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SRECs: understanding solar renewable energy credits

Of all the incentives for installing solar panel systems, solar renewable energy certificates (SRECs) are some of the most beneficial, yet most complicated to understand. However, SRECs can provide sizable income to owners of solar power systems that live in eligible markets.

Key takeaways

  1. An SREC is a financial instrument issued at the state level which allows you to earn money for the electricity generated by your solar panels.

  2. You can earn 1 SREC for every MWh of electricity you generate

  3. SRECs can be bought and sold to transfer the right to count solar electricity.

  4. Washington D.C. has some of the best annual earning rates in the U.S.

What’s in this article?

What is an SREC?

Solar renewable energy certificates (SRECs) are a performance-based solar incentive that allow you to earn additional income from solar electricity generation. As a homeowner, you can earn one SREC for every megawatt hour (MWh), or 1,000 kilowatt hours (kWhs), of electricity your solar panel system generates.

SRECs exist because of state regulations known as renewable portfolio standards (RPS), which require utilities to produce a specific percentage of their electricity from renewable resources. To meet these requirements, utilities purchase renewable energy certificates (RECs) (also known as renewable energy credits): these certificates serve as proof that they have either produced renewable electricity themselves, or paid someone who is producing renewable electricity for the right to “count” that green electricity as their own generation.

SRECs and RECs: what’s the difference?

We’ve now thrown two very similar acronyms at you – why the distinction? Like the square-is-a-rectangle logic, SRECs are a type of REC, but specific to electricity that comes from solar technologies. The accounting is the same (i.e. one megawatt-hour of solar produces one REC, or one SREC), and just as RECs are bought and sold to transfer the right to count renewable electricity, SRECs can be bought and sold to transfer the right to count solar electricity.

But SREC markets–used to facilitate the sale of solar certificates–only exist in states with a solar carve-out. Like the name suggests, this policy mechanism “carves out” a set portion of a state’s renewable portfolio standard for solar technologies, and mandates that a set amount of electricity generation needs to be met by just solar energy.

Because both RPS laws and solar carve-outs are state-specific policies, SRECs are not available in every state – in fact, they’re not available in most states. While about 30 states have adopted an RPS, fewer than 10 have a solar carve-out and active SREC market.

Buying and selling SRECs

Some states with solar carve-outs have established an SREC market to facilitate the sale of SRECs. Most often, if you live in a state with an SREC market, you won’t sell your certificates to utilities directly; instead, you’d work with an aggregator or broker (like SRECTrade or SolSystems) to monetize your SRECs.

The value of an SREC varies from state to state, and primarily depends on these factors:

Supply and demand

Like other financial instruments, supply and demand determine the value of SRECs. Buying and selling SRECs is a lot like playing the stock market – and like with stocks, the price of an SREC changes over time depending on the supply and demand in your state’s market. An oversupply of SRECs leads to lower prices, while an undersupply results in higher-value SRECs.

Alternative compliance payment (ACP)

So we’ve established that utilities have to buy RECs or SRECs to meet goals determined by a renewable portfolio standard – but how do states enforce that mandate? Enter alternative compliance payments (ACPs): these are payments that utility companies have to make if they don’t meet the specific renewable–or in the case of a solar carve-out, solar–goals set by the state.

ACP values are set by the state, and help drive the price at which an SREC sells for. Think of an ACP as a cap on SREC prices: utilities don’t have an incentive to buy SRECs at a higher price than the ACP – they would just pay the ACP penalty price instead.

How much can I earn by selling SRECs?

A 10 kilowatt (kW) solar panel system will produce about 10 to 13 MWh of electricity per year on average, therefore earning you 10 to 13 SRECs annually. As we show in the table below, this can drastically improve the financial return of solar in some areas (i.e. D.C.), and mean less than $200 in savings in others. StateSREC Price*Annual Earnings** Pennsylvania$42$420 - $546 Maryland$59$590 - $767 D.C.$300$3,000 - $3,900 Virginia$40$400 - $520 Ohio$4$40 - $52

*SREC price based on Aug. 2022 selling values **Annual earnings assumes 10 – 13 certificates per year

What happens to SRECs if I move?

If you sell your solar home while there is an active SREC market in your state, you may be able to retain the rights to sell your system’s SRECs even after moving. That being said, it’s most common to transfer the rights to the SRECs to the new homebuyer and new owner of the solar panel system. Many homeowners use this as a negotiating tactic when trying to sell their property for more money.

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