Flett Exchange

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Flett Exchange is an environmental commodity exchange and brokerage firm based in Hoboken, New Jersey. [1] The company is specialized in trading of Solar Renewable Energy Certificates (SRECs) in the United States.

Contents

History

Michael Flett, who has been a member of the New York Mercantile Exchange since 1996, began his career as an energy broker. He was subject to a disciplinary action concerned an allegation that in October, 2004 and November, 2004 he traded ahead of customer Market on Close orders. He submitted a Joint Offer of Settlement without admitting or denying the allegations against him. The Offer, consisting of a fine of $25,000, restitution in the amount of $74,700, and an order to cease and desist from future similar rule violations, was accepted by the Exchange’s Board of Directors at its meeting held on September 19, 2007. [2] He founded his own company, Flett Futures, Inc., as a broker on the exchange and transitioned it into a proprietary trading firm in 2000. In 2006, Flett founded Flett Exchange to provide price discovery, and liquidity to environmental markets. [3]

Solar Renewable Energy Certificates

Exchange

Flett Exchange operates an all-electronic exchange to allow participants to buy and sell SRECs online as 24/7 service. [4] The exchange trades SRECs in the states which are in the area of PJM Interconnection which include New Jersey, Maryland, Ohio, Washington, DC, Delaware and Pennsylvania. [5] Flett Exchange is one of the three major auction and exchange platforms in PJM area beside SREC Marketplace and SRECTrade. [6] As of November 2010, a report to the Prince George’s County Solar Water Heating Task Force indicated that Flett Exchange is the only exchange-based marketplace for Maryland SRECs. However, the value had still been limited due to low transaction levels. [7]

Spot Market

Flett Exchanges' most active market for the sale of SRECs is the Spot Market. Flett Exchange customers utilize its online exchange in which its solar owners log on and sell their SRECs in a transparent and competitive manner. Sales are immediate. Sellers lock in prices and transfer SRECs from their GATs account to the Flett Exchange, LLC GATS account. The Exchange software provides the seller with a contract immediately and the seller is paid via check or electronic bank transfer the same day. Over 7,000 solar owners utilize the Flett Exchange Spot Market to sell their SRECs on a monthly basis.

Auctions

In the SREC market, there are a couple of methods to conduct SREC auctions.

One method is for electric utility companies which are the buyers of SRECs to conduct auctions and solicit sellers. An example is the "SREC Based Financing Program" which requires some utility companies in New Jersey to conduct quarterly SREC auctions from new solar projects. [8]

Another method is to conduct auctions once a month on specific dates to allow sellers and buyers to get together to transact.

Flett Exchange provides an auction for its public entity clients. The company facilitates the sales directly by conducting public auctions based on the date scheduled in each contract for each seller. This is a format used by government agencies, municipalities, townships, universities, and school districts to sell their SRECs. [9] [10]

Long-term contracts

The company also acts as a broker to bring counterparties together to negotiate long-term SREC contracts. [11]

Price transparency

In 2009, National Renewable Energy Laboratory reviewed the status of green power marketing in the United States. A concern on price transparency was discussed in the report. Flett Exchange is one of the participants that publicly disclose pricing data to provide market transparency. The company posts results from its Renewable Energy Certificate auctions on its web site and monthly newsletter. It also posts price and volume information on its voluntary transactions. The publicly disclosed prices voluntarily by the participants have allowed analysis into the status of the markets. [12] [13] Flett Exchange provides daily SREC settlement prices to the public on its website for New Jersey, Pennsylvania, Maryland, Washington DC and Ohio SRECs.

Other markets

Flett Exchange launched physical markets to bring price transparency to seafood, precious metals and New York City Taxi Medallions but had its most success in environmental commodities.

In 2007, Flett Exchange filed an application with the U.S Commodity Futures Trading Commission to become an Exempt Commercial Markets with a plan to trade in energy products and uranium. [14] It maintained the status of Exempt Commercial Markets between 2007 and 2009 but did not continue after 2009. [15]

In 2008, the company launched a platform to get into the Regional Greenhouse Gas Initiative cap and trade market. [16] However, RGGI trading activities on Flett Exchange had lasted only less than two years. The last trading was in January 2010. [17]

Related Research Articles

Commodity market

A commodity market is a market that trades in the primary economic sector rather than manufactured products, such as cocoa, fruit and sugar. Hard commodities are mined, such as gold and oil. Futures contracts are the oldest way of investing in commodities. Futures are secured by physical assets. Commodity markets can include physical trading and derivatives trading using spot prices, forwards, futures, and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management.

