What is an SREC?
DC (and many states) issue certificates known as solar renewable energy credits (SRECs) to owners of solar systems linked into the electricity grid. SRECs are the “green/clean” value of your solar electricity. . Each SREC represents the production of one megawatt-hour (1,000 kWh) of solar electricity. The value of the SREC’s you produce varies over time depending on how many SRECs Pepco need to buy to meet it’s annual solar obligations under DC law. If there are a lot of SRECs available—because a lot of solar was installed that year—the price of the SRECs may go down. If there is a shortage of SRECs then the price will increase until it reaches a the ceiling created by DC’s Alternative Compliance Price.
Check out this video by 1 Block Off the Grid to better understand what an SREC is.
For the home or business that wants to install solar—the most important thing is that SRECS are the primary financial incentive in the DC market to get more solar on the grid. They can subsidize up to about one third the cost of going solar.
Why are SRECs valuable and how much are they worth?
SRECs can provide a reliable and significant source of financing for your solar energy system. SRECs are valuable to owners of solar installations because DC law requires electricity suppliers to procure a certain amount of these SRECs each year. This helps ensure that a portion of electricity being supplied to the District is supplied by clean renewable energy. Electricity suppliers buy SRECs from solar energy system owners or can install solar power themselves.
The price of an SREC varies depending on a number of factors, including:
- The number of SRECs required to be purchased by electricity providers by DC law
The DC government requires that Pepco procure a certain amount of its electricity from renewable sources. This is outline 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. This table breaks down the RPS’s solar requirement by year.
- The financial penalty to electricity providers for failure to produce or purchase the prescribed SRECs
This graph shows DC’s Alternative Compliance Payment (ACP), which is the amount that the DC government fines utilities for failing to meet the Renewable Portfolio Standards (RPS). The SREC price will always be lower than the ACP price, because if the price of an SREC goes above the price of the fine, the utility will simply pay the fine rather than buying SRECs. This ACP prices are set by DC law.
The supply and demand of SRECs also determine their value. The supply is proportional to the number and size of solar systems in DC, while the demand is proportional to the RPS requirements. Given the low supply of SRECs in DC and the high demand for them from utility companies, SRECs are currently trading near the ACP price. Over time, however, ACP prices are set to decrease. This is done to help stimulate solar prices to decrease more quickly.
- The length and the type of the SREC contract between the owner of the solar system and the SREC aggregator or market representative
When you produce SRECs with your solar system you have a number of options for selling them. You can register your SRECs yourself and trade them on the spot market. Or, you can sign a contract with an SREC aggregator for a set period of time, usually 3, 5, or 10 years. The aggregator will sell your SRECs for you and take a small portion of the proceeds. For more information on SRECs and the current price of SRECs in the DC market, we recommend visiting Sol Systems’ website. They have great resources for understanding SRECs and the SREC market. More information on this is also available below.
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. You can get a more precise measurement of output by using the online program PV Watts, which is available online here.
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.
What are my options for selling SRECs?
There are various motives and strategies for selling SRECs; here we only consider optimizing their value. Some folks prefer not to sell them at all. The reason for this is that by not selling SRECs you are keeping the green value of the electricity for yourself, not selling it. If for example you want to have a zero carbon home, you should not sell your SRECS. Most folks, however, want to use the SREC income to help pay for the solar installation. Shop around to learn what brokers/installers/traders will offer. There are typically a number of options that yield different values for your SRECs and different degrees of risk. They offer:
- A fixed payment per SREC for a multi year term- This option provides a hedge against SREC market volatility by providing you with reliable, quarterly payments year after year; or 3 year and 5 year options.
- An upfront, lump-sum payment for your SRECs – This option provides immediate financing for your system and eliminates all market risk of fluctuating SREC prices. The total lifetime return for your SRECs will probably be considerably less; however it will make a significant impact on your out of pocket costs to install your solar system.
- A variable payment for each SREC produced – This option allows you to benefit from the risk-reward of the SREC spot market with no effort required. There is typically a 1-year commitment term.
How do I sell my SRECs?
The first step is to determine what you’re entitled to. You can either figure this out for yourself, or team with a third-party aggregator or broker to do it. It’s not hard to do yourself, but requires that you complete and file a mess of paperwork (see below). Your first step, if you desire to optimize the value of your SRECs, is to get estimates of who will pay you the most for them so you can decide whether to register your system yourself, or have your broker do it for you. Because a broker will register your system with the understanding that they will be contracting with you for your SRECs, the only reasons to do it yourself are because you fancy the paperwork or you want to bid your SRECs out on the market yourself. There are a variety of options available to you.
- Your installer will work with a third-party aggregator (e.g. Sol Systems) to get you registered and on a contract that gives you either an upfront payment or quarterly payments.
- Some installers (e.g. Solar Solution, LLC, and Astrum Solar) will buy your SRECs directly. Most other installers have a relationship with a broker or can advise you what your options are.
- You can access the PJM market through an online trading site (e.g. SREC Trade) to sell at market rate.
How about if I do decide to register my system myself?
Most people let their installer do this for them. However, if you want to do it your self you should register your system with the DC Public Utility Commission (PSC). There are 2 forms that need to be filled out and notarized and submitted to DCPSC. The forms are simple to fill out and require basic information regarding your solar PV array such as size of system, location and tilt and can be done by most customers without help. 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. With the PSC certification number you can register your system on the Generation Attribute Tracking System (“GATS”) administered by PJM. Once you enter the website, you need to register your system with the certification number that you have from DCPSC (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.
Below are links to SREC brokers/aggregators that are looking to buy or market your SRECs. http://www.srectrade.com/index.php
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.