The runaway success of Massachusetts' 400MW solar programme had the state’s Department of Energy Resources (DOER) scrambling to deal with 900MW of projects under review. At the end of May, DOER announced that more than 400MW of applications under its Solar Renewable Energy Certificates (SRECs) programme are now administratively complete, sparking uncertainty around what would happen in 2014.
But thankfully, DOER decided to move forward with emergency regulation to expand the 400MW programme cap for projects “demonstrably well invested in the development cycle”.
Michael Judge, DOER's associate renewable portfolio standard programme manager, has overseen the state's RPS solar carve-out programme since it was launched in early 2010.
“We had several policy options available to us to accommodate the overflow,” he said. “One was to begin an initial phase of the post 400MW programme, another was to extend the programme beyond the cap and a third was to establish a new programme that was separate from both and would create a [new] compliance obligation for that programme. We decided to move forward with emergency regulations to allow the cap to expand to accommodate small and large projects.
“[We wanted to] prevent the small market from having layoffs and businesses going out of business while there's no market.”
Under these emergency regulations to address overcapacity, the new solar carve-out programme will set a cap of 1200MW and projects larger than 100kW listed after the 400MW capacity cap will now qualify if they meet interconnection deadlines by the end of the year.
Thanks to governor Deval Patrick, the Commonwealth of Massachusetts has an overall goal of 1,600MW of installed solar capacity under the current SREC programme and the future SREC programme. DOER estimates that to meet that goal, Massachusetts needs to install 140MW to 200MW a year between 2014 and 2020.
The final size of the next SREC programme will be determined by how many facilities meet the criteria for eligibility – it could be less than the 1200MW cap.
“First and foremost with this next programme, we want to continue to provide support and maintain market conditions that facilitate the expansion of PV in Massachusetts,” said Judge.
The success to date of the state's SREC programme, which was introduced in 2010, is clear from the slide to the left.
“The SREC programme was launched in 2010, so you can really see the SREC and [a net metering programme] have led to an explosive growth of solar in Massachusetts,” Judge said.
But Judge insists Massachusetts' SREC market is different from those in Maryland, DC and New Jersey because of elastic supply responses to overcapacity that were designed into the market.
“As we see it there are several design features in our programme that make Massachusetts unique and help ensure market stability and balance. The adjustable minimum standard helps maintain SREC demand/supply balance over time. Unlike other states, the minimum standard is not set years into the future, so we don't have a minimum standard set for 2014 yet. We're going to be setting that very soon.
“In periods of undersupply, the demand grows at a slower rate and in periods of oversupply it grows at a faster rate. This helps prevent long periods of market imbalance – you should never really have a period of undersupply or oversupply that lasts more than two to three years.
“By having the programme cap, that helps assure investors that at some point the markets are going to reach a state of equilibrium and prices should likely stabilise.”
Supply/demand imbalances are particularly significant in markets like New Jersey, which in March announced that it had installed more than 1,008.4 MW of solar capacity across 20,340 solar projects by the end of February. But as this blog has noted before, this can lead to a boom and bust cycle that hurts smaller developers and installers in particular.
Washington DC and Maryland have their own concerns with SREC imbalance, George Ashston, vice president and chief financial officer at SREC advisers Sol Systems, told the Solar Energy Industries Association webinar earlier this month.
In DC, average monthly installation rates are 158kW in 2013, down from a monthly average rate of 219kW last year, creating a tremendous undersupply and pushing prices up to trade consistently above US$470/MWh in June. Only 3,000 SCRECs have been issued so far in 2013 and despite an RPS-driven demand for 62,000 SRECs, SolSystems only expects 29,000 to be generated this year.
“The average accumulation of new installations has been pretty slow historically for this marketplace but we do expect it to pick up considerably going forward and to catch up with the increases in the RPS,” said Ashton.
Massachusetts' RPS mandates 15% of all retail electricity sales to come from renewable energy by 2020. But in comments to DOER, Eric S. Graber-Lopez, a partner at BlueWave Capital, which finances renewable energy, described the economics benefits of in-state energy generation.
“The Commonwealth spends over US$22 billion a year on energy (US$4,600 per household per year) with 80% of that money leaving the state. We estimate that electricity generation related purchases accounted for roughly US$5 billion of the total, with the rest largely attributable to transportation and heating fuels.
“Full compliance with the RPS with in-state generation by 2020 reduces capital outflows by over US$500 million dollars a year, further strengthening the state’s renewable energy industry and serving as a boost for economic activity.”
But whatever happens next in Massachusetts, DOER insists that it must push the industry for lower prices, which will ultimately remove the need for SRECS.
“If possible, we'd also like to establish a programme that drives the market forward until PV reaches cost parity with other renewables and will no longer need a separate carve out with separate incentive levels,” said Judge.
“We feel compelled to develop policy mechanisms that control ratepayer costs because heading out beyond 400MW is only practical at lower costs than today. We feel that the market potentially is being slightly over-subsidised and we want to bring the value of SRECs down accordingly.”