SRECs: A Solar Renewable Energy Certificates (SREC) Primer

Of all the incentives for installing solar panel systems, solar renewable energy certificates (SRECs) are some of the most potent, yet least-understood. You may have heard enigmatic terms like “SREC markets,” “solar renewable portfolio standards,” and “minimum compliance payments” thrown around in discussions about SRECS, but sifting through of all this jargon can be downright mind-numbing. However, SRECs can provide sizable streams of money to owners of solar power systems, so learning about what SRECs are, where they are available, and how they can make solar more financially-rewarding can, quite literally, pay off in a big way.

The first step to understanding SRECs is learning about renewable portfolio standards (RPS). RPS are the policies that give rise to SRECs and SREC markets. They require utilities – such as commercial electricity retailers (e.g. National Grid in New England) – to provide a specific percentage of their electricity generated from renewable sources. In Massachusetts, for example, retail electricity providers must provide at least 7% of their electricity from renewable sources by the end of 2012. By the end of 2020, this percentage increases to 15%. To meet these requirements, electricity providers must obtain renewable energy certificates (RECs), which serve as proof that they have either produced renewable electricity themselves or paid someone else who is producing renewable electricity for the right to “claim” the electricity.

As part of their RPS, some states also specify what is known as a solar carve-out: a minimum percentage of electricity sales that come specifically from solar power systems. In states with solar carve-outs, owners of solar panels receive one SREC for every megawatt hour (MWh) of electricity their panels produce. These SRECs work the same as RECs, but only count towards solar electricity specifically. A typical size for a home solar panel system is five kilowatts (KW), which will produce about five to eight Megawatt hours (MWh) of electricity per year. This means that the typical homeowner who installs solar panels will earn about five to eight SRECs per year.

Solar panel owners can sell their SRECs to utilities that have to meet their solar carve-out requirements by buying SRECs. The amount of money a solar panel owner will receive for his or her SREC varies by state, and can range from under $50 to over $300 per SREC. This price depends on market supply and demand factors, as well as a state’s alternative compliance payment (ACP), which is the fine that electricity providers must pay per MWh if they don’t obtain enough SRECs. Electricity providers will save money buying SRECs if the SRECs cost less than the ACP, so the ACP acts as ceiling on SREC prices.

SRECs are excellent for encouraging homeowners and businesses to install solar, because they can drastically improve the financial returns of installing solar panels. For example, if a homeowner installs a solar power system that generates five SRECs a year and sells those SRECs for $200 each, he or she will earn $1000 per year on top of the savings he or she already receives from switching to solar. Selling SRECs may not make homeowners a fortune, but they can significantly increase the benefits of going solar.

In a series of blog posts over the next few weeks we will explore further which states have SRECs, how SREC markets differ between states, and how much homeowners can expect to make by selling SRECs. Keep checking back to learn the ins and outs of making money with SRECs, and learn how to maximize the returns from your solar panels.

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