Normal backwardation

Normal backwardation, also sometimes called backwardation, is the market condition wherein the price of a commodities' forward or futures contract is trading below the expected spot price at contract maturity. The resulting futures or forward curve would typically be downward sloping, since contracts for further dates would typically trade at even lower prices. In practice, the expected future spot price is unknown, and the term "backwardation" may refer to "positive basis", which occurs when the current spot price exceeds the price of the future.

Contango

Contango is a situation where the futures price of a commodity is higher than the expected spot price of the contract at maturity. In a contango situation, arbitrageurs or speculators are "willing to pay more [now] for a commodity [to be received] at some point in the future than the actual expected price of the commodity [at that future point]. This may be due to people's desire to pay a premium to have the commodity in the future rather than paying the costs of storage and carry costs of buying the commodity today." On the other side of the trade, hedgers are happy to sell futures contracts and accept the higher-than-expected returns. A contango market is also known as a normal market, or carrying-cost market.

Speculation Engaging in risky financial transactions

Speculation is the purchase of an asset with the hope that it will become more valuable in the near future. In finance, speculation is also the practice of engaging in risky financial transactions in an attempt to profit from short term fluctuations in the market value of a tradable financial instrument—rather than attempting to profit from the underlying financial attributes embodied in the instrument such as value addition, return on investment, or dividends.

Futures contract Standard forward contract

In finance, a futures contract is a standardized legal agreement to buy or sell something at a predetermined price at a specified time in the future, between parties not known to each other. The asset transacted is usually a commodity or financial instrument. The predetermined price the parties agree to buy and sell the asset for is known as the forward price. The specified time in the future—which is when delivery and payment occur—is known as the delivery date. Because it is a function of an underlying asset, a futures contract is a derivative product.

Futures exchange Central financial exchange where people can trade standardized futures contracts

A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts defined by the exchange. Futures contracts are derivatives contracts to buy or sell specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. Futures exchanges provides physical or electronic trading venues, details of standardized contracts, market and price data, clearing houses, exchange self-regulations, margin mechanisms, settlement procedures, delivery times, delivery procedures and other services to foster trading in futures contracts. Futures exchanges can be organized as non-profit member-owned organizations or as for-profit organizations. Futures exchanges can be integrated under the same brand name or organization with other types of exchanges, such as stock markets, options markets, and bond markets. Non-profit member-owned futures exchanges benefit their members, who earn commissions and revenue acting as brokers or market makers. For-profit futures exchanges earn most of their revenue from trading and clearing fees.

Hedge (finance) An investment position intended to offset potential losses or gains that may be incurred by a companion investment

A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles, many types of over-the-counter and derivative products, and futures contracts.

A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the equivalent amount of a different greenhouse gas (tCO2e).

Renewable Energy Certificates (RECs), also known as Green tags, Renewable Energy Credits, Renewable Electricity Certificates, or Tradable Renewable Certificates (TRCs), are tradable, non-tangible energy commodities in the United States that represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource and was fed into the shared system of power lines which transport energy. Solar renewable energy certificates (SRECs) are RECs that are specifically generated by solar energy. The updated Greenhouse Gas Protocol Scope 2 Guidance guarantees of origin, RECs and I-RECs as mainstream instruments for documenting and tracking electricity consumed from renewable sources.

Regional Greenhouse Gas Initiative

The Regional Greenhouse Gas Initiative (RGGI, pronounced "Reggie") is the first mandatory market based program in the United States to reduce greenhouse gas emissions. RGGI is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia to cap and reduce carbon dioxide (CO2) emissions from the power sector. RGGI compliance obligations apply to fossil-fueled power plants 25MW and larger within the ten-state region. As of 2020, Pennsylvania is pending RGGI membership with an anticipated start in early 2022.

Financial incentives for photovoltaics are incentives offered to electricity consumers to install and operate solar-electric generating systems, also known as photovoltaics (PV).

Solar power in New Jersey

Solar power in New Jersey has grown significantly, increasing from less than 50 megawatts (MW) in 2007 to over 2,800 MW in 2018, such that solar power provided 4.17% of the state's electricity consumption. This is aided by a Renewable Portfolio Standard which requires that 22.5% of New Jersey's electricity come from renewable resources by 2021, and by one of the most favorable net metering standards in the country, along with Arizona, allowing unlimited customers of any size array to use net metering, although generation may not exceed annual demand. Best practices recommend limiting net metering only to the size of the customer’s service entrance capacity. As of 2018, New Jersey has the sixth-largest installed solar capacity of all U.S. states and the largest installed solar capacity of the Northeastern States.

