Massachusetts = Large MW+ Solar Projects and Low SREC Prices In the Near Future

I enjoy getting policy and finance updates at conferences from people who spend all day thinking about policy and finance. The 2012 Renewable Energy Vermont conference was no different.

I also learned some great lessons about a community solar development in Vermont. 

Jason Gifford from Sustainable Energy Advantage gave a great presentation that focused on the impact that current and new policy is having on the renewable electric generation market in both pricing and project size, with a focus on wind and solar pv projects. He had some amazing graphics and numbers to show what’s  happening in the solar pv industry.

Here are a few highlights.

• Jason is anecdotatally seeing long term SREC prices for $175/MWh in MA and PPA prices for between $60 and $100/MWh
• CT solar < 250kW is getting prices at $148/MWh
• Most recent winning bid in Rhode Island was $209/MWh for 1.5MW project
• The development pipeline in Massachusetts is clearly way too large and unsustainable
• I’d encourage you to go through his presentation below.

I followed up with Jason to get some more insights on a few points.

Can you comment more on the current “long term” SREC Prices in slide 6?

•  $175 comes from daily broker quotes.
• The market is not terribly liquid and we don’t know if that strip is based on 300 data points, or 3 points.

Are prices being driven by a large amount of projects with debt obligations that need to sell their RECs to meet those obligation or are there a large number of projects that are holding onto their RECs for the long term?

• Debt is a factor, as projects must prioritize paying off debt obligations. However, I wonder if this is just a factor of the sample size that we’re seeing. Large projects could have more debt, so they need to sell, however large projects may also be less likely to be sell through brokers. The broker market is not an even sampling.
• Sol Systems has offered a 10 year contract at $200/MWH, but it’s not bankable by their own admittance.
• Developers financing on balance sheet or without leverage have a different profile.  They can sit on their RECs until the market is short and then sell them at a high price. Utility owned projects could hold SRECs for a long time as well. The cash flow implications are important, this is what forces people to sell because they can’t sit around and wait for the market to clear.

When will the market have more transparency and clear information?

• As I see it right now, I’m not going to be able to quickly say we’re going to have more transparency in the near term, but we will have more experience. Specifically, how the auction responds when a lot of SRECs have been deposited. I think next year’s market will be educational, because the market will be long and supply will be much higher than demand.

Do you think the Massachusetts floor price is shot? Do people have any confidence in it anymore?

• There may be another awakening next year, when other people realize that the floor is not really the floor. But I’m hopeful that a lot of participants have picked up on this by now.

Looking at slide 12, what will be the impact of huge projects dominating the pipeline be on the market? Was this the goal of policy or an unintended consequence?

• I think the rate at which the interconnection requests have been growing is not sustainable. If you look at the interconnection queue, many MWs per month are added, sometimes 10MW per month. This is not sustainable over a multi-year period.
• Regarding policy, because of the SREC program and changes in net-metering caps that allow 1MW+ project, unless something changes, this will likely be a continued trend and 1MW will continue to be a huge part of the mix in Massachusetts. The policy and the market are set up to encourage larger projects for quite some time.
• Net metering 10 years ago was 50kW, the fact that Mass has gone to 2MW for net metering has played a significant role in driving the solar market. This has not yet been replicated around the country. There will be growing pains for sure, but the policy should be expected to drive big projects.