We recently received an update on the New Jersey solar market from the office of New Jersey’s Clean Energy Program, bringing us up to date on new solar capacity built through June.  As of June 30th, New Jersey had a total installed capacity of 1,793.79MW – a 61.49MW addition from the figure previously reported as of the end of May.

The 61.49MW addition is obviously noteworthy at first glance, and the market has immediately responded by selling off significantly in the days that followed the report’s release.  A closer look into the data, however, provides a more nuanced understanding of what that figure really represents.  Given the magnitude of the market reaction after this release we took the opportunity to update our New Jersey capacity models to provide a framework to better understand the data.

You can find our updated New Jersey SREC capacity presentation here.

While it is true that 62MW of new projects were added to the cumulative total of installed capacity, that number actually represents revised figures for monthly installations dating back to January 2015.  The 62MW can be broken out as follows:

• 11MW of upward revisions attributed to 2015 monthly figures
• 32MW of upward revisions attributed to 2016 monthly figures
• 19MW of new build attributed to June 2016

Given the distribution of the newly reported capacity increase, the result on the observed average build rates is not quite as extreme as we have seen other groups report.  Using the newly updated numbers, the trailing twelve month average build rate is about 22.5MW/month and the 2016 YTD average is 25.7MW/month.

In aggregate, the New Jersey RPS is quite large and this recent surge in build in and of itself does not necessarily tip the overall balance of the SREC market.  While we have seen a broad sell off in New Jersey SRECs across most vintages, we believe the New Jersey market can maintain current pricing even if the build rate remains elevated in the short term.  What has most likely sent SREC prices lower is the possible impact that a more long-term increase in build rates might have on the balance of the NJ SREC market.

Looking ahead there are two very different possible scenarios.  For the sake of keeping RPS comparisons constant through this analysis, we will make the assumption that NJ SB2276 (which increases the NJ RPS solar requirement slightly) successfully makes its way through the legislative process and is formally adopted.   First, the solar sector could react to the recent drop in SREC values and regress from its current trend to a less aggressive – though still above the historical average – rate of 17MW per month.  A build rate averaging somewhere close to 17MW per month would keep solar installations just slightly ahead of goals set by the current RPS schedule, leaving us no more than 5% oversupplied in any given year through 2021.  This would likely leave SREC prices stable and trading at consistently strong levels.

The alternative is to presume that the most recent increase represents a “new normal” for New Jersey solar.  An average build rate of 34MW per month, which more closely tracks the current trend, extrapolated out over the next five years would result in a very significant oversupply that would almost certainly push SREC prices lower in 2019 and beyond.   A build rate anywhere near 34MW per month eventually outpaces the growth built into the current RPS schedule and overwhelms the market structure that has been put in place through recent legislation.

We will focus on following how this trend develops over the coming six months.  If the solar industry does indeed respond to the price signals being sent by the NJ SREC market, and build rates normalize to more sustainable rates, then New Jersey solar economics will continue to benefit from strong SREC prices.  If, however, developers ignore these signals and continue to aggressively install new assets irrespective of RPS support we will likely see SREC prices continue to retreat in a manner that reflects the underlying shift in the balance of SREC supply and demand.

As always, we will continue to monitor these trends and share our analysis as new information becomes available.  In the meantime please feel free to reach out to your SRECTrade coverage with any questions or comments.

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.

On Monday evening we received a much anticipated update on the growth of New Jersey’s solar capacity.  Applied Energy Group made their analysis available via New Jersey’s Clean Energy Program website, providing new information on the monthly build rates and overall size of the New Jersey solar market.  

As in most other SREC markets, the beginning of the year has been exceptionally strong for new solar development in New Jersey.  As of May 31st, New Jersey had installed a cumulative total of 1,732.3 MW of nameplate capacity.  88 MW of that capacity was installed just in the last three months since the data was last reported on February 29th.  Also of note, a full 89 MW of the new supply added thus far in 2016 is categorized as Grid Supply, putting this year on track to be the largest year to date for non-behind-the-meter solar development.

The New Jersey SREC market was exceptionally busy on Tuesday and Wednesday as the market digested this new data.  Tuesday morning  the market was predominately offered as sellers attempted to lock in the value that has been available for spot and forward contracts.  As always, we enjoy seizing these opportunities of higher than normal market activity to offer a dose of objective market analysis to the ongoing dialogue.

You can find our updated New Jersey SREC capacity presentation here.

The average rate of new solar construction has indeed increased over the last few months.  88 MW came online in March, April and May of this year, increasing the trailing twelve month average build rate to 20.5 MW/month.  Although this headline number justifiably commands attention, we believe that it is important to evaluate this increase in the context of New Jersey’s equally robust RPS requirements.  In our presentation, we put forward scenario analyses for both the currently adopted RPS percentages as well as the proposed higher RPS percentages contained in Senate Bill 2276 (our previous post on the proposed legislation can be found here).

Our analysis finds that even under the current RPS, a continuous 20.5 MW monthly build rate would not lead to significant oversupply (defined as an imbalance above 25% of the annual requirement) until midway through 2020.  Under either RPS schedule, and even with a build rate that grows to an impressive 30.8 MWs per month, the imbalance of supply and demand would not exceed 20% until 2019 at the earliest.

With that said, passage of SB2276 is critical to the longer term sustainability of the New Jersey solar market.  The proposed demand “pull forward” mechanism central to the bill helps alleviate concerns that the solar market will be able to count on supportive SREC pricing from 2020 onward.  If capacity growth is assumed to remain at a constant rate, but no adjustment is made to the current RPS schedule to match that pace, the SREC market will indeed become increasingly oversupplied from 2020 onward.

