Solar Renewable Energy Certificates (SREC) Explained

One of the questions that we get asked most often is “What are SRECs?”. This not too surprising, as SRECs are a very complex and complicated aspect of Solar Power. However, you should become familiar with them. Why? Because they can make you lots and lots of money!

Before we explain the ins and outs of SRECs, its important to note SRECs are different from the electricity that your solar system generates. Your solar-produced electricity offsets your consumption by directly powering your home, or spinning your meter backwards. SRECs are an additional incentive that you receive as a solar system owner, simply for producing clean power. Sound pretty good, right? So read on to learn how SRECs work, and how they can save you money.

Solar Renewable Energy Certificates

SRECs are a “credit” for the amount of clean solar energy that your solar panels produce. Utilities (such as PECO, PSE&G, etc) need a certain amount of these credits in order to comply with the State’s Renewable Energy Portfolio Standards (RPS). The RPS is set by each State, as a percentage of renewable energy that must be produced by the utility for that year. Instead of investing in Wind or Solar farms, they can buy SRECs from people like you. If they don’t produce or purchase enough SRECs that year, they will be fined. The fine is typically greater than the SREC value, therefore creating an incentive for utility companies to produce or purchase SRECs.

Every time your wonderful solar panels produce 1000kWh, it creates 1 SREC. For example, if you install a 3kW solar system, it will produce 4-5 SRECs per year. The SRECs are then sold through an Aggregator (similar to a stock broker), who buys them from you for around the market price at that time. The Aggregator then sells SRECs in bulk to utility companies.

The amount of money that SRECs can save you is state, time, and system-specific. The reason for this is because the value of a SREC varies from state-to-state. The value of a SREC in a particular state depends on the value at any given time due to supply-and-demand fluctuations. And lastly, the number of SRECs you can sell depends on the size of your system; the larger the system, the more SRECs you’ll produce. One of our knowledgable Renewable Energy Consultants can provide you with an estimate at any time – just ask!

Like most commodities, the price of SRECs is dependent on a little thing called supply-and-demand. The state estimates the supply of SRECs every year, based on a number of factors. If this estimated SREC quantity is exceeded (solar becomes more popular than the State anticipated), then there are more SRECs being produced than are needed by utility companies to comply with the State’s RPS. This causes the price of SRECs to decrease. However, most states increase their RPS each year, therefore increasing the demand for SRECs.

Each State manages its own Renewable Energy Portfolio, and as you guessed it, SRECs are a component of this portfolio. Certain states are more aggressive than others in pushing renewable energy, meaning that they require utility companies to produce more of their electricity from renewable resources, compared to less-aggressive states. In addition, the fine amounts for not producing or purchasing SRECs also vary from state-to-state; a state with a low fine amount will typically have lower SREC prices.

Want to know exactly how much SRECs can save you? Talk to us today.