Solar Renewable Energy Credits (SRECs): An In-depth Guide
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State-by-State Solar Incentives Guide
As electricity costs from the grid continue to rise, homeowners can achieve significant energy savings with residential solar power. Additionally, residents in qualifying states can enhance these savings by selling Solar Renewable Energy Credits (SRECs), potentially earning hundreds or even thousands of dollars annually.
What is Solar Renewable Energy Credits (SRECs)
A Solar Renewable Energy Credit (SREC) is awarded to homeowners for each megawatt-hour (1,000 kWh) of solar power their system produces. For instance, a 7 kW solar setup that generates 8.5 MWh of electricity annually would earn 8.5 credits each year.
1 SREC equates to 1 MWh (1,000 kWh) of solar generation.
These credits can be sold to utilities in an open market, where prices are influenced by supply and demand.
While the income from selling SRECs is not the main source of savings for most solar system owners, it is a nice bonus. However, in some states, this bonus can be substantial.
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Key terms:
Renewable Portfolio Standards (RPS) are state-level mandates that require electric utilities to produce a specific percentage of their energy from renewable sources, such as solar, wind, or hydro power. These standards aim to increase the use of clean energy and reduce dependence on fossil fuels.
Solar Carve-Out is a policy that sets a minimum threshold for solar energy production within a state's renewable energy mix. This ensures a specific amount of electricity is sourced from solar power, promoting its growth and integration into the grid.
Renewable Energy Certificates (RECs) are tradable credits that represent a certain amount of energy produced from renewable sources. Utilities can purchase RECs from renewable energy producers to comply with their renewable portfolio standards, even if they don't generate the energy themselves.
Solar Renewable Energy Credits (SRECs) are a type of REC that specifically pertains to solar energy production. Each SREC represents 1 megawatt-hour (MWh) of solar-generated electricity and can be bought and sold in the marketplace to help utilities meet their solar carve-out requirements.
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Why do SRECs exist?
SRECs, or Solar Renewable Energy Certificates, enable utilities to comply with state renewable portfolio standards (RPS) that mandate the generation of a specified amount of electricity from renewable sources. More than 30 states have these RPS regulations in place.
While utilities can produce renewable energy themselves, they also have the option to purchase renewable energy certificates (RECs) to satisfy these requirements and avoid penalties.
SRECs are a specific type of REC that utilities can acquire to fulfill their state's RPS, particularly when it includes solar carve-outs—requirements for a specific portion of renewable energy to be sourced from solar power.
Solar carve-outs are implemented in several states, and they enable solar energy producers to earn and sell SRECs in markets where utilities are seeking them to meet state-specific renewable energy targets.
U.S. States with Active SREC Markets
As of October 2022, the states that have established solar carve-outs and SREC (Solar Renewable Energy Credit) markets include:
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Illinois
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Ohio
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Pennsylvania
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Virginia
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District of Columbia
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Maryland
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Delaware
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New Jersey
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Massachusetts*
*Massachusetts transitioned to the SMART program in 2018, which replaced the previous SREC market.
Additionally, although Michigan, Indiana, Kentucky, and West Virginia do not have their own solar carve-outs and SREC markets, residents in eligible areas of these states can participate in and sell credits in Ohio's market.
Strategies for Selling Solar Renewable Energy Credits (SRECs)
SRECs are not commonly sold directly to utility companies; instead, they are usually traded through intermediaries like brokers. The two major brokers in the SREC market are SRECTrade and Sol Systems, which operate in a similar way to financial platforms like E*TRADE or Robinhood, facilitating transactions for renewable energy credits. Like stockbrokers, SREC brokers generally charge fees based on a percentage of the transaction value for their services.
To sell your SRECs on the market, you will need to create an account with a broker and register your solar power system. This process might require assistance from your installer or an inspector to ensure everything is properly documented and approved.
SREC prices
SREC prices are influenced by supply and demand dynamics in the market, similar to the fluctuations in stock prices. When there is a surplus of credits, prices typically decrease. Conversely, when there is a scarcity of credits, prices tend to increase.
For a 7 kW system producing 8.5 MWh of electricity annually (yielding 8.5 credits), the yearly SREC income could vary from $29.75 in Ohio to $3,145 in Massachusetts.
SREC market prices as of October 2022 are as follows:
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The prices of SRECs may vary according to market conditions. SRECTrade and Sol Systems did not provide specific market prices for Illinois at the time of writing.
The value of an SREC can also be influenced by how you decide to sell it. For instance, Sol Systems offers four contract choices for selling SRECs:
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Upfront: A one-time, lump-sum payment for projected production, usually over a 15-year period.
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Annuity: Regular, fixed payments, typically on 3-5 year terms.
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Profit Share: A guaranteed base price per credit with the opportunity for increased profits if the market improves.
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Brokerage: Selling SRECs quarterly at the best market rate available.
Choosing a lump-sum or fixed payment could mean missing out on potential future increases in SREC prices. Conversely, opting to sell quarterly via brokerage may result in receiving less if the market goes down.
Keep in mind that solar energy generally pays for itself over time. Any income from SRECs is an additional benefit on top of the savings achieved through solar energy use!
Emission Regulation Compliance Fees.
Another factor affecting SREC prices is the penalty utilities must pay for failing to meet the renewable energy targets in their renewable portfolio standard. These penalties, known as alternative compliance payments (ACPs), serve as a cap for SREC prices. In cases where the penalty cost is lower than the cost of complying with renewable energy goals, utilities may opt to pay the penalty instead of purchasing SRECs.
SREC Implications When Relocating
Typically, homeowners remain in a house for around 16 years, while solar panels often have a lifespan of 25 years or more. This means that homeowners may eventually find themselves parting with their solar system during the time they own the property. Fortunately, solar panels can increase the value of your home, particularly if you are in an SREC (Solar Renewable Energy Certificate) market, which can enhance this effect even further.
In most transactions, both the solar system and the credit rights are transferred with the sale of the home, providing an additional source of income that can serve as leverage during negotiations. In some cases, however, you might have the option to retain your SREC rights and continue selling credits even after you have sold the house and moved.
For personalized advice regarding SRECs when selling your home, it’s advisable to consult a real estate professional who is familiar with this market.
SREC Frequently asked questions
The market value of SRECs can vary over time, but at the current rates, an average solar energy system that generates 7,000 kWh annually could yield earnings exceeding $400 per year.
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What does SREC mean?
Solar Renewable Energy Credits (SRECs) represent one megawatt-hour (1,000 kWh) of solar power generated. These credits can be sold on specific markets, providing an additional income source for solar producers. SRECs are a type of renewable energy credit (REC) that utilities can purchase to comply with state mandates for renewable energy sourcing.
Certain states, primarily in the northeast of the United States, have specific requirements that a portion of energy production comes from solar power (known as a solar carve-out). These states often have active SREC markets, allowing homeowners with solar installations to sell credits they earn from their solar energy production.
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SREC Market Value: How Much is an SREC Worth?
SREC prices are influenced by supply and demand dynamics and can vary widely across different markets, ranging from $3.50 to $370 per credit. Prices are limited by the penalties faced by utilities that fail to meet renewable energy targets, known as alternative compliance payments (ACP).
The value of an SREC can also vary depending on how it's sold. Some solar energy producers may opt for a lump-sum payment covering 15 years of projected production, while others may prefer to sell their credits quarterly at the prevailing market rate.
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How to Market and Sell Your Solar Renewable Energy Certificates (SRECs)
Similar to stocks, SRECs are primarily traded through specialized brokers such as SRECTrade and SolSystems. To generate and sell these credits, you may need to create an account and register your solar system with the appropriate governing bodies.