What’s an SREC and How Do SREC Credits Work?
If you’ve been researching all the available financing tools for adopting commercial solar, you’ve probably read about Solar Renewable Energy Credits (SRECs). SRECs are a tradable commodity that you obtain from owning a solar panel system or other source of renewable energy such as wind. Because of a common state requirement known as the Renewable Portfolio Standard (RPS), utilities in 30 different states must generate a certain percentage of their energy from renewable sources, typically at least 20 percent. Solar homeowners and commercial businesses in RPS states can earn one SREC for every 1000 kilowatt hours (kWhs) generated by their solar PV system. For a typical 5 kW home solar installation, you could earn about six SRECs per year.
What’s a Renewable Portfolio Standard (RPS)
A Renewable Portfolio Standard (RPS) is a law that mandates that a state’s utility produce a minimum amount of solar power every year. States with RPSs include California, Hawaii, Maine, New York New Jersey, Maryland, Delaware, Washington DC, Pennsylvania, Massachusetts, and ~20 other states. (See map). Utilities in 30 different states must generate a certain portion of their energy from renewable sources, typically 20 percent minimum. In six states and Washington D.C., the RPS requires a certain minimum percentage of the renewable energy produced must come from solar. States with this type of “solar pie” are willing to pay a price to take credit for the power generated by solar businesses and homeowners.
How does the state know that the utilities are producing that minimum amount of solar, wind, etc? Because the utility is required to provide proof that comes in the form of a special certificate, and that’s where SRECs come in.
How Much Is an SREC Worth?
So, you’ve checked your solar meter and seen that you’ve earned the equivalent of one SREC (1000 kWhs). Great! How much is it worth? The short answer is that it depends on your state and your SREC market.
The SREC price can range anywhere from $4/SREC to $480/SREC, depending on your state, the time the SREC was generated, and SREC market volatility. Like any commodity market, the SREC price is based on supply and demand, so the price can fluctuate. Right now in November 2013, a New Jersey SREC is selling between $120 and $137, depending on when the SREC was actually generated. As of 2016 New Jersey’s SREC was selling at $200.
Why Do SREC Prices Change?
One critical concept that explains how the prices for solar renewable energy credits are determined is the Alternative Compliance Payment (ACP). The ACP is a fine levied onto utilities who do not meet the state’s Renewable Portfolio Standard targets. Each particular state’s solar ACP, or SACP has a direct impact on the price of SRECs. The SACP sets SREC price ceilings. As a result utilities will buy just enough SRECs to meet their RPS requirements,but won’t pay more than what the fine would cost. As a result the best SREC markets are those with high ACPs that require utilities to purchase more from solar businesses and homeowners.
Timing is important. Not everyone turns in their SRECs immediately. Some solar homeowners and businesses keep their SRECs, waiting for the market price to go up. As a result, sometimes there aren’t enough SRECs available, and if the utility is short on its quota, then the SREC price will go up. However, there is a ceiling price—and sometimes a floor price, as well.
If the utility can’t collect enough SRECs to meet its quota, then they have to pay a high penalty to the state. Consequently, the price of an SREC is never as high as that penalty (ceiling) price, but it can get close.
But don’t hold on to your solar renewable energy credits for too long. If you generated SRECs in 2011 and didn’t put them into the market, its value may have plummeted, since the utility has already made its quota for 2011. For example, in 2011 an SREC in Pennsylvania is now going was at $4, in 2013-2016 SREC traded consistently around for $13, and just recently as of July 2017 has plummeted to $3.50.
Other Things to Know About SRECs
- You may or may not be able to trade directly with the utility. It depends on your state and the amount of SRECs you have on hand. Most homeowners sell their SRECs to SREC sellers, such as SRECTrade.com, who take a small fee and process your SRECs at the market price for your state.
- Most SRECs can only be traded to state utilities where they live. However, Ohio allows SRECs to be traded to other state markets, but the price is usually lower when you sell out of state.
- Current SRECTrade.com market prices for all SREC states can be seen here.
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