What’s Better for a Homeowner: A Fixed Price Contract or a Brokerage Solution?

30 Jul 2014

SREC contracts

Our research has shown that customers with fixed price SREC contracts earn longer returns in the long run.

Since the birth of the first solar renewable energy credit (SREC) market, Sol Systems has distinguished itself from other SREC solution providers by offering customers the ability to lock into fixed price SREC contracts for a set amount of years. This provides customers with a guaranteed income stream for 3, 4, 5, or 10 years – and also mitigates the risk associated with volatile spot market, brokerage solutions.

Our fixed priced SREC contracts, also known as Sol Annuity, have allowed our installer network to build trust with their customer base by being able to guarantee a more predictable return on investment for homeowners. For example, a system owner may elect to sell SRECs to Sol Systems via a 5-year Sol Annuity contract for $175/SREC. This means that for the next five years, Sol Systems will purchase every SREC generated by that system for $175. If prices fall, customers are still guaranteed this fixed price.

Forward pricing can appear to be a raw deal, and pricing may seem low compared to current spot market values. That’s because the alternative compliance penalty (ACP), which acts as a price ceiling for SREC values, is set to decrease for each state’s renewable portfolio standard (RPS). The RPS is the legislation that creates the SREC markets through a solar carve-out.  For more information on the policy mechanisms that create state SREC markets, please visit our FAQ’s.

Sol Annuity fixed price contract offerings may at first be lower than current spot market pricing because a buyer (such as Sol Systems) is assuming risk by offering a forward contract, which must calculate the predicted values of future SRECs. The combination of a declining ACP, which acts as an SREC price ceiling, and the inherent risk that the SREC contract provider must take on, results in a number that many sellers feel is too low compared to spot market, brokerage solutions – at least when they initially install their system.

As SREC programs are designed for pricing to decline as solar becomes more competitive with other forms of energy, spot market pricing can and will fall. This means that many customers we speak to who initially start with us on a spot market solution later wish they had opted into an Annuity contract. For example, we still have some customers in Pennsylvania who locked into contracts at $300/SREC when spot market values were much higher; today spot market pricing is closer to $45.

Sol Annuity is actually a great deal. Our research shows that over time, Annuity contracts significantly outperform brokerage (SRECs sold opportunistically on the spot). Over the long-term, our Sol Annuity customers have consistently received higher payments for their SRECs than they would have received had they participated in a Brokerage contract. Moreover, Sol Systems is the only company willing to extend forward and prepay solutions to residential owners; many of our competitors reserve fixed price contracts only to larger commercial solar energy systems.

The following graph shows the average of quarterly prices received by our Sol Annuity customers compared to both our Sol Brokerage customers, and the benchmark auction prices from 2010 to the present.


As the above graph shows, customers who have selected any of Sol Systems’ long-term SREC solutions have enjoyed returns comparable to or better than the benchmark auction. Sol Systems offers a number of ways to monetize SRECs, all of which are competitive with or deliver superior returns to the spot market prices typically faced by sellers of SRECs. If you own SRECs and would like to discuss how Sol Systems can help you monetize them for the highest value, please contact us at 888-235-1538 x1 or info@solsystemscompany.com.

About Sol Systems

Sol Systems is a renewable energy finance firm that provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. Founded in 2008, Sol Systems focuses on meeting the industry’s most critical solar financing needs, including tax structured investments, capital placement, debt financing, and SREC portfolio management. To date, the company has facilitated financing for thousands of distributed generation solar projects and hundreds of millions in investment on behalf of Fortune 100 corporations, utilities, banks, family offices, and individuals. For more information, please visit www.solsystems.com.

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Eric Scheier

Eric Scheier