Solar Renewable Energy Certificates: Key Points
In select states, homeowners who install solar are awarded Solar Renewable Energy Certificates (SRECs) for the energy they generate.
These credits can be sold for a profit through SREC marketplaces.
Utility companies buy SRECs to comply with local regulations which require a certain portion of their electricity to be generated from renewable sources.
What is an SREC?
An SREC is a Solar Renewable Energy Certificate. In states that participate in the program, anyone who installs solar begins to generate SRECs for the solar energy they generate, which they can sell through a local marketplace.
One SREC is equivalent to 1,000 kilowatt-hours (kWh) of energy generated. To give you a frame of reference, the average American home uses 914 kWh per month, which would generate about 11 SRECs per year if powered by solar.
Who buys SRECs?
Utility companies looking to comply with renewable energy regulations.
In some states, the utility is required to generate a certain portion of their electricity from renewable energy sources. This quota is outlined under the state’s Renewable Portfolio Standards (RPS).
The RPS outlines the quota for all RECs (renewable energy credits), which cover energy generated from any renewable source, like solar, wind, hydro, biomass, geothermal, etc.
It also specifies a “solar carve-out” which dictates how much of that quota must come from solar.
Utility companies don’t need to generate that renewable energy in-house. Instead, they can choose to buy SRECs from a third-party solar owner to satisfy the solar carve-out. The certificate allows them to count the solar energy generated from that system toward their RPS quota.
SRECs are bought and sold in local SREC marketplaces where these programs are in place.
How much are SRECs worth?
Anywhere from $5 to $450 apiece. The value varies dramatically with supply and demand in your state.
For example, Ohio’s marketplace is oversaturated due to a program that accepts SRECs from systems in 6 states (OH, PA, MI, IN, KY, and WV). With bids bottoming out at $5, it’s hardly worth participating at all.
But it’s a much brighter picture in other areas. SREC prices in Washington DC topped out at $450 in 2019, and the established Massachusetts market has stabilized right around $380 over the past 12 months.
Someone who lives in MA and owns a 7 kW solar system (enough to power the average home) would generate around 11 SRECs per year. At $380 apiece, they would earn a total of $4,180 per year by selling their credits.
That plays a major part in accelerating the owner’s payback period for their system.
Given that a 7 kW system costs around $12-14k right now (or up to $25k if you have it professionally installed), the SRECs alone would pay for their system in around 3-6 years. That doesn’t even count the money they’ll save by lowering their monthly electric bill.
The upper limit of SREC prices is determined by the state’s solar alternative compliance payment (ACP) outlined in its RPS regulations. The ACP is a fine imposed on utility companies that don’t meet their renewable energy requirements.
The ACP sets a hard limit on the value of an SREC. If the price of an SREC ever climbs above the ACP threshold, utility companies will just pay the fine instead.
The ROI of Solar
Even in states without SREC programs, solar is a sound financial investment for most homeowners. Grid-tie systems typically pay for themselves in less than 10 years. Given that panels are warrantied for 25+ years, that leaves plenty of time to profit off of your investment into solar. If you live in a state with an SREC program, that just sweetens the deal.