New England Solar New to Class I RPS? Don’t be REC-less, become an instant expert!
Written by: Bob Grace, Managing Director & President
Publish Date: June 2, 2023
Estimated Reading Time: 10 Minutes
Are you a New England Solar project owner new to Class I RPS? Historically, developers, investors, and owners/operators of solar photovoltaic (PV) generating facilities in New England have not needed to be on top of the regional “Class I” Renewable Portfolio Standard (RPS) markets. Instead, in most states, solar has been subject to targeted incentive programs. However, in some state markets, thousands of MW of solar are, or will soon, become eligible to receive “Class I” renewable energy credits (RECs, where 1 MWh earns 1 REC), and these RECs will constitute an important revenue source. In particular:
- Massachusetts Solar Renewable Energy Credit (SREC) I projects started rolling off their 10-year SREC qualification period in 2022, consistent with DOER’s first application of the “40-quarter” rule a decade ago. At the start of 2023, 216MW of these projects began relying on Class I RECs as a material supplemental revenue stream (once they re-certify as Class I, that is… have you?). In 2024 the SREC I program’s entire 653 MW will transition from SRECs to Class I REC eligibility. In 2024, MA SREC II projects will begin to roll off their eligibility, opening the door to another 1,700 MW of projects earning Class I RECs for the first time as well.
- A development pipeline of over 1 GW of Maine Net Energy Billing projects will earn compensation for energy sales but retain Class I RECs to monetize on their own.
- Similarly, Maine ‘Tranche 1 and Tranche 2’ large-scale renewables procurements have resulted in over 700 MW with approved energy-only offtake contracts, with owners retaining RECs.
- Rhode Island’s Virtual Net Metering policy has resulted in a pipeline of over 400 MW of solar PV projects retaining merchant RI New RECs available for sale.
- Finally, programs that insulate solar PV owners from the Class I REC markets persist in many states – Rhode Island’s REGrowth, the Massachusetts SMART, or Connecticut LREC/ZREC and successor programs procure RECs as part of their structure in exchange for their compensation. However, as incentives for customer-sited solar PV systems displacing retail loads have dropped while avoided retail prices forming the basis of net metering or virtual net metering compensation have risen, an increasing number of Solar PV systems are being installed outside of these programs, leaving system owners with Class I RECs they can sell.
Depending on where and how it is interconnected, a solar PV system in New England may be eligible for a Class I (or ‘new’) REC that can be used for compliance towards an RPS in its own state or other states in the region. While it may not pay for individual small system owners to ‘get smart’ about Class I REC markets, the same cannot be said for owners of multi-MW projects or portfolios. Class I REC prices have been capped in some markets recently at $40 per MWh, and in other markets prices can theoretically rise into the $80 per MWh range. As can be seen from Figure 1, Class I REC prices have fluctuated dramatically over time, from $5 to over $50 per MWh, based on supply-demand shifts, material policy changes, and a range of other factors. Current prices are in the high $30s per MWh.
Figure 1: New England Class I REC price Historic Range and Volatility
Source: SEA amalgamation from database of REC broker quotes
At current REC prices, a 20 MW Class I REC portfolio can yield an annual REC revenue of nearly $1 million, and a 100 MW portfolio nearly $5 million annually. To date, few solar PV owners have invested in understanding much about the Class I REC markets in New England and their complex dynamics – they haven’t had to. But given the potential revenue variance impacted by REC sales strategy decisions, there is too much value at stake to stumble blindly or rely exclusively on spot sales to REC brokers. Forward market curves move up and down over time, and decisions on whether to sell now or later, to lock in now or wait for upward market movement, can be bolstered by reliance on market fundamentals analysis. For example, in September 2021, you could have sold your 2024 REC at roughly $30.90 per MWh. Waiting a year and selling forward those same 2024 RECs in September or 2022 could have netted roughly $5 per MWh more. Sustainable Energy Advantage’s September 2021 New England Renewable Energy Market Outlook analysis projected this upward movement, and our clients were well-positioned to take advantage of such market swings. An owner of a 50 MW solar portfolio would have come out $300,000 ahead for just that one year’s RECs.
The Class I REC markets in New England are linked by a complex web of overlapping eligibility, individual policy drivers, and distinct price caps. There is a semi-robust over-the-counter market in RECs brokers, and some markets are traded on exchanges; due to inconsistent liquidity, price quotes available from REC brokers – a must for any market participant – provide useful information for spot and forward markets, but the price signals they reflect – in our experience – frequently lag the inflections revealed by rigorous and objective market analysis. Some of the larger and more sophisticated market participants conduct such analysis internally, although maintaining such capability is more costly and labor-intensive than all but the largest companies can justify.
Since 2005, Sustainable Energy Advantage has supported a wide range of stakeholders – public agencies, developers, asset owners, investors, load-serving entities, and others – with objective, deep-dive REC market fundamentals analysis through our New England Renewable Energy Market Outlook (“REMO”) subscription service. New England REMO provides forecasts of supply and demand, and near- and long-term REC prices, under a range of scenarios and sensitivities wrapped in contextual dialog. REMO is geared to provide its users with a well-founded and nuanced market view and risk assessment to enable commercially-sound decision making. We regularly reveal upcoming inflections in the market before they show up on the broker market.
New England REMO is delivered three times a year via a two-part market briefing (The Big Picture Briefing, and The Details), and a series of supporting slide decks. Recordings from our recent two-part briefing (NE REMO 2023#1) are now available for purchase. Pricing is structured such that, for project owners with a portfolio of 20 MW or more New England solar PV, an investment of less than 1% of potential annual revenue can arm you with information sufficient to optimize your REC monetization strategy and yield a return (make you far more than 1% smarter!).
To entice New England solar portfolio owners newly participating in Class I REC markets to try REMO, we are offering through July 31, 2023 a one-time discount of 25% off your first purchase of either a 1-time briefing or a 1-year subscription including three briefings over the next year, commencing with the early June 2023 briefing.
Please click here to learn more about our special offer for New England REMO for Solar New to Class I, and to sign up, today!