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. In this article, we aim to answer the simple question: “how do SRECs work?”
What are SRECs?
The first step to understanding how SRECs work is learning about renewable portfolio standards (RPS). RPS are the policies that give rise to SRECs and SREC markets. They require utilities to provide a specific percentage of their electricity generated from renewable sources. In New Jersey, for example, retail electricity providers must provide at least 50 percent of their electricity from renewable sources by the end of 2030. 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 their own.
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 mandates. A typical size for a home solar panel system is 6 kilowatts (KW), which will produce about six to eight Megawatt hours (MWh) of electricity per year. This means that the typical homeowner who installs solar panels will earn about six to eight SRECs per year.
How to profit from solar panels by selling SRECs
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 $15 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 a ceiling on SREC prices.
Alternative compliance payments (ACP) by state in 2019
|State||ACP in 2019|
SRECs are excellent for encouraging homeowners and businesses to install solar, because they can drastically improve the profits and 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 gains the opportunity to earn $1000 per year on top of the savings he or she already will receive from switching to solar. Selling SRECs may not make homeowners a fortune, but they can significantly increase the benefits of going solar.
Where are SRECs available?
Not every state has a renewable portfolio standard, and even those that do may not have solar carve out. Below is a list of states with active SREC markets:
- District of Columbia
- New Jersey
Note: Massachusetts stopped accepting new system owners into their SREC program in late 2018.
See how much you can save with SRECs in your state
The amount you can earn by selling SRECs depends on your state’s respective SREC market and how much electricity your solar panel system generates. By joining the EnergySage Solar Marketplace, you can receive up to seven solar quotes to compare side-by-side. If you’re in a state with SRECs, these quotes will automatically calculate your potential benefit based on market prices and the production estimate of the proposed solar panel system.