The Current NJ Market for SRECs: The Questions You Need Answered
1. Why are SREC prices lower than earlier this year?
The market for SREC trading ends on 5/31 of each year. This means that Energy Year 2011 ended and Energy year 2012 began on 6/1. The Energy Year 2011 SRECs were (and are) trading near the ceiling or SACP (Solar Alternative Compliance Price) because there was more demand than supply of SRECS. Energy Year 2012 will be the first year where it is expected that supply of SRECs will be greater than the demand. The result of the phenomenon is, as expected, that prices would decline. What is important to recognize is that this price drop is not permanent and that prices for SRECs should increase over time, as supply becomes better aligned with demand. Also note that SREC’s have a 15 year life!
2. Has the SREC market crashed?
A market crash is normally characterized by a loss in investor confidence. What NJ is experiencing in the SREC market is more akin to a market correction where pricing is being brought in to line with supply. Confidence has not been lost in SRECs, people are simply reacting to the supply and demand dynamics.
3. Will SREC prices recover?
The questions should not be “will”, but “when”. No one knows for certain what will happen in the future, but based on the targets for solar production set in the RPS, as well as the possibility of escalating those targets, we are confident that you will see an end to oversupply and a re-firming of SREC prices in the next year or two.
4. Will the state do anything to support the NJ SREC market?
The SREC market is immature. While it is generally recognized that the NJ SREC market is well constructed, it is not perfect. As it experiences growth pains, like today, it is expected that New Jersey will step in and makes changes to ensure its viability. Changes could include accelerating the growth of the RPS (Renewable Portfolio Standard) targets, adding a floor to the pricing for SRECs, and/or create an auction mechanism to stabilize SREC prices. Everything we have seen from Trenton confirms the state’s unequivocal support of the solar market, one of the state’s only real job creators during this recession.
5. Will my return on my solar investment be less compelling?
Solar is the only investment where you have no risk of losing your money and can expect a rate of return ranging from 10% (if SREC prices stayed perpetually low) to 20%+ at more stable SREC prices. It is important to remember that SRECs are only one component of your overall return including government tax credits, and electricity savings. Solar remains one of the best investments around and Geoscape continues to invest its capital in the New Jersey solar market.