclusions from, the information presented herein.

Copyright. This document is protected by copyright laws and contains material proprietary to SRECTrade, Inc. This document, data, and/or any of its components (collectively, the “Materials”) may not be reproduced, republished, distributed, transmitted, displayed, broadcasted or otherwise disseminated or exploited in any manner without the express prior written permission of SRECTrade, Inc. The receipt or possession of the Materials does not convey any rights to reproduce, disclose, or distribute its contents, or to manufacture, use, or sell anything that it may describe, in whole or in part. If consent to use the Materials is granted, reference and sourcing must be attributed to the Materials and to SRECTrade, Inc. If you have questions about the use or reproduction of the Materials, please contact SRECTrade, Inc.

Today, the Maryland House voted 88-51 to override Governor Hogan’s veto of HB1106, the Clean Energy Jobs Act, which amends the state’s RPS to 25% by 2020. Governor Hogan vetoed the Clean Energy Jobs – Renewable Energy Portfolio Standard Revisions Act (SB0921/HB1106) in May 2016, citing concerns about the costs of expanding the program. However, the expanded RPS will allow for the continued growth and success of the state’s renewable energy economy by increasing supply demands and creating new clean energy job opportunities. To address program costs, HB1106 reduces the SACP levels beginning in 2017.

The Senate is scheduled to vote on the override on Thursday, February 2nd. You can support the override efforts by urging the Maryland Senate to override the Governor’s veto and protect the Maryland solar industry. Sign MDV-SEIA’s Override Letter here today. In addition, we encourage Maryland residents and businesses to contact their State Senators in support of SB0921/HB1106. You can find your State Senator here.

SRECTrade will continue to provide updates on the status of the Maryland RPS as we acquire new information. For more information about the Maryland SREC market, please visit our Maryland Market page here. For our latest MD SREC market analysis, see our post here.

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.

Disclaimer. This document, data, and/or any of its components (collectively, the “Materials”) are for informational purposes only. The Materials are not intended as investment, tax, legal, or financial advice, or as an offer or solicitation for the purpose or sale of any financial instrument. SRECTrade, Inc. does not warranty or guarantee the market data or other information included herein, as to its completeness, accuracy, or fitness for a particular purpose, express or implied, and such market data and information are subject to change without notice. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Any comments or statements made herein do not necessarily reflect those of SRECTrade, Inc. SRECTrade, Inc. may have issued, and may in the future issue, other communications, data, or reports that are inconsistent with, and reach different conclusions from, the information presented herein.

Copyright. This document is protected by copyright laws and contains material proprietary to SRECTrade, Inc. This document, data, and/or any of its components (collectively, the “Materials”) may not be reproduced, republished, distributed, transmitted, displayed, broadcasted or otherwise disseminated or exploited in any manner without the express prior written permission of SRECTrade, Inc. The receipt or possession of the Materials does not convey any rights to reproduce, disclose, or distribute its contents, or to manufacture, use, or sell anything that it may describe, in whole or in part. If consent to use the Materials is granted, reference and sourcing must be attributed to the Materials and to SRECTrade, Inc. If you have questions about the use or reproduction of the Materials, please contact SRECTrade, Inc.

Much has been made of Governor Hogan’s recent veto of the Clean Energy Jobs – Renewable Energy Portfolio Standard Revisions bill (SB0921/HB1106) and its implications for the long term health of the state SREC market.  Market weakness due to fundamental oversupply has been exacerbated by uncertainty as to the likelihood of the Maryland legislature to expand state renewables markets in step with increasing supply.  With the Maryland SREC market trading at all time lows, we feel that it is important for market participants to be able to base their opinions on accurate empirical data.  As such, we have updated our supply and demand scenario models to reflect the most recent available capacity information made available by PJM GATS.

Our updated Maryland capacity presentation can be found here.

Through May 2016 there was approximately 156,682 SRECs left over from compliance years 2014 and 2015.  Thus far in 2016, 144,133 CY2016 SRECs have also been issued.  Assuming that the observed average monthly build rate of 19.6 MW/month continues through the year, we project that 556,507 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 425,535 SRECs  by the end of 2016.

In this latest capacity analysis update we have included parallel analyses for the projected supply/demand balance in future years.  Looking out to 2022, we demonstrate how that balance would evolve under both the currently adopted RPS as well as under the recently proposed RPS.  We have also made a slight change to the range of scenarios we present.  Whereas we typically present this analysis extending the current trailing twelve month average build rate through the full term of the analysis, and two more scenarios where the build rate both increases and decreases slightly, we have chosen to adjust our methodology.  The current build rate of 19.6 MW/month is quite strong relative to historical averages, influenced primarily by above average build numbers for December 2015 through February 2016.  This increase may have been caused by the “ITC cliff” confronted at the end of 2015 or by stronger SREC prices in the summer and fall of 2015.  Whatever the cause, those factors are no longer relevant for the purposes of this analysis, and it is reasonable to believe that monthly build numbers will decrease from here.  Our case 1 and 2, therefore, are reflective of a build rate that is 50% and 75% of the trailing twelve month average.

While the market is clearly oversupplied under almost all scenarios we think it is important to note that the proposed RPS significantly decreases the percentage oversupply in later years, decreasing the oversupply by almost half in some instances.  We point this out to illustrate that the current state of the market may not be as dire as some market participants believe.  We maintain that an oversupplied market is not necessarily a broken market.  One of the advantages of a market-based mechanism is that price fluctuations provide price signals to market participants considering whether to initiate additional projects.  Ideally, the low level of SREC pricing today will lead a significant portion of the current project queue to wait on adding new capacity until the supply and demand balance normalizes.

With that said, the greatest uncertainty as to the future health of the Maryland SREC market is what portion of the PJM interconnection queue will ultimately be built.  There are several large utility scale projects with nameplate capacity of 100 MW or more that could drastically change the supply and demand balance to a point where the only solution would be legislation to either increase the state RPS or restrict eligibility to the existing market.  Our analysis does not account for this potential outcome but we acknowledge that it is certainly a plausible scenario.

We will continue to monitor the state of the Maryland SREC market as more data is made available regarding trends in monthly build rates and new projects that are awarded SREC eligibility.  We will also continue to publish information regarding the Maryland legislative process and the status of the solar carve out.  Please reach out to the SRECTrade team with any questions or feedback.

Disclaimer. This document, data, and/or any of its components (collectively, the “Materials”) are for informational purposes only. The Materials are not intended as investment, tax, legal, or financial advice, or as an offer or solicitation for the purpose or sale of any financial instrument. SRECTrade, Inc. does not warranty or guarantee the market data or other information included herein, as to its completeness, accuracy, or fitness for a particular purpose, express or implied, and such market data and information are subject to change without notice. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Any comments or statements made herein do not necessarily reflect those of SRECTrade, Inc. SRECTrade, Inc. may have issued, and may in the future issue, other communications, data, or reports that are inconsistent with, and reach different conclusions from, the information presented herein.

Copyright. This document is protected by copyright laws and contains material proprietary to SRECTrade, Inc. This document, data, and/or any of its components (collectively, the “Materials”) may not be reproduced, republished, distributed, transmitted, displayed, broadcasted or otherwise disseminated or exploited in any manner without the express prior written permission of SRECTrade, Inc. The receipt or possession of the Materials does not convey any rights to reproduce, disclose, or distribute its contents, or to manufacture, use, or sell anything that it may describe, in whole or in part. If consent to use the Materials is granted, reference and sourcing must be attributed to the Materials and to SRECTrade, Inc. If you have questions about the use or reproduction of the Materials, please contact SRECTrade, Inc.