Upside for Texas compliance REC prices remains limited

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Upside for Texas compliance REC prices remains limited

By Amanda Luhavalja of SNL Energy

Upside momentum for renewable energy credit compliance prices in Texas remains limited, amid little change in the state’s supply and demand picture, market sources indicate.

Latest assessments from SNL Energy for over-the-counter compliance REC prices in Texas are lackluster, with the 2014 market priced at an index of 43 cents/MWh and the 2015 market assessed at an average of about 50 cents/MWh.

Texas compliance RECs for 2014 and 2015 had been sitting on either side of $1.00/MWh in December 2014 and gradually began to leak lower during the first few months of 2015. Apart from abundant supply and overall lackluster demand, market sources also attributed the gradual weakness in Texas compliance REC pricing at the time to the expectation that legislation that would repeal the state’s RPS at the end of this year would be passed. The legislation, which had been passed in the Texas Senate, was drafted to terminate the state’s 10,000-MW renewable portfolio standard and transition the Texas mandatory REC program to voluntary.

However, the bill died in the Texas Legislature, which ended its 2015 legislative session at the end of May. The Texas Legislature meets in a regular session every two years, convening in January of every odd-numbered year. The Texas Legislature meets next in 2017.

“For near-term market interests, the potential legislative change sparked a negative price breakout, and unless load increases or there is some other material expansion of voluntary demand, it’s not clear if/when Texas REC pricing will recover,” Jonathan Burnston, a partner in the Energy and Environmental Markets Group at Karbone Inc. said.

“Pricing has improved slightly with the end of the Texas legislative session and the corresponding ‘death’ of the RPS legislation. However, the continued oversupply coupled with the construction of new wind facilities, means that the fundamentals remain the same; with low REC prices expected for the short and medium terms,” Ryan Cook, vice president at Clear Energy Brokerage & Consulting LLC, said.

According to the Electric Reliability Council of Texas Inc., Texas had 64,122 MW of total generation capacity under study as of June 30, compared to 64,209 MW as of May 31, according to the grid operator’s June generator interconnection status report. Wind project requests totaled 25,467 MW as of June 30, compared to 25,142 MW as of May 31. ERCOT reported that installed wind capacity totaled 13,424 MW as of June 30, with 2,941 MW noted as planned 2015 capacity with signed interconnection agreements and financial security posted.

In 2014, at about 40.6 million MWh, wind generation continued to account for the largest share of the renewable energy generation picture in the Lone Star State, according to the Texas renewable energy credit program annual report, filed with the Public Utility Commission of Texas. Overall, the 2014 annual report showed that renewable energy generation in Texas increased 10% from 2013. For 2014, renewable facilities in Texas generated almost 42 million MWh in 2014, up from 38.1 million MWh in 2013.

The Texas RPS initially required 2,000 MW of new renewable energy capacity to be installed statewide by 2009. In 2005, the program was expanded to accommodate 5,880 MW by 2015 and included a target of 10,000 MW by 2025. In early 2010, Texas reached the 10,000 MW goal 15 years ahead of schedule.

Apart from the abundant supply situation in Texas, weakness in the national Green-e voluntary REC market is also keeping a lid on Texas compliance RECs, as well as Texas Green-e wind REC markets, sources said. Most recently, national Green-e national market prices for the back half 2015/front half of 2016 were assessed at 40 cents/MWh to 60 cents/MWh. Texas Green-e wind RECs for 2015 were pegged at 40 cents/MWh to 55 cents/MWh, with 2016 eyed at 50 cents/MWh to 70 cents/MWh.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including SNL power and natural gas index prices, as well as forwards and futures, visit our SNL Commodities pages. .