The February 2012 solar renewable energy credit (SREC) auction conducted by the four New Jersey electric distribution companies resulted in an auction price of $171.63 per SREC. The SRECs sold were generated between June 1, 2011 and December 31, 2011, which is in the 2012 Energy Year. A total of 26,488 SRECs were sold at this auction.

The $171.63 per SREC price is a decrease from the prior auction for 2012 Energy Year SRECs ($227.03 at the October 2011 auction), and a dramatic fall-off from the auctions for 2011 Energy Year SRECs ($669.01 at the October 2011 auction; $479.75 at the August 2011 auction; $475.00 at the July 2011 auction; and $669.69 at the April 2011 auction).

The decline in SREC prices is not unexpected, but the auction price is about 25% lower than prices in short-term bi-lateral SREC contracts.

There is a lot of speculation about how the future of SREC prices, and the supply of SRECs will fall now that the federal 1603 cash grant in lieu of investment tax credit program has expired and SREC prices are lower. The loss of the 1603 cash grant program will especially hurt smaller developers that may not have access to tax equity financing, and smaller projects that can’t bear the transaction costs.

The fundamental question going forward is whether a market based SREC system will encourage development of new projects to meet New Jersey’s ambitious renewable portfolio standard targets. The $600+ per SREC prices in 2010 and 2011 attracted a tremendous amount of development activity, but now that the prices have fallen and long-term SREC contracts are scarce, developers are questioning whether to continue to invest in New Jersey because of the fundamental uncertainty of the market-based system