PA Tier II AEC Market: 2025 State of Play

Pennsylvania's Tier II Alternative Energy Credit (AEC) market has seen significant price appreciation over the past three compliance years. The 2024–25 weighted average hit $26.92/AEC — more than double the lows seen earlier in the decade — with transactions clearing as high as $41.00. For generators, CHP operators, and energy efficiency project owners, this is the best market conditions the program has seen since its inception under Act 213 of 2004.

This post covers the current state of the Tier II market: what's driving prices, which generator categories are most active, what EGSs are facing on the compliance side, and what to expect through the remainder of 2025 and into the 2025–26 compliance year.

Price trajectory: from $10 to nearly $27

The trajectory of Tier II AEC prices tells the story of a market maturing. In the early years of the AEPS program, Tier II credits frequently traded near $10–12 — well below the $45.00 ACP penalty ceiling. Demand was constrained by a relatively stable AEPS compliance schedule and a supply pool that included both demand-side management projects and generation resources like waste coal.

Over time, a few structural shifts changed the equation. First, the AEPS compliance percentages have continued stepping up, increasing aggregate EGS demand for Tier II credits each year. Second, the retirement of older registered projects from the supply pool — particularly waste coal and legacy demand response programs — reduced available supply. Third, energy efficiency projects with long-tenured deemed lives (15 years) that were enrolled in the early 2010s are approaching the end of their credit-generating life, creating a supply gap that new project enrollments must fill.

Generator mix: who is active in the Tier II market?

The Tier II AEC supply pool is more diverse than many participants realize. Active generator categories in the PA market today include: energy efficiency projects (LED retrofits, HVAC upgrades, VFD installations) registered by building owners and operators; combined heat and power (CHP) systems at hospitals, universities, industrial facilities, and municipalities; behind-the-meter demand response and demand-side management resources; and small-scale distributed generation qualifying under non-solar Tier I reclassification or Tier II catchall provisions.

Energy efficiency projects and CHP represent the two most active categories for new enrollment, and both remain significantly under-penetrated — a large share of qualifying projects in Pennsylvania have never been registered in PennAEPS.

EGS compliance picture

Electric Generation Suppliers licensed in Pennsylvania must demonstrate Tier II compliance annually. The AEPS compliance year runs June 1 through May 31, with filings typically due in late summer. EGSs that fail to procure sufficient Tier II AECs face the $45.00/AEC Alternative Compliance Payment — currently about 67% above the market weighted average.

This spread between market price and ACP creates a strong economic incentive for EGSs to source AECs rather than pay the penalty. As compliance obligations grow and supply remains constrained, this dynamic supports continued price appreciation.

What to watch in the 2025–26 compliance year

Several factors will shape Tier II pricing through 2025 and into the next compliance year. New project enrollment rates will be a primary driver — specifically how many energy efficiency projects and CHP systems complete PennAEPS certification before year-end.

The PA PUC contract with InClime as AEC Administrator was set to expire December 31, 2025, which introduces some process-level uncertainty around the transition to any successor administrator. And broader energy market conditions — particularly natural gas pricing and utility rate environments — influence how aggressively CHP operators and efficiency project developers invest in new projects that might generate future AECs.

Implications for generators and EGSs

For generators: If you operate a CHP system, have completed energy efficiency upgrades in the last 10 years, or manage a building portfolio with lighting or HVAC retrofits, the current pricing environment makes AEC enrollment more financially compelling than at any prior point in the program. A 500 kW CHP running 8,000 hours annually generates roughly $107,000 in AEC revenue per year at current weighted average pricing — recurring for up to 15 years.

For EGSs: The spread between market AEC pricing and the $45.00 ACP continues to favor procurement over compliance payments. Forward-contracting Tier II AECs with an aggregator provides price certainty and reduces year-end scramble in a market where supply can tighten quickly.

Emergent Energy publishes this market update annually. For a project-specific revenue projection or AEC procurement quote, contact us at sales@emergentenergy.us or submit a request through the evaluation form.