There are several incentives for people interested in going solar. Here is a rundown of federal tax credits, DC rebate, Solar Renewable Energy Credits (SRECs) and other incentives for solar producers.
With solar on your roof, some days you use more energy than you generate. Other days, you generate more energy than you use. Luckily, you’ll always get credit for the electricity that your solar panels produce, even if you’re not using the electricity at that moment. This process is called net metering and your solar system will reduce your electric bill each month in proportion to the amount of electricity your panels produce. We have put together further information about net metering.
Federal Tax Credit
The federal government offers a tax credit for 30% of the total cost of the system, with no maximum credit amount. This credit expires at the end of 2016 for residential systems, and it is set to step down to 10% for commercially-owned systems. We are not tax experts, so we cannot give you tax advice. Generally, the the installer will give you a receipt for the total cost of your system at end of your installation process. You can then give this receipt to your accountant and receive a tax credit of 30% off the total cost of the system. Please consult with a tax expert or your accountant. More information about federal incentives for solar is available here. This FAQ document from the IRS can also help with more obscure questions.
Solar Renewable Energy Credits (SRECs)
Before we dive into all of the ins and outs of SRECs, we want to acknowledge that SRECs can be the most confusing part of the whole solarization process. The reason we get into the details is because they are worth a lot of money, and we want you be able to get the most benefit out of your SRECs.
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 is a Solar Renewable Energy Credit and it 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 Pepco is 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 SRECs.
Why do we have SRECs?
In Washington, DC, the city council passed a law to establish a Renewable Energy Portfolio Standard (RPS). This law requires Pepco to get a certain portion of its electricity from renewable energy. Rather than meeting this requirement by building its own solar projects, Pepco buys solar renewable energy credits (SRECs) on an open SREC market. People who install solar in the District can sell their SRECs 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 Pepco, the higher the price. On the flip side, the more SRECs that are supplied to the market from solar projects in DC, the lower the price.
Pepco’s demand for SRECs is determined by DC law. The DC government requires that Pepco procure a certain amount of its electricity from renewable sources. This is outlined in the state’s Renewable Portfolio Standard (RPS). Within the DC RPS, there is a “solar carve out” that requires that a portion of the DC’s renewable energy comes from solar. In 2011 that requirement was 0.4% of total electricity generated. The requirement increases every year until 2021, when DC must have 2.50% of its total electricity generated in 2021 come from solar. This table breaks down the RPS solar requirement by year. It is expressed in megawatts (MW). One MW equals 1,000 kilowats.
To meet the “solar carve out,” Pepco must purchase SRECs from solar projects installed in DC. Because DC is relatively geographically small, and DC significantly increased the amount of local SRECs needed in 2011, currently the supply of SREC is much less than demand. The prices of SRECs in DC are therefore relatively high (at this point in time).
How high can DC’s SREC prices go? The graph bellows shows DC’s Alternative Compliance Payment (ACP), which is the amount that the DC government fines Pepco if they don’t meet the Renewable Portfolio Standard’s “solar carve out.” SREC prices will always be lower than the ACP price, no matter how high the demand for SRECs. This is because if the price of an SREC goes above the price of the fine, Pepco will simply pay the fine rather than buying SRECs.
Given high demand for SRECs from Pepco, SRECs are currently trading near the ACP price. Over time, however, ACP prices are set to decrease. SREC prices will therefore also fall over time.
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 10-kilowatt system will produce approximately 12 SRECs each year.
How do I sell my SRECs?
Once your system is complete your installer should register it with the DC Public Service Commission (PSC). Typically an application takes approximately 30 days for approval from the PSC. Once the approval has been given, you will receive an email and a hard copy of your approval in the mail.
Your installer can then help you use the PSC certification number 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 PSC (paperwork) and submit it to the GATS administrator. If approved, which takes typically 5 to 7 business days, GATS will issue an approval and your system will begin to generate credits.
Once you’re registered you can then sell your SRECs. You have a number of different options for doing this. You can:
- Sell the rights to all of your system’s SRECs upfront for a cash payment.
- Sell your SRECs via a contract for a set period of time, usually 3, 5, 0r 10 years.
- 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.
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.
- 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.
- 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.
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.
- 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.
- 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 SRECs. 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.
You sell your SRECs on the spot market as they are produced.
- You can maximize your potential earnings from SRECs by selling them when SREC prices are high.
- 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:
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 available in the District, but requires good credit. 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.
The District Department of the Environment previously offered a rebate program. The rebate is currently expired and the waitlist is no longer in effect (last updated 4/3/15).