What are SRECs?
If you’ve been researching the best solar energy incentives available in 2016, you have likely heard something about solar renewable energy credits (SRECs). SRECs are a tradable commodity that you obtain from owning a solar panel system and producing clean energy. 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. In six states and Washington D.C., the RPS specifies that a certain percentage of the renewable energy produced must come from solar power. States with this type of “solar carve out” are willing to pay significant amounts of money to take credit for the power generated by solar homeowners.
One renewable energy credit (REC) is equal to 1 megawatt hour of energy produced (1,000 kilowatt hours), which means that the average solar panel installation garners anywhere between three and seven SRECs in a given year. Depending on the price offered in your state, cashing in on your SRECs could be a yearly payoff of several thousand dollars. If you’re considering solar, you’re probably wondering: where are the best available SREC prices, and what causes those prices to fluctuate?
Why Do SREC Prices Change?
One important concept that can help you understand how SREC prices are determined is the alternative compliance payment (ACP), which can be understood as a fine given to utilities who do not meet the state’s Renewable Portfolio Standard targets. A state’s solar ACP, or SACP, has a determinant impact on the price of SRECs. The SACP effectively sets a price ceiling for SRECs – utilities will buy SRECs to meet their RPS requirements, but they won’t pay more for them than the fine would cost. Thus, some of the best markets for SRECs are those that have the highest ACPs and the steepest incentive for utilities to buy from solar homeowners.
Like other intangible commodities such as a share in publicly traded stock, SRECs are bought and sold online through an intermediary, often referred to as SREC aggregators. The top platforms for buying and selling SRECs are SREC Trade and Knollwood Energy. Some solar installers, financing companies, and other organizations will also purchase SRECs from you up front to reduce your out-of-pocket installation costs. For example, Delaware’s SREC market is now entirely run through it’s retail electricity behemoth Delmarva Power. The primary benefit of selling your SRECs through an installer or solar financier is that you reduce your risk in exchange for immediate returns. You will likely get a lower payout for an SREC when selling directly to an installer or financing company, but you will get the immediate cash without any uncertainty.
Similar to stock prices, SRECs that are sold through aggregators have volatile pricing and will fluctuate over time. Policy changes such as increases or decreases in a state’s RPS goal or changes to ACPs for utilities can have immediate and drastic impacts on SREC pricing in a specific market. In other words, a state can become a commodity market for SRECs, or an unattractive market, practically overnight. Thus, the pro of using an online aggregator is the potential for greater returns for your SRECs but the con is increased risk.
Top SREC Markets: NJ, MA and DC
If we use price as the key indicator, the best SREC markets in the U.S. for homeowners are Washington D.C., New Jersey and Massachusetts. To date, these are all the active SREC markets in the United States and the current and former prices for SRECs in each market:
Active U.S. REC Markets with Solar Carve Out Programs
|SREC Market||2016 Price||% Price Change Year Over Year|
|New Jersey||$200||↓ 45%|
As you can see from the data, the price of SRECs has fallen significantly in every market other than D.C. in the past year. This is to be expected as more solar power is installed in each of these states – it signals that there is a greater supply of SRECs in the market, which means that utilities are closer to reaching their RPS goals. Low prices can also indicate that the fines for not submitting RECs specifically for solar are unsubstantial. The other takeaway, however, is that the NJ, MA and D.C. SREC markets are still paying off major dividends for your PV credits and with prices likely to continue to fall, there is no better time to go solar than now.
It should be noted that for homeowners considering solar in states that have active SREC markets, you are only eligible to sell SRECs if you own your solar panels. Thus, if you choose to finance your PV system with a lease or power purchase agreement, you will not be eligible for this incentive that can net you $1,000 or more a year in top SREC states.
The typical solar homeowner in an SREC market like NJ, MA or DC is likely to see somewhere between $1,000 and $2,000 from SRECs on top of their federal ITC rebate, state rebate and net metering bill credits. To see what solar would cost you based on your roof and competing offers in your town, try our Solar Calculator. If you’re ready to start looking at real quotes from pre-screened local installers, register your property on the EnergySage Solar Marketplace.