The effects of climate change have been accelerating at an exponential rate. Now more than ever is the nation becoming more conscious of the need to switch to renewable energy resources like solar. In efforts to help mitigate a changing climate, state governments have created solar incentive programs to help encourage households and businesses to make the switch to a cleaner energy alternative. Among these solar incentives are Solar Renewable Energy Certificates, or SRECs. While SRECs can be a challenging solar incentive to understand, they can provide financial returns for owners of solar power systems.
What is an SREC?
Solar Renewable Energy Certificate (SREC) are non-tangible “certificates” that owners of a solar panel system 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 require a target amount of electricity be generated by renewable energy projects. What’s more, some of these standards have a solar carve-out specifically dedicated to the amount of energy generated from solar projects and home systems. These solar carve-outs are what helps drive the SREC market. To meet a states 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 market
Approximately 38 states and Washington D.C. have an RPS in place. To further spur the growth of solar, 7 of those states (including Washington D.C.) have SREC programs. Among those states are Delaware, Illinois, New Jersey, Massachusetts, Maryland, Pennsylvania and Ohio.
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 In Massachusetts, SREC programs have been replaced by the Solar Massachusetts Renewable Target Program, also known as SMART.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 need to buy SRECs in order to meet their state’s solar carve-out requirements.
Just like stocks, the value of an SREC is volatile, meaning it can fluctuate with supply and demand in a certain state, and it can also be traded. The more SRECs available on the market, the lower their cost will be. Another price factor also depends on the states alternative compliance payment (ACP). An APC is essentially the fine utilities and suppliers 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 expire after 3 to 5 years. While it may seem wise to hold onto them to try and get a better price before selling, they do eventually expire.
Solar Renewable Energy Credits can be represented as a powerful tool to not only help finance a solar system, but to also help build a decarbonized energy future. For more information on SRECs in your state, visit SREC Trade.