- What are Solar Renewable Energy Certificates (SRECs)?
- Why are SRECs valuable?
- What is an RPS?
- What is an ACP?
- Are RECs and SRECs paper certificates?
- How much are SRECs worth?
- How much will SRECs be worth in the future?
- What is SREC supply?
- What is SREC demand?
- Why do SREC prices vary from state to state?
- How do I start producing SRECs?
1. What are Solar Renewable Energy Certificates (SRECs)?
Renewable energy certificates, or RECs, are tradable commodities that represent the green attributes associated with energy generated from renewable energy resources, such as sunlight, wind, or water. One REC is generated every time one megawatt-hour (MWh) of clean, renewable electricity is produced.* Solar renewable energy certificates or “SRECs” are simply RECs generated from solar power.
*Please view the Massachusetts state page for more information on SREC factors.
2. Why are SRECs valuable?
RECs are valuable because some states have passed legislation requiring energy suppliers to provide a certain percentage of their electricity from renewable energy sources. This type of legislation is called a Renewable Portfolio Standard (RPS). Under certain types of renewable portfolio standard (RPS) legislation, energy suppliers must either produce a certain amount of solar electricity or purchase SRECs in order to avoid a fine.
3. What is an RPS?
A renewable portfolio standard (RPS) requires that energy suppliers in a certain state produce a proportion of their energy from renewable energy. To meet these RPS requirements, energy suppliers can (1) develop their own renewable energy facilities such as solar plants or wind farms to produce RECS, or (2) purchase RECs from others that own renewable energy facilities. Under certain renewable portfolio legislation, energy suppliers must secure a subset of energy from solar energy, often called a “solar carve-out”. Under the solar carve-out, a subset of the required renewable energy must come from solar systems. Because developing renewable energy facilities can be a costly and complicated endeavor, many utilities choose to purchase RECs from homeowners and businesses.
4. What is an ACP?
If a utility fails to meet a state’s RPS requirements by securing the necessary number of RECs, it must pay a penalty called an Alternative Compliance Payment (ACP). Certain states have RPS legislation that requires a subset of renewable energy be generated from solar energy (this is called a solar carve-out or set-aside). Generally, this is accomplished by establishing a higher ACP for solar energy than for other technologies so that energy suppliers are financially incentivized to purchase solar energy specifically. SRECs are often more valuable because of this higher ACP.
5. Are RECs and SRECs paper certificates?
No, RECS and SRECs are electronic certificates that receive a unique ID number. RECs and SRECs are monitored, counted, and stored on attribute tracking platforms such as PJM-GATS or NEPOOL-GIS (for Mass).
6. How much are SRECs worth?
The value of an SREC varies based on a number of factors. Some of the major factors include:
- Value of Alternative Compliance Payment (ACP)
- The number of qualified generators producing SRECs (SREC Supply)
- The legislated demand for SRECs (SREC Demand)
SREC prices tend to be high if ACP values are high, SREC supply is low, and SREC demand is high. The higher the demand for SRECs in a particular state, the more that state’s SRECs are worth. Alternatively, SREC values tend to be low if the ACP values are low, SREC supply is high and SREC demand is low. If there is little or no demand for SRECs in a particular state, the state’s SRECs will be worth less.
Because some states have an RPS with a higher alternative compliance payment (ACP) for utilities that do not meet their solar obligations (effectively a higher penalty fee), SRECs are often higher in value compared to wind RECs, biomass RECs, or other types of RECs.
7. How much will SRECs be worth in the future?
Future SREC values are difficult to determine since SRECs are a market commodity. SREC prices will depend in large part upon SREC supply, SREC demand, and the Alternative Compliance Payment (ACP).
Although SREC supply will increase as more solar systems come online, SREC demand is also legislated to increase in all states with an RPS. However, the ACP is set to drop in many states, which is meant to reflect a drop in the costs of solar technology.
One of the main benefits of signing up with Sol Systems is that we offer SREC financing solutions that remove the risk of fluctuating SREC values. For example, Sol Annuity provides a 5 year price guarantee, while Sol Upfront provides homeowners with immediate financing.
8. What is SREC supply?
The volume of SRECs supplied in a state is directly proportional to the size (and number) of solar systems registered in a state to produce SRECs. The more solar systems that are producing SRECs, the greater the supply, and the lower the SREC price in that state (all else being equal).
9. What is SREC demand?
The volume of SRECs demanded in a state is directly proportional to the overall RPS requirements for that particular state. This number is often legislated to increase on a year by year basis. If there is sufficient SREC supply to meet the legislated SREC demand, the value of SRECs will be low.
10. Why do SREC prices vary from state to state?
SREC prices vary state by state because states have different regulations that impact the value of SRECs. In states that enforce a Renewable Portfolio Standard (RPS) and a solar carve-out with an Alternative Compliance Payment (ACP), the value of SRECs tends to be highest. Customers may view our quarterly market SREC prices to gain a better understanding of spot market dynamics in each SREC state.
In some cases, SRECs produced in states that do not have an ACP or RPS may still have value if they can be sold across state borders.
11. How do I start producing SRECs?
After you register your system with Sol Systems through our company’s easy online tool, your installer will verify your system details. At this point, a contract will be sent to the provided email address. Once the signed contract is returned, we will proceed to register your solar energy system as a qualified renewable energy generator with the appropriate regulatory authorities. You can view the other additional required registration materials for your state on your Sol Systems owner dashboard.
Once this process is complete, we will certify your system with the relevant REC trading platform such as the PJM Generation Attributes Tracking System (PJM-GATS) or the NEPOOL Generation Information System (NEPOOL-GIS). These regional trading platforms track the energy generated by each system and award the appropriate number of RECs (in equivalence to the energy generated). Learn more about our SREC Services and contract options.