If you have been researching home solar energy systems, you may have come across the term “Solar Renewable Energy Credits”; otherwise known as REC or SRECs. Although the concept may seem complex, SRECs are a huge part of the solar industry and are an additional element in making home solar energy systems affordable. But what are they exactly?
SRECs are tradable credits that are a representation of the clean energy your solar energy system creates. For every 1000 kilowatt-hours (kWh) of solar energy your system produces, you create one SREC. The actual value of that SREC fluctuates with supply and demand, similar to stocks on the stock exchange. SRECs are a separate financial benefit to net-metering and should not be confused. While net-metering involves selling the solar energy you generate into the grid; SRECs are created to recognize the clean energy benefits that your solar energy system creates.
Why do SRECs exist?
The government has imposed a law which requires utility companies to source a certain amount of their electricity via renewable sources such as solar energy. This law is called the Renewable Portfolio Standard (RPS). The RPS also allows utility companies to purchase SRECs as an alternative to generating renewable energy themselves.
To meet RPS targets, utility companies must either build solar or wind farms to produce the required SRECs or purchase SRECs from other sources; like you! If the utility company fails to meet their obligations under the RPS by generating or purchasing sufficient SRECs, they are liable to pay hefty non-compliance penalties.
What are my SRECs worth?
The value of SRECs varies from state to state and fluctuates on a regular basis. Like many commodities, supply and demand will increase or decrease an SRECs value. If the RPS non-compliance fines are high and supply of SRECs is low, the value of your SRECs increases; and vice versa when supply is high, and penalties are low.
The local state governments are responsible for deciding the value of the RPS non-compliance penalties. Due to this, it has some control over the SREC market, creating a ceiling for the value of an SREC. The value of SRECs will never be worth more than the fine imposed for RPS non-compliance. If the fine a utility company is liable to pay is lower than an SREC value, there is no incentive to comply with the RPS targets. As as a result, if the non-compliance penalty is $50 per megawatt-hour (mWh), then the value of an SREC will never be more than $50 each.
How many SRECs will my system produce?
If you are trying to work out the return on investment (ROI) on your solar energy system, it is an important factor to consider how SRECs can potentially reduce your ROI times. It is possible to estimate how many SRECs your solar energy system will produce annually.
To calculate your system’s potential SREC production, you simply multiply your system size by 1.2. There are other factors (such as shading and panel direction) which may impact on this calculation slightly. However, on average a 5kw system, for example, will produce approximately six SRECs per year.
How do I get my SREC benefit?
Once your solar energy system has produced its first megawatt-hour, how do you cash in your SREC? Firstly, you should check whether your state participates in an SREC trading program. At this stage, not all states participate or have high local demand. It may be worth holding onto your SRECs in the short term if they hold a lower value or local policy regarding SRECs improves in your favor.
Don’t sit on your SRECs for too long though. If your utility company has met its SREC quota for the year your SREC was generated, its value will reduce significantly. Like shares, it is all about timing and watching the market!
Utility companies will rarely buy SRECs directly from individual homeowners and choose instead to buy SRECs in bulk. They primarily deal with large developers to keep their administrative costs down. It makes sense for homeowners to link in with an aggregator like SRECTrade who sell SRECs on a large scale. For a small fee, companies such as this will set up an account for you and handle the whole sales process, from submitting certification applications, creating a tracking account and selling your SRECs via their auction process.
Another reason to go solar!
Depending on your state’s SREC program, you have the potential to decrease your ROI quite significantly. You are being rewarded for the positive environmental qualities of your solar energy system. This program is in addition to your net-metering! SRECs are another great financial incentive to install a solar energy system on your home.
Contact us at OneClickSolar.com today and ask us about the SREC program in your state and how we can set you up for a cleaner, greener future today!