Energy and Renewable Energy Credit Price Movement

How many ways can you sell an electron? Generating revenues outside energy sales are now commonplace for power projects with renewable energy / carbon credits, capacity charges, ancillary services, industrial gas (incl. CO2 capture) production or capture. When a project sells into these markets, each revenue stream is subject to unique supply and demand forces that may create diversification benefits.

Over the last five years solar developers selling energy into the northeast’s Pennsylvania-New Jersey-Maryland Interconnection (PJM) electricity market experienced dramatic month-to-month price variation – not so for New Jersey’s Solar Renewable Energy Certificate (SREC) market. SREC’s have a negative correlation to PJM electricity markets prices, meaning the market price for SRECs provided a boost to New Jersey solar developer revenues when electricity prices slumped in the regional market. This smoothing of monthly revenues lowers risk for creditors seeking minimum coverage for projects’ debt payments.

Is this just correlation or might there be reliable and persistent causation? Maybe. Varying sunshine in New Jersey will impact supply of SRECs and as a result price, but how should PJM market prices react given the regional diversity in both supply and demand? At a high level there would appear to be more differences than similarities.