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Transferring RPS Obligation to Distribution Utilities, Long-Term Contracts Among Options in Draft New Jersey Solar Report
Transferring the RPS obligation from retail and Basic Generation Service suppliers to distribution utilities, or implementing long-term solar contracts through the BGS auctions, are two policy options included in a draft New Jersey report concerning volatility in the New Jersey solar market, and potential options to stabilize the market.
The New Jersey RPS currently assigns the SREC (and REC) obligation to the load serving entities (LSE). An LSE is either a competitive retail supplier or a Basic Generation Service (BGS) provider. BGS auction winners have the obligation to comply with the RPS, (i.e, retire SRECs or pay SACPs), with the compliance reporting by individual providers facilitated by the EDC.
The report notes that, as an alternative to this model, the RPS obligation has been recommended by some to be assigned to the EDCs.
"Under this approach, EDCs could be encouraged to take a portfolio approach to SREC contracting, meeting their RPS obligation through a combination of spot market purchases as well as short- and long-term contracts. This strategy would also benefit from the perception that EDCs are highly creditworthy, meaning that solar developers who were awarded long-term contracts would likely find it easier to find financing," the draft report says.
"Under the current framework, third party suppliers have no natural incentive to purchase SRECs above and beyond their obligations associated with their 'booked' or contracted retail load. LSE contracts with customers do not typically exceed three years and wholesale suppliers of BGS service likewise have no incentive to contract beyond the three-year duration of their BGS tranches. Thus it is likely many TPSs and BGS providers have no natural interest in contracting SRECs for more than three years, while many solar developers desire long-term (e.g., 10 year) financeable contracts," the draft report says.
Another potential policy option covered by the draft is including long-term SREC contracts in the BGS auctions.
"Under this policy option, the Basic Generation Service (BGS) procurement would include tranches for long-term SREC contracts. This concept has been discussed in several forums as a potential strategy for providing long-term stability to a portion of the SREC market. This could be implemented through a number of potential mechanisms. Under a stakeholder proposed structure, a portion of the BGS solar obligation would be satisfied through the purchase of ten-year (or other long duration) SREC strips from non-utility Renewable Serving Entities (RSEs). As proposed by some stakeholders, the BGS suppliers would be required to purchase the SRECs procured through the SREC tranche from RSEs. RSE auctions would be conducted on a regular basis. The RSEs would take on the obligation of purchasing 10-year SREC strips in amounts sufficient to match their winning tranche bid. The market clearing price for SREC's would be set at auction for the SREC tranches. At the end of each compliance year, the RSEs would be responsible for retiring SRECs to meet their obligation. The annual SREC price for these purchases would be determined on a rolling basis. That is, the annual SREC price for the current year and all the prior year's covered under previous auctions (up to ten years prior)," the draft says.
The draft will be discussed at an April 1 stakeholder meeting.
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March 31, 2014
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com
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