Solar Renewable Energy Credits

Solar Renewable Energy Credits, or SRECs, can be the most confusing part of the going solar. Nevertheless they are vitally important to understand because they will be worth a significant amount of money over the life of your system.

How you handle your SRECs depends on your individual financial needs and risk tolerance, so everyone approaches SRECs differently.

What is an SREC?

An SREC represents the “green” value of your electricity.

SRECs are separate from the physical electricity that your solar panels produce. Think of them like a “voucher” that proves that the electricity from your solar panels is renewable.

You get one SREC for every 1,000 kWh of electricity produced by a solar system.

These SREC “vouchers” are valuable because many utilities are required to purchase a certain number of them each year in order to meet sustainability requirements.

This video does a good job of further explaining how SRECs work.

Why do we have SRECs?

Many states have developed Renewable Energy Portfolio Standards (RPS). These laws require utilities to get a certain portion of their electricity from renewable energy. Rather than meeting this requirement by building their own solar projects, utilities can buy solar renewable energy credits (SRECs) on an open SREC market. The utilities can use these purchased credits to fulfill these requirements. Once you’ve installed solar, you can sell the SRECs you generate into this market.

How much are SRECs worth?

Because SRECs are bought and sold on an open market, there are a number of factors that influence their price. The most important thing to remember is that SREC prices are determined by supply and demand. The more demand for SRECs there is from utilities, the higher the price. On the flip side, the more SRECs that are supplied to the market from solar projects, the lower the price.

It’s important to remember that the SREC market can change at any time and the price changes depending on the supply of SRECs. SRECs are high now, but you can’t be sure they will stay that way. Think of the SREC market like the stock market—it can change.

How many SRECs will my system produce?

Once it has been certified and registered, your system will produce one SREC every time it produces a megawatt-hour (1,000 kWh) of electricity. As a rule of thumb, you can estimate the number of SRECs a system will produce by multiplying the size of the system by 1.2. For example, a 5-kilowatt system will produce approximately 6 SRECs each year.

How do I sell my SRECs?

Once your system is complete, your installer should register it with the Public Service Commission. If they don’t register it for you, ask an SREC company or register it yourself. Once the approval has been given, you will receive an email and a hard copy of your approval in the mail.

PJM manages the electric grid for all or part of 13 states and the District of Columbia.

Your installer can then help you use the certification number you receive to register your system on the Generation Attribute Tracking System (“GATS”) administered by PJM. PJM is a regional transmission organization that manages the electric grid for 13 states and the District of Columbia. Once you enter the website, you need to register your system with the certification number that you have from your utility commission and submit it to the GATS administrator. GATS should issue an approval in five to seven business days and your system will begin to generate credits.

Once you’re registered, you can sell your SRECs. The are three options for doing this. You can:

  1. Sell the rights to all of your system’s SRECs upfront for a cash payment.
  2. Sell your SRECs via a contract for a set period of time, usually three, five, or ten years.
  3. Register your SRECs yourself and trade them on the spot market (like trading stocks on the stock market).

Let’s break down the benefits and drawbacks of each approach.

Upfront Payment
You sell the rights to all of the SRECs that will ever be produced by your system. You get a single, lump sum payment upfront. After that you receive no money for SRECs for the lifetime of your system.

Pros

  • You can use the upfront payment to reduce the out-of-pocket cost of your solar system. If you don’t have a lot of money set aside for solar, the upfront payment is a good way to make a system affordable.
  • You eliminate all market risk of future SREC price fluctuations. You know exactly how much you will get from your SRECs and can calculate exactly how long it will take to pay off your solar system.

Cons

  • The total lifetime return for your SRECs will likely be considerably less than if you chose one of the other options. This is because the company that purchases your SRECs takes on all of the risk related to future SREC prices.

The best option if:

  • You don’t have the upfront cash to purchase a system outright (or don’t have the ability to borrow money at a low rate).
  • You don’t want to take on any risk related to future SRECs prices.
  • You don’t want to deal with SRECs in the future.

Where to get an upfront payment:

  • Many installers will do this for you and reduce the total cost of your system. Just ask them if this is an option.
SREC Contract
You sign a contract with an SREC aggregator for a set period of time, usually 3, 5, or 10 years. Every time your system produces an SREC, the aggregator issues you a check. They sell your SRECs for you and take a small portion of the proceeds.

Pros:

  • Allows you to lock in SREC prices for a set period of time, protecting you from future fluctuations in the market.
  • Lets you know how much you’ll be earning for your SREC over a period of time, so you can plan your finances accordingly.

Cons:

  • You don’t start earning SREC income until after you system is up and running, so it doesn’t help reduce the upfront cost of going solar.
  • The longer your contract (i.e. 10 years vs. 5 years) the less you earn per SREC. This is because the SREC aggregator is taking on more risk with a long-term contract and because the expectation is that SRECs will go down in value over time.

The best option if:

  • You are relying on SREC income to pay back the cost of your system and want to know exactly how much you will earn from SRECs over the length of your contract.
  • You want to avoid fluctuations in SREC by locking in a single price.
Spot Market
You sell your SRECs on the spot market as they are produced.

Pros:

  • You can maximize your potential earnings from SRECs by selling them when SREC prices are high.

Cons:

  • You take on more risk that future SREC prices will fall and you won’t earn as much income.
  • You manage your own SREC account and decide when to sell your SRECs on the spot market, which takes more time than a contract or upfront payment. (However, SRECTrade.com does allow for an automatic payment system, where it automatically sells your SRECs as your system produces them.)

Best option if:

  • You enjoy learning about the SREC market and want to follow it more closely in order to maximize your SREC income.
  • You are more risk-tolerant and willing to accept possible future fluctuations in the SREC market.

Where can I sell my SRECs?

Some installers will purchase your SRECs from you directly. You can also sell your SRECs yourself. The following are some commonly used companies. To get current prices for SRECs, give them a call:

NOTE: In our experience with homeowners and installers in the District, the companies above are most commonly used but there are other providers in the market. We make no recommendations as to which company you should use. For a full list of aggregators and brokers who service the District, check out this list on the PJM website.

How do SRECs work with a solar lease or PPA?

If you are considering a residential solar lease (rather than the purchase of a system) you should inquire as to who controls the SRECs. Typically, in lease deals, the solar company will typically keep the system’s SRECs. Solar leasing is effectively the same as a power purchase agreement (PPA); a term commonly used to describe an arrangement where one entity agrees to locate the system, and another agrees to install and maintain the system – and harvest the SREC and tax benefits – sharing the use of the electricity with the partner.

Are SRECs taxable?

There is not a clear consensus on whether SRECs are taxable, as there are many different views and no clear guidance from the IRS. Please consult your accountant.
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