The effects of climate change have been accelerating at an exponential rate. It’s clear, now more than ever, that the nation needs to switch to renewable and reliable sources of power. In an effort to support this transition, state governments have created solar incentive programs which encourage households and businesses to make the switch to clean energy. Among these incentives are Solar Renewable Energy Credits, or SRECs. These credits provide financial returns to owners of solar power systems.
What are SRECs?
Let’s start with the SREC definition. Solar Renewable Energy Credits(SRECs) are non-tangible “certificates” that owners of solar panel systems can sell to their utility as proof that solar energy was generated. Each certificate represents 1 megawatt hour (MWh), or 1,000 kilowatt-hours (kWh) of energy. So, for example, if you own a system that generates 12,000 kWh, you can earn 12 SRECs per year.
SRECs exist in states that have a Renewable Portfolio Standard (RPS) which requires a target amount of electricity to be generated by renewable energy projects. What’s more, some of these standards have a solar carve-out specifically dedicated to energy generated from solar projects and home systems. These solar carve-outs are what help drive the SREC market. To meet a state’s RPS requirement, utilities must obtain a certain number of SRECs each year, either by generating the power or purchasing and retiring the SRECs.
States with an SREC program Approximately 38 states and Washington D.C. have an RPS in place. To further spur the growth of solar, Delaware, Illinois, New Jersey, Massachusetts, Maryland, Pennsylvania, Ohio and Washington D.C. have implemented SREC programs in addition to the current RPS.
State incentive programs are evolving. In Massachusetts, SREC programs have been replaced by the Solar Massachusetts Renewable Target Program, also known as SMART. While SREC I and SREC II functioned by generating tradable SRECs for solar project owners, SMART is a tariff-based incentive program where solar owners (residential and businesses) receive payment for the solar power generated by their projects based on a rate that is fixed for the life of the tariff, providing greater cost certainty for solar project owners.
To meet Renewable Portfolio Standards, utilities are required to claim a specific number of SRECs, which creates market demand. Solar system owners can sell their SRECs through the SREC market to energy suppliers and utilities that require SRECs to meet their state’s solar carve-out requirements.
Just like stocks, the value of an SREC is volatile and will fluctuate with supply and demand. Furthermore, in addition to being bought and sold, SRECs can also be traded. Ultimately, the more SRECs available on the market, the lower their cost will be. Another price factor is the state’s alternative compliance payment(ACP) which is the fine utilities and suppliers have to pay for not meeting their state’s RPS. To date, the current prices for SRECs range anywhere between $40 to $500. Here are the values of each SREC by state:
How long do SRECs last?
The useful life of an SREC depends entirely by state, but generally expires after 3 to 5 years. While it may seem wise to hold onto them in hopes of a better selling price, they do eventually expire.
Solar Renewable Energy Credit is a powerful tool that can help finance a solar system, and build a decarbonized energy future. For more information on SRECs in your state, visit SREC Trade.
How Do SRECs Work?
A Solar Renewable Energy Credit incentivizes homeowners and utility companies to adopt green energy. It’s helpful to think of an SREC as a “coupon” that a solar array produces for every set amount of electricity it generates. Note that this is separate from the actual energy from your system.
SRECs can be sold to utilities and leveraged as additional income. Companies often purchase SRECs to comply with a state’s Renewable Portfolio Standard (RPS), proving that a portion of the electricity they supply to the grid is solar.
How Are SRECs Created?
Solar Renewable Energy Credit programs are built and spearheaded by the state government. It starts with legislation that determines how much of a state’s energy production must come from renewable sources. The public utility commission (PUC) of each state, in turn, enforces these mandates to all electricity providers in its jurisdiction, using SRECs as proof.
SRECs are created at certified solar systems or farms, which the PUC or a similar agency tracks through meter readings. Utility companies then buy them from the solar system owners for compliance.
How Does Supply and Demand Affect SREC Values?
SRECs are bought and sold at SREC markets similarly to stocks and bonds. The value of an SREC is largely determined by simple supply and demand. In other words, the more solar projects there are, the more SRECs are available, keeping prices low. Conversely, fewer solar projects will lower SREC supply and raise prices.
However, unlike other asset markets, the SREC market has a price ceiling indirectly set by the government. This is through Alternative Compliance Payment (ACP), the fee the utility company needs to pay if they don’t meet SREC requirements. Since a company will not pay for an SREC that is worth more than the ACP fee, this penalty effectively sets the ceiling.
How Much Can I Earn Selling SRECs?
This largely depends on the state where you live and its prevailing market situation. For example, some states, such as Ohio, only charge around $7.5 per SREC as of 2020. Other states, like Washington D.C., price it at about $440. Hence, for a 10 kW solar system that gives around 10 – 12 SRECs a year, you can look forward to getting between $7.5 – $5,280.
How Many SRECs Will My System Produce?
One SREC is issued for every 1 MWh of electricity produced. To estimate it on your system, multiply the system size by 1.2. For example, for an 8 kW solar panel array, you’ll get an average of 9 to 10 SRECs every year.
What Do I Do With SRECs If I Move?As a rule of thumb, you can sell your house and move out while still retaining ownership of your SRECs. Solar homeowners, however, often use SRECs as a negotiation tactic. By transferring them to the new owner, they can often sell their property at higher prices.