What is an SREC & how can I get the best SREC prices in 2020
As climate change continues to pummel the US, we’re more aware than ever of the need to switch to renewable resources like solar energy. Many state governments have created excellent solar incentive programs to promote the switch to clean energy. Among these solar incentives are SRECs.
Although SRECs can be one of the most difficult solar incentives to understand, they have the potential to put a lot of extra cash into your pockets.
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What is an SREC?
Solar Renewable Energy Credits, also referred to as SRECs are ‘certificates’ that show how much electricity a solar system produces. One SREC is earned for every megawatt-hour (or 1,000 kilowatt-hours) of electricity a solar panel system generates. The price of SRECs varies between different states, and can reach prices of over $400!
SRECs exist because of state regulations known as Renewable Portfolio Standards (RPS). An RPS requires electric companies to generate a portion of their electrical power from a renewable energy resource. A total of 38 states (and Washington DC) have an RPS in place.
How do Renewable Portfolio Standards create the need for SRECs?
In some states, the RPS establishes carve-outs for specific kinds of renewable energy resources, meaning that a certain percentage of their renewable energy must come from a particular renewable source, like solar. When states have a solar carve-out, they create a need for SRECs.
Utilities that do not produce enough renewable energy on their own in order to meet their RPS requirements can purchase SRECs to reach their target. To do this, utilities pay homeowners for the SRECs that their solar system produced. The homeowner still uses the energy their system produces and enjoys all of the benefits of solar, all while getting paid extra for it.
SRECs are sold independently from electricity. So, not only can a homeowner earn money from selling SRECs, they can receive net metering credits for the energy their system produces, as well. In most areas, solar installers will register your system for SRECs for you, so you don’t have to worry about it. All you have to do is collect the money!
How much are SRECs worth?
The value of an SREC, like a stock, is tradeable, and it fluctuates according to the supply and demand of SRECs in a state’s market. So what exactly are SRECs worth right now? SRECs are selling for anywhere between $5 and almost $500, depending on the state.
To find out how much SRECs are trading for in your state, check out SRECTrade.com.
To get the most from your solar system, selling SRECs for the highest price possible is essential. The maximum price an SREC sells for is determined by a state’s Alternative Compliance Payment (ACP).
How can an Alternative Compliance Payment affect SRECs?
An ACP is essentially a ‘fine’ against electricity suppliers. If a utility does not meet their RPS goal, they must pay ACPs. The value of ACPs is determined by each state’s utility commission, so the value varies from state to state.
Utilities will only purchase SRECs if they cost less than the ACP price. For example, the ACP in Washington D.C. is equal to $500. A utility could either pay the ACP price $500 per megawatt hour until they reach their RPS goal, or they can pay the SREC price of $440 per megawatt hour until they reach their goal.
Because the SREC price is below the ACP price, utilities will want to buy the SRECs to save them money. Utilities would not purchase an SREC if it was valued above the ACP price. Thus, the ACP price acts as a cap on the price of SRECs.
Why do SREC prices change?
The value of SRECs depends on market supply and demand and the value of the ACP, so it varies between locations. Prices also fluctuate throughout the year, based on factors that affect the demand for energy.
Some things that influence the price of SRECs include:
- Lower solar power generation in the winter
- Higher consumption of electricity
- Legislative changes impacting the solar energy market
SREC prices also tend to decrease year over year as more solar energy systems are installed. With more solar systems, there are more SRECs in the market, thereby lowering the SREC value.
SRECs increase your return on investment
States with healthy SREC markets will likely see a shorter return on investment for solar panels. For example, New Jersey’s SREC program allowed the payback period for a solar system to be just 3.5 years!
Washington D.C.’s payback period is even shorter, taking just two years and seven months to save as much as you paid for your solar system. That means D.C. solar homeowners will see a return on their investment in less than three years, and can enjoy free solar power for over 20 years!
These short payback periods are largely attributed to the high value of SRECs in these areas. However, there are many other great solar incentive programs throughout the country, such as net metering and the federal tax credit, which make going solar a smart investment.
Author: Catherine Lane | SolarReviews Blog Author
Catherine is a researcher and content specialist at SolarReviews. She has strong interests in issues related to climate and sustainability which led her to pursue a degree in environmental science at Ramapo College of New Jersey.