WHAT ARE THEY?
Solar Renewable Energy Credits (SRECs) are a substantial portion of the incentives helping to finance most solar systems today. These SRECs are tradable credits that represent all of the clean energy benefits of electricity or thermal energy generated from a qualifying solar energy system. Each time a solar system generates 1,000 kWh (1MWh) of electricity (or thermal equivalent), an SREC is issued which can then be sold or traded. It should be made clear that this SREC transaction is completely independent of the $ savings generated by using free solar power instead of traditional power.
What are SRECs worth to me? How do they affect my return on investment?
SREC RETURN ON INVESTMENT
Depending on the method you choose to contract for the sale of your SRECs, you can reduce the cost of your solar system anywhere from 20 – 40%, just from SREC revenue. We’ll show you in both a spreadsheet and a graph how this revenue will affect your payback period.
How are SRECs valued and sold? Who buys them?
SRECs for most systems are sold to aggregators who contract directly with the solar system owners to purchase their SRECs in one of various ways. These aggregators then in turn sell large blocks of SRECs to the power companies to allow them to meet their solar compliance obligations. Since the power companies are large entities they cannot effectively buy small quantities of SRECs from system owners, so they utilize these SREC aggregators to source many of their required SRECs. The aggregators “make a market” for these tradable commodities, allowing system owners like you to consider various forms of SREC compensation depending on your risk tolerance. Because the supply and the demand for SRECs will vary over time, the market price of these incentives will also vary. Aggregators will assume more and more of that market risk for a higher fee. Our solar consultant will be happy to explain further but if you are interested, there is more detail on this topic below.
SRECs in More Detail
By law under the solar portion of the renewable portfolio standard (RPS), the Competitive Energy Suppliers (CESs) to Maryland and Washington DC are required to provide an increasing percentage of their power from solar each calendar year. Currently Virginia does not have this requirement and therefore does not have a viable SREC market. The CES’s can comply with their solar obligations to Maryland and DC in one or more of three ways. They can install their own solar systems, they can buy the clean energy attributes (SRECs) of systems owned by others like you, or finally, they can pay a legislated fine (Alternative Compliance Payment – ACP) for every MWh (SREC) that they are short of the goal. The balance of supply and demand of SRECs on the market typically sets the SREC market price, which, by design is always somewhat less than the legislated ACP (the ACP is a different amount in each RPS market – DC and Maryland in this case). It recent years this % has ranged between 35% and 70% of the ACP. SRECs rules and markets can seem very complicated, but SES is happy to simplify it and show you realistic SREC payment projections for your solar application so you can fully understand your payback.
How do you recommend that I maximize the value of my SRECs?
SRECs are market-based tradable credits and their value differs from State to State, and from month to month, depending on a variety of factors such as supply and demand, legislated compliance fee schedules (ACP), and other market factors.. Most system owners have limited options for selling their SRECs because most energy suppliers are not willing to engage directly with small systems owners. Some solar installers offer to buy your SRECs and use these transactions as their own profit-center. SES chooses to recommend that you use a third party who specializes in SREC markets. Our preferred partner for this SREC sale is Sol Systems. Sol Systems can provide you with reliable financing solutions that are tailored to fit your needs. There are a variety of contracts that Sol Systems can offer. For example, Sol Annuity is a longer-term solution that gives you guaranteed prices for your SRECS even if spot market prices fall. You will receive a predefined quarterly payment for each SREC generated over a 3 or a 5 year term. You typically will receive your first payment 4 to 6 months after signing up with Sol Systems. After that, you will receive a quarterly payment in Feb., May, Aug., and Nov. based on the number of full SRECs your system produces in each quarter, with any partial SREC balance rolling into the next payment.
There are other contract options that give you a lump-sum payment up front, based on the size of your system. There are still other Sol System contracts that monitor SREC trading platforms and legislative changes and establish a floor price and a target price for your SRECs. They will enter into SREC purchase agreements that clear their aggressive floor and achieve their target SREC price. In this case, Sol assumes the least risk allowing you to receive quarterly payments less a 5% brokerage fee. The SES Solar consultant is happy to walk you through the various options.