The BGS Auction in early February triggered an increase in prices, lifting them to $130 for RY 2013 SRECs. Now a month after the close of the BGS and with the upcoming EDC Auction as the next large market event in sight, RY 2013 SREC prices have softened slightly from their six-month peak. The spot contract traded to $117.50 on March 8. Karbone anticipates that prices could potentially retreat further in the lead up to the March 19th EDC Auction, when 53,000 to 62,000 RY 2013 SRECs will be introduced to the market.

Annual Installation Potential Breakdown

Karbone estimates that for supply and demand to be in balance by the expiration of the ITC in RY 2017, an average installation rate of 17 MW per month would be required for the remainder of RY 2013 and all of RY 2014, followed by 21 MW per month in RY 2015 through RY 2017 as the RPS ramps up. The following analysis focuses on how the market could potentially achieve these build rate targets through various project types and programs within the RPS.

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PV Installation rates are a key variable in determining future market conditions. Karbone evaluates and divides potential installation rates by project type or programs as defined through RPS legislation. Karbone estimates the potential installation market for RY 2014 at 200 MW and RY 2015 to RY 2017 at 250 MW per year. The relevant segments are outlined below.

EDC Program: The legislature has carved out 60 MW per year for 3 years focused on Residential, Brownfield and Small Commercial projects through the PSE&G loan program, and the ACE, JCP&L, and RECO long-term SREC purchase programs. This 180 MW breaks down to 9.8 MW PSE&G residential, 87.7 MW PSE&G non-residential and 82.5 MW SREC purchase program.

PSE&G Solar 4 All Program: An additional 27 MW per year is anticipated over the next 5 years beyond the solar loan program. This brings the 5-year total to 233 MW for solar investment in this program.

Remaining Competing Programs

The above two programs are likely to meet their respective annual targets; therefore, the remaining three installation segments below will have to compete for the estimated balance of annual supply. We estimate a balance of 113 MW in RY 2014 and 163 MW annually for RY 2015 to RY 2017.

Commercial Net-Metered Projects: The only open market for solar development and SRECs is commercial net-metered projects of 250 kW to 10 MW in size. At current prices of $120 to $125 for a 3-year SREC forward strip, the most cost efficient projects are profitable and likely to begin building over the summer.

Grandfathered Utility Scale Grid-Tied Projects: Unbuilt projects with sufficient development as of June 30, 2011, and still seeking final approval from the BPU, could be up to 150 MW. Most of these developers are unlikely to build all 150 MW in RY 2014. Karbone estimates that the projects could be developed over 4 years at 38 MW per year.

New Utility Scale Grid-Tied Projects: Capped at 80 MW per year and managed by an approval process through the BPU, these projects will form the safety valve for the market. If the market appears to be undersupplied, then the BPU can approve projects to keep the market adequately supplied. If the market is likely to be oversupplied, then no projects are likely to get approval. Karbone expects new utility build to be reduced by the BPU by the amount of approved grandfathered utility scale projects.

Alex Anich is Director of Research at Karbone Research and Advisory.

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