Definition of Solar Renewable Energy Certificate (SREC)
The Solar Renewable Energy Certificate (SREC), is a performance-based solar incentive, issued by the U.S. Environmental Protection Agency (EPA). You earn one SREC for every 1,000 kilowatt-hour (1 MWh) of electricity that your solar energy system generates.
The Renewable Energy Standards (RES) is a state regulation requiring facilities to produce a percentage of their electricity from renewable resources, which gave birth to the SREC.
SRECs are individual certificates and can be passed from owner to owner once the electricity has been produced. It provides evidence of the origin and environmental attributes associated with one unit of solar-generated electricity.
How It Works
SRECs are part of a system to incentivize the use of solar power through RES.
The standard requires that an increasing percentage of electricity must come from renewable sources, such as wind or solar.
States, therefore, establish renewable-energy mandate policies, including requiring utilities to produce a certain amount of electricity from renewable sources.
Requirements
To qualify for SRECs, the solar energy system should be certified by a State Regulatory system and then registered with the registry authorized by the State to create and be eligible for SREC.
After this, depending on the State regulations passed, SREC can then be issued through estimated or actual meter readings.
SREC vs. REC
SREC is similar to Renewable Energy Credit (REC), wherein the former focuses on electricity generation from solar-generated electricity. However, RECs are created through renewable energy sources, not limited to solar.
RECs are generated by power generators but can also be purchased from third-party utilities. SRECs are created by renewable energy systems and then sold or traded to give incentives for developing solar energy systems.
Factors Affecting SREC
Several factors affect SREC's pricing, including supply and demand, as well as Alternative Compliance.
Supply and Demand
The price of SRECs largely depends on the supply and demand in your community. It is much like how stock markets operate.
The number of SRECs available (or demand) and the percentage required for compliance determine the price. SRECs oversupply would translate to lower costs while its undersupply results in higher prices.
Prices for SRECs are set by the market and not directly regulated. The EPA requires that electricity from new solar facilities be tracked separately from other renewable energy sources, such as wind or biomass.
Because SRECs can currently be sold for a profit, an oversupply of certificates creates a price drop to marginal costs.
Alternative Compliance Payment (ACP)
When utility companies do not meet the target for solar carve-out set in a specific state, they pay for Alternative Compliance.
The State is the one that sets the values of ACP, which in turn affects the price of the SREC.
The EPA allows utilities to pay the ACP instead of SRECs. The ACP is a per-watt fee, which means that more efficient systems earn a premium on their SRECs.
States with SREC Markets
Both RES laws and solar-carve outs are state-specific policies. This means that SRECs are not available in every state. Here is a list of states with SREC markets:
Pros and Cons of SREC
SRECs have been credited with reducing the cost of solar installations and creating jobs in the renewable energy sector.
The main benefit of SREC markets is that they create a financial incentive for developers to build more solar projects.
Since SRECs represent real-world certificates or rights to generate solar electricity, they can be used as collateral for loans or bundled together with other securities.
On the downside, SRECs can be complicated and bureaucratic. The market price for SRECs also varies a lot, so it can be hard to predict revenue from a solar energy system.
The Bottomline
SREC markets provide a financial incentive for developers to build more solar projects and can create jobs in the renewable energy sector.
However, SRECs are complicated, and their market price varies greatly, so it can be hard to predict revenue from a solar system.
FAQs
1. What is an SREC?
An SREC (Solar Renewable Energy Certificate) is a certificate or right to generate solar electricity. SRECs, just like RECs, can be bought and sold.
2. What states have SREC Market?
At this time, the only states with active SREC markets are Washington DC, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, and Ohio.
3. How do SRECs work?
SRECs work like RECs – they represent the right to generate solar electricity. SRECs, just like RECs, can be bought and sold to transfer the right to count solar electricity.
4. How is the price of an SREC determined?
The market determines the price of an SREC. The number of SRECs available (or demand) and the percentage required for compliance determines the price.