As always, please feel free to contact your SRECTrade brokerage team member for any further clarification or discussion of our data.  We will continue to follow the development of the legislative process closely and provide you with updates as they become available.

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.

The New Jersey Office of Clean Energy announced that, effective March 1st, 2016, all solar renewable energy credit (SREC) registration program (SRP) applications will be submitted through an online portal. This portal is anticipated to expedite the review and approval of SRP registrations and reduce the backlog that the state works with. Registrants will have opportunities to submit project specifications as well as upload supporting documentation through the portal. Although paper applications will no longer be accepted, this development will help to streamline the application process for the nation’s largest SREC market.

Office of Clean Energy representatives hosted training sessions for the online portal on February 18th and 19th. The webinars were made publicly available on the Office’s webpage and a user manual with frequently asked questions will also be developed.

The Office encourages registrants who have previously submitted a paper application to withdraw their application and re-submit it to the online portal on or after March 1st, thus expediting the application review. For applicants that choose to re-submit their registrations in the online portal, the registration date of their original submissions will be used to determine compliance with state rules.

The Office also announced that from this time forward all SRP Registration packets and Final As-built documentation should be submitted to the new address below:

New Jersey’s Clean Energy Program, SRP Processing Team, c/o Applied Energy Group

317 George Street, Suite 305
New Brunswick, NJ 08901

The Office’s phone number for inquiries, 866-NJSMART (657-6278), remains unchanged.

SRECTrade, Inc. continues to enjoy great success transacting in the New Jersey SREC market as prices have steadily risen over the last four months. For more information on the New Jersey SREC market, please visit our state webpage here.

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.

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 toSRECTrade, 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 ofSRECTrade, 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.

This week the NJ SREC market experienced sustained buying in both the OTC New Jersey SREC markets as well as in the NJ EDC Spot auction.  Tuesday and Wednesday spot markets were bid higher as well as noticeable buying in forward markets for the NJ17, NJ18, and NJ19 vintages.  In Thursday’s EDC  auction, the final price ($243.30) settled a little more than three dollars above the session’s offer price.

With all this focus on New Jersey SREC markets, we believe this is an opportune time to share our updated capacity models and provide additional information on what drove price action this week.

Our New Jersey SREC Update presentation can be found here.

A consistent trend observed in the New Jersey SREC market is the impact of the annual BGS auction, held in February of each year.  As the New Jersey Electric Distribution Companies use the auction to procure large amounts of power supply, a corresponding number of SRECs must also be procured in the market in order to satisfy the new compliance requirements.  As the market has come to understand this relationship, it is possible SREC buyers are entering the market earlier and earlier in an attempt to secure supply ahead of the BGS-induced rush.  It could be inferred therefore that participants may now be using the liquidity supplied by other market events (in this case, Thursday’s EDC spot auction) as an opportunity to position even further ahead of any future price appreciation.

Regarding the buying activity in farther dated NJ SREC energy years, we revisited our capacity model which tracks state supply and demand fundamentals.  Slides 6 and 7 of the NJ SREC Update presentation start with currently available 2015 market data, then examine three different build scenarios, based off of current LTM build rates, and observe the impact each has on the future balance of supply through 2020.  Although the market is predicted to be fundamentally oversupplied, to some degree, across some of the build scenarios, even the greater per month build rates result in oversupply by ~27.6% in RY2019.  While not insignificant, a 27.6% oversupply on its own does not guarantee the type of consistent selling pressure that would lead to a sustained selloff.  If that 27.6% of the market decided to wait and hold off selling SRECs, or if the market experienced a build rate more in line with the current trend (~16.0 MW/month), the market could find support from a more balanced supply and demand dynamic.

To be clear, this is informational in purpose to assist in explaining the focus on NJ Solar RECs this week.  We will, however, be watching the markets closely through year end to see if these trends continue to develop.

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.

The New Jersey 2015 SREC market is currently bid $235/SREC. Since the beginning of Q2 2015, the market has steadily moved upward from $200/SREC. On July 15, 2015, the auction manager representing the NJ Electric Distribution Companies (EDC) announced a $246.42/SREC clearing price for the NJ2015 SREC auction held on July 14, 2015. 42,470 SRECs were sold at this price. What’s interesting about this most recent EDC auction is that it cleared above the offering side of the market. Historically, as shown below, the EDC auctions have traded between the bid and offer prices quoted in the over the counter (OTC) market around the time of the EDC auction close.

The supply outlook, relative to demand, for reporting year 2016, appears to point to a flat market, meaning that there will likely be enough supply available from previous energy years and from SRECs issued throughout reporting year 2016. This assumes monthly solar build rates fall between 12.9 MW and 25.7 MW per month. Our presentation, from the Environmental Markets Association meeting this spring, shows various build rates relative to the NJ Solar RPS demand requirements. As shown below, in each Case 1-3, the under and oversupply estimated is close to zero meaning SREC supply will be close to balanced with the state’s RPS demand. Through May 2015, NJ solar monthly build rates have averaged 18.8 MW per month (over the last 6 months). June 2015 build rates are expected to be announced soon.

Notes:

1) NJ2015 bid / offer pricing presented in chart above includes periods in which the market was quoted on a forward basis. The EDC clearing price presented at that time are for the most current spot vintage available for immediate delivery (i.e. 2014 EDC auction prices are presented against 2015 OTC Bid / Offer pricing in instances where 2015 SRECs weren’t available for sale in the EDC auction).

2) NJ Supply Demand Scenarios chart assumes electricity sales remain at the same level as reporting year 2014.