SRECs: understanding solar renewable energy credits
Last updated 12/10/2019
Of all the incentives for installing solar panel systems, solar renewable energy certificates (SRECs) are some of the most complicated to understand. However, SRECs can provide sizable income to owners of solar power systems that live in areas with SREC markets.
What is an SREC?
Solar Renewable Energy Certificates (SRECs) are a solar incentive that allows homeowners to sell certificates for energy to their utility. A homeowner earns one SREC for every 1000 kilowatt hours (kWhs) produced by their solar panel system. An SREC can be worth over $300 in certain states.
SRECs exist as a result of a regulation known as the renewable portfolio standard (RPS). Renewable portfolio standards are state laws that require utilities to produce a specific percentage of their electricity from renewable resources. Nearly 30 states and Washington, D.C. have an RPS, and eight states have a renewable portfolio goal.
To meet their RPS requirements, electricity providers must obtain renewable energy certificates (RECs), which 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 electricity themselves. Many renewable portfolio standards also have a solar carve-out, which requires that a minimum percentage of electricity sales in that state come specifically from solar power. In those cases, SRECs are used to account for solar electricity production.
SRECs are just like RECs, but specific to electricity that comes from solar panels. For every megawatt hour (MWh) of electricity that a solar energy system produces, a corresponding SREC is created. 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.
Not every state has an active SREC market, and the value of SRECs varies from year to year and from state to state. Talk to your solar installer to learn more about the specifics of the SREC market in your state, or use the Database of State Incentives for Renewables & Efficiency (DSIRE®) to conduct your own research about the financial incentives available to you.
How can I make money with SRECs?
Some states with solar carve-outs have established an SREC market to facilitate the sale of SRECs. When applicable, solar panel system owners can sell their SRECs through the SREC market to utilities that need to buy SRECs in order to meet their solar carve-out requirements.
A typical size for a solar panel system is five kilowatts (kW): this size system will produce about five to eight MWh of electricity per year, and one associated SREC for every MWh produced. SRECs can drastically improve the financial returns of installing solar panels.
The amount of money a solar panel owner will receive for his or her SREC varies by state, and can range from under $50 to over $300 per SREC. This price depends on market factors of supply and demand, as well as a state’s alternative compliance payment (ACP). The ACP is a per-MWh fine that electricity providers must pay if they don’t meet their SREC requirements, and serves as a ceiling on SREC prices – electricity providers will save money by buying SRECs, but only if the SRECs cost less than the ACP.
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.