The economics for home solar power in the United States are exceptional. With higher electricity costs, strong rebates, and the Federal solar tax credit, investing in a home solar energy system now makes strong financial sense, even without additional incentives.
However, the added value from a special type of incentive called a Solar Renewable Energy Certificate, or SREC can take the returns of your solar investment to a whole new level.
On top of the electric bill savings you get from producing your own power, SREC programs are designed to drive solar energy adoption by making the financial rewards so strong they can no longer be overlooked.
In this article we’ll review what SRECs are, reveal how many of them you can generate on your roof with a typical solar installation, explore how much they are worth, and show how and where you can profit from them.
SRECs are tools to encourage utility companies and homeowners to use clean energy
When you let a child play and mess up their room without them cleaning it up, you’re encouraging them to continue this behavior indefinitely. To get a handle on things, you have a few options:
- 1) Provide an allowance or reward to your child for cleaning their room
- 2) Punish your child in some way or another if they continue to be a mess
- 3) Do nothing and accept that your child’s room will continue to be a mess
Let’s extend this analogy to your power company. Instead of “playing”, they burn fossil fuels to make electricity. In the process, they collectively have made an enormous mess which has lasting consequences for nature and all of us.
State policy makers are tasked with the problem of deciding how best to encourage utility companies to play responsibly and derive their electricity from cleaner sources. If they do a good enough job, our children won’t all be left choking on smoke with a warming planet.
While psychologists have proved positive reinforcement with rewards has the best effect on changing behavior, state legislators have up until recently opted for option #3, do nothing and accept that creating electricity is inherently messy and accept that it will continue to be that way.
In some more forward thinking states, legislators have adopted a thoughtful blend of options #1 and #2: reward utility companies and homeowners for choosing clean power sources, while threatening to punish utilities if they continue to derive their electricity from fossil fuels.
You can think of solar renewable energy credits (SRECs) as vouchers meant to shape utility company behavior. Utilities in some states are required to hold a certain number of SRECs meet their solar requirement as part of the state’s Renewable Portfolio Standard (RPS). If utilities do not meet their RPS requirements, the state will impose hefty solar alternative compliance payment fees on them.
Therefore, utilities are interested to source just the amount they need to avoid the fees. In some areas, electricity suppliers are required to source a mix of SRECs from small scale sources like your home’s roof instead of big solar farms.
Here’s how the conversation looks:
Your utility company thinks and replies: “Planning and building our own solar farms is too difficult and expensive, but we don’t want to pay those fines! Isn’t there anyone who’ll sell us their SRECs for less than $400?!?!?”
You say: “Sure thing, utility company! I’ll sell you my SRECs for $375 apiece!”
And everyone lives happily ever after, at least as long as the solar targets remain unmet or until the fines go away, which happens all the time.
What exactly am I selling when I sell an SREC?
When you sell your SRECs, you are selling the “environmental benefit” of your solar panels to someone else, like your utility company, who by law needs the clean power. It’s almost as if you’re selling the “green soul” of your solar panels as they become the solar undead. What does this mean in practical terms?
In effect, it means that you legally can no longer claim to own the production of the clean energy sourced from your roof.
Yes, we know that the panels are clearly on your roof, but as far as the law is concerned, you as a homeowner (or a business owner) cannot advertise or claim to produce clean, green, solar energy. When you sell your SRECs you have waived that right.
SRECs also allow you to sell credits to businesses who need them to comply with government regulations or to fulfill their own clean energy targets for their own marketing purposes.
You may have noticed that some heavy logistics oriented businesses like Amazon are claiming to be “carbon neutral” in a short period of time from now. It’s not because they are generating and using all of their electricity from clean sources like wind and solar. It’s because they’re purchasing renewable energy credits for the lawful right to claim carbon neutrality.
How many SRECs will my home solar panel system produce?
SRECs are the smartest way to incentivize solar electricity adoption. One SREC is awarded to a solar owner each time their panels generate a megawatt-hour (MWh) of electricity.
