SREC Markets: Is the Reward Worth the Risk?

SRECs are becoming a major form of development incentive, but they come with an inherent level of complexity and risk that many companies find daunting.  Is the potential reward worth the risk?

New Jersey was the first state to get rid of rebates and switch to an SREC-only incentive.  After three years the solar market has figured out SRECs with as much as 60 MW per month being added to PJM’s queue recently. Pennsylvania has seen similar growth. Yet Pennsylvania has experienced a 50% drop in spot SREC prices in 6 months. Ohio’s solar market remains under supplied, with the utilities repetitively requesting an RPS compliance waiver due to scarcity of Ohio-based SRECs.  Maryland is temporarily benefiting from cheap, abundant SRECs from Pennsylvania, but as laws poise to change in 2012, the market is preparing for a shock and possible under supply. In Massachusetts investors are generally standing on the sidelines and not willing to commit to an untested approach.

Why are some of these markets apparently working while others are not? It would be incorrect to conclude that the only distinguishing factor is the cost of the Alternative Compliance Payment (ACP) because there are other significant factors in play such as risk of oversupply, market transparency, ability of utilities to recover the ACP, the impact of the ACP on competitiveness on wholesale electricity suppliers, competing incentives, structure of the electricity market and perceived regulatory risk.  Each of these factors impacts the potential risk and reward for solar investors, developers and SREC purchasers.  This panel will examine the impact of these factors, grade the states according to a risk reward profile and identify ideas for better aligning the risk-reward needs of buyers and sellers in markets that aren’t functioning as well as desired.