Are solar renewable energy credits (SRECs) on their way to crashing? That what Photon Consulting suggests in a new, private report it is offering for sale. If true this could have huge implications for solar development. SRECs have been important in driving solar power installations in a number of states, most notably New Jersey, which trails only California in installed photovoltaic capacity. But it’s right there in the Northeast where Photon sees maximum risk.
“Suppliers, developers, installers, financiers and customers looking to lock in high returns in U.S. solar should move cautiously,” says Photon consultant and study co-author Chris Bolman. “Imminent IRR (internal rate of return) risk in several of the country’s largest solar segments doesn’t quite support the straight-shot growth story a lot of market participants are looking for in U.S. solar.”
SRECs are created when qualifying solar-power systems are installed and put to use. No price is set on the credits (or “certificates,” as they’re called in New Jersey); instead, the market sets the price, with utilities – who use the SRECs to meet renewable portfolio standards – purchasing them from businesses and residents who have installed solar-power systems. Income generated from the sale of SRECs can help system owners offset installation costs, improving the IRR.
As an example of SRECs at work in New Jersey, when industrial/commercial developer Avidan Management set out to do a 17-acre, 4.26-megawatt (MW) installation in Edison, N.J., it said the states’s SREC program was a key factor. Same thing when Toy R Us did a 5.38-MW project that covers 70 percent of a distribution center’s nearly 1.3 milion-square-foot roof in Flanders, N.J. (that’s the system pictured above).
But according to Photon, a rush to install solar power fed by falling costs and the fear that federal subsidies might expire soon “is leading to considerably more SREC supply than utilities are required to buy. This means many homeowners and businesses with solar installations may be left in the cold without the paybacks they anticipated, a situation already occurring in New Jersey and Pennsylvania.”
Indeed, the trading facilitator SRECTrade wrote on its blog recently that “SREC values have dropped from $640 in June, a price that reflected an undersupply in prior years, to a low of $165 in September.” The website NJ Spotlight, which covers the New Jersey solar scene in great depth, called the situation a crisis, but also cited observers who “suggested the current volatility is simply a reflection of a market going through the normal ups and downs of supply and demand.”