In most places in the United States, a standard 6-kW home solar system (about 20 panels) would pump out about 8 MWhs in a year, so 8 SCRECs. The SRECs generated in this way can be sold to the utility company as “proof of generation,” which they need if they’ve got to hit solar targets under your state’s RPS solar carve-out.
How much are SRECs worth?
What SRECs are worth at any given moment varies, and how to redeem it varies based on where you live.
States and sometimes individual utilities have their own SREC regulations and provisions. Some states set stable price floor targets for SRECs, others let the free market determine their worth. In such cases, SRECs are sold at prices determined by supply and demand, like the stock market or grocery store.
One SREC in Connecticut will not be the same price as an SREC in New Jersey, and visa versa. In fact, depending on the state and market, that SREC could be worth, say, $50 one month or $200 another month–in the same state.
Some states allow you to sell your SRECs directly to the market. Some utilities will give you a lower upfront state solar rebate if you decide to keep your SRECs instead of selling them to the utility at a set price for a certain time period.
For example, New Jersey lets you keep your SRECs and allows you to sell them at a scheduled SREC auction or to an aggregator who takes care of all the transactions and paperwork for you. SREC prices there hovered near $700 for several years but have since decreased to $200, and will soon be phased into a locked in price for the next 5 years at $120 apiece.
In 13 other states, SRECs prices are all over the map. The good news is, if you own a solar system outright, you are already generating SRECs.
They may have a shelf life and you may not be able to monetize all the ones you’ve created, but once they are available to trade in your area, you can reap some cash.
Some SRECs are guaranteed a steady per kilowatt rate that your panels produce for a certain amount of time, say a 3 year period. The exceptions and variables are numerous.
You can also easily learn more about what the rates and requirements are from local installers by getting multiple solar estimates.
States with solar carve-outs establish SREC markets that allow you or a third-party seller to pass your SRECs on to utility companies for prices at or near the cost of the fines for non-compliance (called “alternative compliance payments, or ACPs).
Those fines change over time (read: go down or go away), so SREC prices aren’t stable for very long. The excellent people over at SRECTrade do a great job at tracking the historical prices for SRECs in states with markets. Check out the charts they’ve got of SREC prices.
How do I get money from my SRECs?
Depending on where you live, you can sell your SRECs to your utility company, sometimes for a significant amount of money on an ongoing basis. If you’re lucky enough to live in a location with such a strong solar energy policy, you have three options to profit from your SRECs:
- Option 1: Trade them on the open market (if your installation is large enough)
- Option 2: Sell them to an SREC aggregator
- Option 3: Transfer SREC ownership to your solar installer and have them wrap your credits into your installation
Option 1: Trade your SRECs on the open market
If you own a significant solar farm, you can sell your SRECs to your utility company for a good amount of money each time you generate one. The sales process usually gets completed through a middleman though, who will register your system on a tracking system, such as the Western Renewable Energy Generation Information System (WREGIS). Your installer will have a solid relationship with this person to make the process easier for you.
Option 2: Sell your SRECs to an aggregator
There are companies that make a business trading SRECs and will pay you cash for SRECs under a contract, where they basically purchase all the SRECs that your solar system will generate for a variety of term lengths. Some SRECs only have a valid value every day, so the aggregator is making a guess as to what they will be worth in the future.
If it’s a 1-year contract, you can probably nail down the spread they are taking (difference between what you could get trading it yourself and what they will pay you for it) and… it’s probably worth it. In multi-year contracts there is more speculation about their future value, so it’s really impossible to say what’s a better deal, it’s just about risk. You’d be paying them for not having to take the risk on what they are worth in the future.
Option 3: Transfer SREC ownership to your solar installer and have them wrap your credits into your installation
This option is the least of a headache for you as the ball is now in your installer’s court to sell credits on their own. Regardless, you’ll want to do a little research by verifying how many SRECs your system will be generating over the next 10 years at least, and get a good picture of how that value will be reflected in your solar quote.
It’s important to note that some states like Oregon require you to forfeit the right for your SRECs when you accept an upfront cash rebate through your installer. Ask your installer what happens to your SRECs when you choose to go solar with them.