Pennsylvania has long been a model of a solar renewable energy credit (SREC) market gone wrong. The market was (and still is) four times oversupplied, and SREC prices fell to $20 in 2013 from $300 in 2010. However, prices have surged to $70, which has many people asking, what is going on in Pennsylvania, and more importantly, will this bust market be revived in 2014?
To answer this question, it is important to understand the history of the Pennsylvania SREC market and why it became so oversupplied in the first place. In 2004, Pennsylvania’s Alternative Energy Portfolio Standard (AEPS) mandated for the state to procure 18 percent of power from renewable and alternative sources by 2021. Of this 18 percent, the state’s SREC market was created by a 0.5 percent solar carve-out.
In addition to this commodity-based SREC incentive, the Pennsylvania Sunshine Rebate Program was authorized by the Alternative Energy Investment Act of July 9, 2008. Together, these incentives made the market almost too good to be true, and the demand requirements legislated by the AEPS were quickly fulfilled by a high build rate of solar projects. Moreover, any solar energy system in the PJM region is eligible to sell its SRECs into Pennsylvania. This has put extreme downward pressure on pricing.
On the one hand, the Pennsylvania SREC market crash can be seen as a good thing. When prices plummet due to oversupply, this means that more solar is being installed in the state, and the market-based incentives laid out by the state’s AEPS are working; the state was able to install enough solar to meet its goal.
However, the downside of such success is the crash of SREC prices. Solar energy system owners who failed to lock into a long-term SREC contract have seen a hit to their SREC revenue. Also, installers and developers have a tougher time getting deals done in Pennsylvania, which caused many developers to move out of the PA market, or worse, go out of business.
A string of bills has been introduced to correct Pennsylvania’s oversupplied SREC market, but no bill has garnered much traction in the state legislature in this largely coal and natural gas heavy state. Then, State Senator Leach introduced Senate bill SB 1171 in November 2013 to revitalize the market. This bill was very comparable to H.B. 100, which Sol Systems has tracked extensively. Though SB 1171 has yet to move out of committee, the possibility of a corrected market has put upward pressure on pricing.
The potential policy changes and a slowdown in build sparked a rally in PA SRECs. Our trading team sold above $50/SREC in the past months, hitting a market high of $70/SREC last week, a nearly four-fold increase since 2013.
It is not too long ago that our company was offering a deal at $303 per SREC to homeowners for three years. Many customers refused that offer and were certain that spot market prices would sustain themselves (for the record, we are still honoring those $303 contracts despite current market conditions thanks to a hedged portfolio). The lesson learned here is that SREC markets can and will change. It’s uncertain that prices will stay at $70, so lock in while you can to minimize your risk.
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