Solar Renewable Energy Certificates (SRECs) or Solar Renewable Energy Credits are a form of Renewable Energy Certificate or "Green tag" existing in the United States of America. SRECs exist in states that have Renewable Portfolio Standard (RPS) legislation with specific requirements for solar energy, usually referred to as a "solar carve-out". The additional income received from selling SRECs increases the economic value of a solar investment and assists with the financing of solar technology. In conjunction with state and federal incentives, solar system owners can recover their investment in solar by selling their SRECs through spot market sales or long-term sales, both described below.

Element Markets, LLC is a limited liability company that provides environmental asset management and compliance services to institutional clients in North America. Its services span the greenhouse gas, emissions, and renewable energy credit markets. Element Markets also develops renewable energy and greenhouse gas emission reduction projects. Element Markets was founded in 2005 and is headquartered in Houston, Texas.

Iran Mercantile Exchange (IME) is a commodities exchange located in Tehran, Iran.

Danske Commodities

Danske Commodities (DC) is an energy trading house. The company is an international trader of energy-related commodities such as electric power, gas and climate market products with activities in 39 countries.

Solar power in Georgia on rooftops can provide 31% of all electricity used in Georgia.

Solar power in Maryland

Solar power in Maryland is supported by the state's legislation regarding the Renewable Portfolio Standard and Solar Renewable Energy Credit (SREC) program. The target for renewable energy as of 2017 is 20% by 2020, including 2% from solar power.

Solar power in Pennsylvania

Solar power in Pennsylvania currently provides less than 1% of the state's electricity, but there are many policies in place to regulate and incentivize its use. Pennsylvania mandates the use of solar power through a renewable portfolio standard, which requires a percentage of electricity from each providers to come from solar, and net metering, which compensates small-scale solar generation through net metering. By 2021, Pennsylvania is required to have 0.5% of its electricity from solar. Solar power could theoretically provide over 30% of the state's electricity, but growth in solar generation has slowed due to a reduction in solar grants and the low price of solar energy credits.

Belarusian Universal Commodity Exchange

Belarusian Universal Commodity Exchange (BUCE) is the only commodity exchange in the Republic of Belarus and one of the largest in Eastern Europe. The BUCE is an open joint-stock company with the controlling stake (98%) owned by the government.

References

  1. ↑ Gronewold, Nathanial (25 August 2011). "Solar Industry's Boom in N.J. Casts Shadow Over Program That Spurred It". New York Times. Retrieved 15 February 2013.
  2. ↑ "NFA Case Summary". National Futures Association. Retrieved 21 January 2019.
  3. ↑ "Flett Exchange". Carbon TradeEx America. Retrieved 15 February 2013.
  4. ↑ Michel, Fred. "Incentives for PV Electric Systems in Ohio - Solar Renewable Energy Credits (SRECs)" (PDF). The Ohio State University-OARDC. Retrieved 15 February 2013.
  5. ↑ "How do I sell RECs?". PJM Environmental Information Services. Retrieved 15 February 2013.
  6. ↑ Marlowe, Craig. "Unleashing Consumer Energy Savings: A Mass-Deployment Strategy for Solar Water Heating in Prince George's County" (PDF). Prince George’s County Solar Water Heating Task Force. p. 42. Retrieved 15 February 2013.
  7. ↑ "e SREC Based Financing Program - Program Guide" (PDF). NERA Economic Consulting. Retrieved 25 April 2013.
  8. ↑ "Flett Exchange Public-Auctions". Flett Exchange. Retrieved 15 February 2013.
  9. ↑ "2012 Executive Municipal Budget" (PDF). The Town of Morristown. p. 42. Retrieved 25 April 2013.
  10. ↑ "Long-Term SREC Contracts". Flett Exchange. Retrieved 15 February 2013.
  11. ↑ Bird, Lori. "Green Power Marketing in the United States: A Status Report (2009 Data)" (PDF). National Renewable Energy Laboratory. p. 36. Retrieved 15 February 2013.
  12. ↑ Williams, Glenn (24 October 2011). "Solar Energy Credits Point to a Slowdown". TheStreet.com. Retrieved 15 February 2013.
  13. ↑ "Summary Information as of September 17, 2007, on Exempt Commercial Markets That Have Filed a Notification under section 2(h)(3)-(5) of CEA" (PDF). US Commodity Futures Trading Commission. Retrieved 25 April 2013.
  14. ↑ "President's Budget and Performance Plan FY 2012" (PDF). U.S. Commodity Futures Trading Commission. Retrieved 25 April 2013.
  15. ↑ "Flett Exchange Launches Regional Greenhouse Gas Initiative (RGGI) Allowance Market". 7 October 2008. Retrieved 25 April 2013.
  16. ↑ "Regional Greenhouse Gas Initiative (RGGI)". Flett Exchange. Retrieved 25 April 2013.
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