This morning I was speaking with a homeowner in western Massachusetts who had recently taken the plunge and invested in solar energy. Solar Renewable Energy Credits (SRECs) were on his mind. Specifically, he wanted information that would help him come to an informed and clear valuation of the SRECs generated by his system.
Due to the complexities of SREC markets in general and the peculiarities specific to Massachusetts, this homeowner’s interest in understanding how to value his SRECs is a refrain we at Sol Systems are hearing regularly.
Many homeowners are looking to understand the basic framework of the market; and in our mission to provide the resources to make solar simple for homeowners, we have prepared a summary of the major characteristics of the MA SREC market.. This summary will provide information geared specifically for residential system owners so they can make informed decisions on the monetization and valuation of their SRECs.
To begin, SRECs in Massachusetts are used by regulated energy suppliers and utilities to comply with the solar carve-out of the Massachusetts Renewable Portfolio Standard (RPS). For example, if NStar puts under contract 10 million megawatts hours of electricity in 2011 for delivery in 2011, and the solar carve-out for 2011 is set by the Massachusetts Department of Energy Resources at 0.10%, then NStar must purchase 10,000 SRECs (10 million MWH * 0.10%). In the event that NStar does not purchase sufficient SRECs to meet their compliance obligation, they are obligated to pay a penalty of $600.00 for each megawatt hour (1 SREC = 1 MWH of solar). The $600.00 penalty is defined as the Alternative Compliance Penalty (ACP), and this penalty effectively sets a cap on SREC values in Massachusetts.
Homeowners are eligible to sell their SRECs in a variety of ways. One option is to place the SRECs posted to their NEPOOL GIS account into the Clearing House Auction (NEPOOL GIS is a regulatory body that tracks each generator’s production, and mints SRECs to reflect the production). The MA Clearinghouse Auction is an online state-sponsored program that allows homeowners to deposit SRECs into an account in order to auction the SRECs at a fixed price of $300.00, minus a 5% administration fee (i.e. fixed price of $285.00). The Auction occurs once a year, no later than July 31. While the Clearinghouse attempts to create a price floor of $285 for the SRECs, there is no guarantee the SRECs will be purchased.
In the event a homeowner is interested in other options, the MA Department of Energy and Resources has compiled a webpage of market resources. The market resources lists companies, like Sol Systems that can assist homeowners in monetizing their SRECs.
Sol Systems offers customers in Massachusetts a variety of services that can meet their risk and reward profile, while also providing clarity on how to value their SRECs. For those interested in security, Sol Systems can offer a lump sum upfront payment for the sale of the rights to their SRECs. Or, for those interested in the most competitive pricing but little long-term security, Sol Systems can offer a 1-year brokerage service. Depending on the size of your system, the brokerage fee may be waived as well. Or, for those interested in a moderate valuation, Sol Systems also offers a utility-backed 3-year fixed price contract of $400.00 per SREC.
Sometimes homeowners express an interest in negotiating an SREC transaction directly with a regulated entity, and when I speak with people interested in doing this, they often recite their interest in “cutting out the middle man”. While this point of view might be valid (and possible) in some industries, it can lead to loss of value in the SREC space (in any case, most energy suppliers are not willing to negotiate with small system owners). On the other hand, established SREC aggregators (like Sol Systems) who represent thousands of customers can leverage their position with an energy supplier to secure more competitive pricing than would have otherwise been garnered through a one-off transaction between a very large entity and a homeowner with a small number of SRECs for sale.