Renewable Energy Credit (REC)
Renewable Energy Credit (REC)
Property owners may fully realize the value of their solar energy systems by registering their systems to produce solar renewable energy credits (SRECs) and then purchasing these SRECs. We also assist large-scale energy suppliers and utilities in investing in the solar community by managing their state-mandated solar Renewable Portfolio Standard (RPS) requirements and SREC portfolios. Learn more about solar renewable energy credits and how they can work for you.
What are SRECs
The term SREC stands for Solar Renewable Energy Credit and is a tradable credit that represents all the clean energy benefits of electricity generated from a solar electric system. Each time a solar electric system generates 1000kWh (1MWh) of electricity, an SREC is issued which can then be sold or traded separately from the power.
SRECs are purchased by electrical utilities or energy suppliers who need to meet a Renewable Portfolio Standard (RPS). The value of SRECs are quantified by three major factors:
1. State RPS requirements
2. Value of the state’s Solar Alternative Compliance Payment (ACP)
3. Supply and demand of SRECs in that specific state
Because of these factors, SREC values can vary dramatically from state to state.
Frequently Asked Questions
What are Solar Renewable Energy Credits (SRECs)?
Renewable energy credits, or RECs, are trade-able commodities that represent the green attributes associated with energy generated from renewable energy resources, such as sunlight, wind, or water. One REC is generated every time one megawatt-hour (MWh) of clean, renewable electricity is produced. A REC allows someone to say “this is clean energy and I own it.” Solar renewable energy credits or “SRECs” are simply RECs generated from solar power.
Why are SRECs valuable?
SRECs are valuable because some states have passed legislation requiring energy suppliers to provide a certain percentage of their electricity from renewable energy sources. This type of legislation is called a Renewable Portfolio Standard (RPS). Under certain types of renewable portfolio standard (RPS) legislation energy suppliers must either produce a certain amount of solar electricity or purchase SRECs.
What is an RPS?
A renewable portfolio standard (RPS) requires that energy suppliers in a certain state produce a proportion of their energy from renewable energy. To meet these RPS requirements, energy suppliers can (1) develop their own renewable energy facilities such as solar plants or wind farms to produce RECs, or (2) purchase RECs from others that own renewable energy facilities. Under certain renewable portfolio legislation, energy suppliers must secure a subset of energy from solar energy, often called a “solar carve-out”. Under the solar carve-out, a subset of the required renewable energy must come from solar systems. Because developing renewable energy facilities can be a costly and complicated endeavor, many utilities choose to purchase RECs from homeowners and businesses.
What is an ACP?
If a utility fails to meet a state’s RPS requirements by securing the necessary number of RECs, it must pay a penalty called an Alternative Compliance Payment (ACP). Certain states have RPS legislation that requires a subset of renewable energy be generated from solar energy (this is called a solar carve-out or set-aside). Generally, this is accomplished by establishing a higher ACP for solar energy than for other technologies so that energy suppliers are financially incentivized to purchase solar energy specifically. SRECs are often more valuable because of this higher ACP.
Are RECs and SRECs paper certificates?
No, RECS are electronic certificates that receive a unique ID number. RECs and SRECs are monitored, counted, and stored on attribute tracking platforms such as PJM-GATS or NEPOOL-GIS (for Mass.
How much are SRECs worth?
The value of an SREC varies based on a number of factors. Some of the major factors include:
• Value of Alternative Compliance Payment (ACP)
• The number of qualified generators producing SRECs (SREC Supply)
• The legislated demand for SRECs (SREC Demand)
SREC prices tend to be high if ACP values are high, SREC supply is low, and SREC demand is high. The higher the demand for SRECs in a particular state the more this state’s SRECs are worth. Alternatively, SREC values tend to be low if the ACP values are low, SREC supply is high and SREC demand is low. If there is little or no demand for SRECs in a particular state the state’s SRECs will be worth less.
Because some states have an RPS with a higher alternative compliance payment (ACP) for utilities that do not meet their solar obligations (effectively a higher penalty fee), SRECs often tend to be much higher in value compared to wind RECs, biomass RECs, or other types of RECs.
How much will my SRECs be worth in the future?
That is difficult to determine, and few actually know. SREC prices will depend in large part upon SREC supply, SREC demand, and the Alternative Compliance Payment (ACP). Although SREC supply will increase as more solar systems come online, SREC demand is also legislated to increase in all states with a RPS. However, the ACP is set to drop in many states, which is meant to reflect a drop in the costs of solar technology. One of the main benefits of signing up with Sol Systems is that we offer SREC financing solutions which remove the risk of fluctuating SREC values. For example, Sol Annuity provides a 5 year price guarantee, while Sol Upfront provides homeowners with immediate financing.
What is SREC supply?
The volume of SRECs supplied in a state is directly proportional to the size (and number) of solar systems registered in a state to produce SRECs. The more solar systems that are producing SRECs, the greater the supply, and the lower the SREC price in that state (all else being equal).
What is SREC demand?
The volume of SRECs demanded in a state is directly proportional to the overall RPS requirements for that particular state. This number is often legislated to increase on a year by year basis. If there is sufficient SREC supply to meet the legislated SREC demand, the value of SRECs will be low.
Why do SREC prices vary state by state?
SREC prices vary state by state because states have different regulations that impact the value of SRECs. In states that enforce a Renewable Portfolio Standard (RPS) and a solar carve-out with an Alternative Compliance Payment (ACP), the value of SRECs tends to be highest. In some cases, SRECs produced in states that do not have an ACP or RPS may still have value if they can be sold across state borders.
How many SRECs will my system produce?
SREC production directly correlates to the solar system size, location, and equipment used, among other factors. To obtain a rough estimate of production, you can use PV Watts, an online tool developed by the National Renewable Energy Laboratory. PV Watts estimates the amount of electricity produced by a solar PV system based on nameplate capacity, location, tilt, and azimuth. Please visit the PV Watts website and enter your system specifications in order to receive a production estimate.
Does my system need to be grid-tied in order to produce SREC’s?Yes, only grid-tied systems qualify for SRECs at this time.
Can I sell electricity back onto the grid and also sell SREC’s?
Yes. Most states have net metering rules which provide you with a certain amount of money per kWh that your solar energy system produces. Selling your electricity back to the grid does NOT prevent you from selling your SRECs. You can sell your electricity to the grid and also sell your SRECs to Sol Systems.
Please visit the Database of State Incentives for Renewable Energy (DSIRE) at www.dsireusa.org to obtain state specific information on net-metering regulations.