What are Solar Renewable Energy Credits?
August 1st, 2012
If you live in Massachusetts, then you should read this article! If you’re haven’t yet heard about the SRECs (Solar Renewable Energy Credits), or you have and you didn’t fully understand them, than you’re missing a great investment opportunity. The following information (originally posted here), is a great introduction to how installing solar on your home or business can help you make money while being environmentally responsible.
What is an SREC?
In SREC states, the Renewable Portfolio Standard (RPS) requires electricity suppliers to secure a portion of their electricity from solar generators. The SREC program provides a means for Solar Renewable Energy Certificates (SRECs) to be created for every megawatt-hour of solar electricity created.
1 SREC = 1,000 kWh of solar electricity = 1 MWh of solar electricity
10 kW solar capacity = ~12 SRECs per year
The SREC is sold separately from the electricity and represents the “solar” aspect of the electricity that was produced. The value of an SREC is determined by the market subject to supply and demand constraints. SRECs can be sold to electricity suppliers needing to meet their solar RPS requirement. The market is typically capped by a fine or solar alternative compliance payment (SACP) paid by any electricity suppliers for every SREC they fall short of the requirement. The sale of SRECs is intended to promote the growth of distributed solar by shortening the time it takes to earn a return on the investment.
Once the installation of a solar system is complete, the system must then be certified by the state(s) in which it is eligible to sell SRECs and then must create an account with the tracking platform used by that state. Once registered, every month, the tracking platform will issue SRECs based on the generation of your system. In some states, estimated generation is used for systems under 10kW, while all other systems are required to submit generation on a monthly basis. One SREC is created for every 1000kWh of electricity created. For example, a 10kW system can generate approximately 1 SREC per month. However, it is up to the solar installation owner to decide how to manage the SRECs that are produced.
Some states will certify solar electric systems from out-of-state and allow the SRECs from those facilities to count towards the RPS. The map above shows what state individuals can sell their SRECs into.
How SRECs are priced
There is no assigned value to an SREC. Prices are influenced by supply and demand. The supply is determined by the number of solar installations producing SRECs and trading them. The demand is determined by individual state RPS solar requirements and the Solar Alternative Compliance Penalty (SACP) set by the state. The RPS solar requirement represents the number of SRECs that the electric suppliers are required to collect each year. The SACP represents a theoretical maximum value of an SREC, since it is the amount paid per SREC by the electric suppliers if they do not collect enough SRECs. In states, such as New Jersey, where the SACP in 2010 is $693, SRECs are worth more than a state with an SACP of $250. You can click here to view a complete Auction History.