Recent public discussion of Maryland’s proposed increase to the state’s RPS requirements, as well as the introduction of the Clean Energy Jobs Act to the Maryland general assembly, has brought widespread attention to the status of Maryland’s environmental commodity markets.  Due to this focus we updated our capacity models for Maryland to account for the latest generation data available in GATS.

Our updated MD capacity presentation can be found here.

Through December 2015 (the last reliable month of data due to reporting lag) there was approximately 113,240 SRECs left over from compliance years 2013, 2014 and 2015.  This assumes that the 349,917 available 2015 SRECs are put towards the CY15 compliance requirement of 308,419.  Assuming that the observed average monthly build rate of 10.9 MW/month continues to hold, we project that 534,776 additional SRECs will be generated in compliance year 2016.  Taking together the existing inventory of available prior-year SRECs together with the projected 2016 production, we foresee an oversupply of 216,229 SRECs  by the end of 2016.

As we look into future years, the degree of oversupply begins to vary widely depending on the assumptions made regarding monthly build rates.  In 2017 we see a range of market conditions between a 42% and 82% oversupply, and in 2018 conditions between a 15% and 77% oversupply.  These projections do not take into account the RPS increases currently under legislative review in the Maryland general assembly, as covered in our recent post from February 10th.

We will continue to monitor the state of the Maryland market as more data continues to be made available regarding reported build rates through early 2016.  Please reach out to the SRECTrade team with any questions or feedback.

Chief policymakers in Maryland gathered on Tuesday, December 8th to publicly unveil their plan to establish the largest clean energy program in the state’s history. The proposed 2016 “Clean Jobs Act” is a $40 million plan to stimulate Maryland’s clean energy sector and to increase the state’s existing Renewable Portfolio Standard (RPS) to 25 percent by 2020, a sizable increase over the state’s current goal of 20 percent by 2022. This would increase the number of Solar Renewable Energy Credits (SRECs) needed to be purchased and retired by state electricity suppliers. Two of the plan’s major proponents, Senate Majority Leader Catherine Pugh (D-Baltimore) and Delegate Dereck Davis (D-Prince George’s), announced the plan during a press conference alongside a diverse base of supporters, including small businesses, community colleges, climate advocates, and job training leaders. Senator Pugh and Delegate Davis are also joined by bipartisan co-sponsorship from Senator Brian Feldman and Delegate Bill Frick of Montgomery County, who initiated legislation to expand Maryland’s RPS earlier this year. As 2015 comes to a close, Delegate Davis asserted that “2016 is the year to pass this ‘Clean Jobs Act’ for Maryland.”

The proposed workforce development plan within the larger RPS bill will source $40 million from unallocated contributions from Maryland’s Strategic Energy Investment Fund. If passed, the Act will create an estimated 2,000 additional clean energy jobs and further contribute to the rapidly-growing Maryland renewable energy sector. The state’s solar industry already supports over 3,000 workers, and the industry is expected to add 750 more jobs this year. Collectively, state policies addressing climate change are projected to generate 26,000 to 33,000 new jobs and increase wages by tens of billions of dollars by 2020.

In addition to addressing the state’s economic needs, the bill helps Maryland to address climate change with clean energy, while improving air quality and reducing greenhouse gas emissions. The RPS increase will create financial incentives to add approximately 1,300 Megawatts (MW) of clean energy by 2020. Decreasing solar and wind prices and the potential for utilizing untapped energy assets will help facilitate the achievement of this goal. The announcement of the plan follows a positive report from the Department of the Environment that Maryland is well on its way to meeting its existing goals, and broad support from faith, labor, social justice and environmental constituencies bolsters public support for the new plan.

“I’m proud to sponsor this legislation because addressing climate change and improving our economy go hand-in-hand,” said Sen. Feldman. “It’s time to lock in Maryland as a leader in both.”

Last week, attention focused on the Maryland SREC market. On Monday, 10/19/15, Maryland regulated utilities awarded load auction bids for electricity supply. Electric load was contracted for anywhere between 3 and 24 months into the future. Once load suppliers begin to lock in their load obligations, attention naturally turns to the REC markets to begin planning for the corresponding compliance obligations.

Given the additional attention on the recent load auction and the consequent trading activity in the MD SREC market, we have refreshed our capacity scenarios to get a stronger sense of the current balance between supply from recently built projects and demand from RPS compliance obligations.

Our most recent MD SREC capacity presentation can be found here.

As of our last MD capacity update, Last Twelve Month (LTM) monthly build rates were 5.8 MW per month. Due to a remaining balance of approximately 73,400 CY 2013 and 2014 SRECs and a strong Q4 2014 build, the market was expected to be slightly oversupplied in the short term (2015 and 2016) by about 10%-30%; depending on forecast monthly solar build rates. Despite this short term oversupply, the market was projected to return to balance by 2017 with significant under supply in 2018 and 2019. At the time, supply/demand balance and observed build rates justified the thesis that the MD solar market had the ability to digest more project build.

Since the late spring / early summer, the PJM GATS renewable generators report shows Maryland experienced a strong uptick in new build during the summer, with build rates from June through August increasing 34% from the previous three months ending in May.

Average LTM build rates now stand at 10.6 MW per month.  At this increased pace, the Maryland SREC market will experience over supply in the coming years. Across three scenarios – 75%, 100%, and 150% of LTM solar build rates – the market is forecast to be oversupplied through 2019.

What this means for MD SREC pricing 

If these observed build rates continue into the future, downward pricing pressure will result as more and more supply is brought to market. This is particularly relevant now, as electricity companies who have sold electric supply for the next 24 months will be looking to buy their SREC exposure for a similar time period.  Market participants can look at forward structures such as multi-year SREC strips as an opportunity to lock in forward pricing to protect from any future price movement.

As always, this analysis is informational only in purpose in order to help explain the emphasis on MD SREC markets last week. We will continue to watch the markets closely and stay on top of new MD capacity data as it is updated by PJM-GATS.

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