For the second time in less than a week, Massachusetts’ auction of solar renewable energy certificates (SREC) failed to clear on Wednesday, setting the stage for a third and final round. The auction is scrapped when bidding volume is less than the number of SRECs for sale. There are 38,866 SRECs being offered.
The Department of Energy Resources runs the SREC auction as a last-resort to sell unsold SRECs in years when annual supply is greater than demand.
This is the first time that the auction is being held because in 2010 and 2011 the SREC market was under-supplied. In 2012, supply exceeded demand, prompting the DOER to run the auction. The next round is scheduled for Friday. And if that fails to clear, then the SRECs will be returned to the sellers.
The DOER included a last-resort auction as a way of providing some price support to SRECs even when supply outpaces demand. Other SREC markets – without similar mechanisms in place – have typically seen prices crash following an installation boom and stay low until demand catches up. The auction has a fixed price of $300/SREC for buyers and $285/SREC for sellers. There is a $15 administrative fee.
Compliance entities are not required to participate, but the auction has been designed to try and attract buyers. SRECs purchased through the first round have an additional two years of eligibility. They can be used by compliance entities in 2013 or 2014. In the second round, the shelf life is extended through 2015. Longer eligibility increases the attractiveness of the underlying SRECs assuming parties view the $300 price tag as a good investment, calculating that the spot market will eventually be even higher.
Now that the first two rounds have yet to clear, the DOER will conduct its third and final attempt on Friday. On top of the extended shelf life, buyers face another incentive to participate because the DOER will raise the 2014 compliance requirement by an amount equal to the auction volume – 38,866 SRECs – if it does not clear.
A single SREC represents one MWh (or 1000KWh) of electricity.
For Massachusetts customers, this subject is important since the cost of SRECs is a part of the ancillary fees charged to customers. A fixed price electricity contract, as long as it includes all ancillary fees, will protect the customer from the rising cost of SRECs. Read more at the mass.gov website.