Solar Renewable Energy Certificates
Encyclopedia
Solar Renewable Energy Certificates (SRECs) or Solar Renewable Energy Credits are a form of Renewable Energy Certificate or "Green tag". SRECs exist in states that have Renewable Portfolio Standard
(RPS) legislation with specific requirements for solar energy, usually referred to as a "solar carve-out". The additional income received from selling SRECs increases the economic value of a solar investment and assists with the financing of solar technology. In conjunction with state and federal incentives, solar system owners can recover their investment in solar by selling their SRECs through spot market sales or long-term sales, both described below.
for SRECs are generally higher than prices found in long-term contracts since the system owner is taking on market risk. If increases in supply outpace the growing demand, spot prices could fall. SRECs have traded as high as $680 in New Jersey. Meanwhile other state SREC market prices range from $200 in Delaware to $500 in Massachusetts. Similar prices have cleared in SREC auctions. In addition to the strength of spot market demand in states experiencing supply shortages, the general lack of availability of viable long-term contracts and the heavy discounts applied to these contracts have left a some system owners and project developers seeking ways to finance solar through spot transactions. Most notably, in June 2010, Diamond Castle, a New York based private equity firm, announced that it would be financing projects strictly with equity in order to avoid the premiums paid in long-term contracts.
Renewable Portfolio Standard
A Renewable Portfolio Standard is a regulation that requires the increased production of energy from renewable energy sources, such as wind, solar, biomass, and geothermal...
(RPS) legislation with specific requirements for solar energy, usually referred to as a "solar carve-out". The additional income received from selling SRECs increases the economic value of a solar investment and assists with the financing of solar technology. In conjunction with state and federal incentives, solar system owners can recover their investment in solar by selling their SRECs through spot market sales or long-term sales, both described below.
SREC Specifications
SRECs represent the environmental attributes from a solar facility, and are produced each time a solar system produces one thousand Killowatt-hours (KWh) of production. For every 1000 killowatt-hours of electricity produced by an eligible solar facility, one SREC is awarded. In order for a solar facility to be credited with that SREC, the system must be certified and registered.SREC certification
In order to produce SRECs, a solar system must first be certified by state regulatory agencies, usually public service commissions or public utility commissions, and then registered with the registry authorized by the state to create and track SRECs. Once a solar system is certified with the state agency and registered with a registry such as PJM GATS or NEPOOL GIS, SRECs can be issued using either an estimate table or actual meter readings - depending upon state regulations. In some cases, smaller installations may be able to use estimates, while actual meter readings are required for large installations. Solar installations may be registered in states other than the state in which they are physically located and many SREC aggregators will navigate the certification process on behalf of their customers to ensure that systems are certified in the states with the highest SREC values so as to ensure long-term price stability.Solar Alternative Compliance Payment
The SACP is the fee that energy suppliers must pay if they fail to secure SRECs as required by state regulations called an RPS. A state's ACP therefore generally sets a cap on the value of SRECs because energy suppliers and utilities may simply pay the fee if SREC prices approach the fee level. In rare cases SREC prices have approached and even surpassed ACP levels because SRECs can sometimes be recovered by charging more to electricity customers (rate basing), while ACP payments are usually precluded. In many states, the SACP is scheduled to decline over time with the intention of eventually phasing out the solar industry's reliance on SREC sales as an incentive for installing solar.The SREC market
Solar RPS requirements are meant to create a marketplace for SRECs and a dynamic incentive for the solar industry. Solar RPS requirements demand that energy suppliers or utilities procure a certain percentage of electricity from qualified solar renewable energy resources in a state. These Energy suppliers and/or utilities can meet solar RPS requirements by purchasing SRECs from homeowners and businesses who own solar systems and produce SRECs. Homeowners and businesses can then utilize the sale of the SRECs they generate to help finance their solar systems. SRECs can be sold a variety of ways, such as on the spot market, at auction, or by negotiating long-term contracts.Supply and demand
SREC supply in a particular state is determined by the number of solar installations qualified to produce SRECs and actually selling SRECs in that state. As more solar systems are built, SREC supply will increase. SREC demand is determined by a state's RPS solar requirement, typically a requirement that a certain percentage of the energy supplied into a state originate from qualified solar energy resources. Load-Serving Entities or organizations that supply electricity into the state are required to meet these requirements. RPS solar requirements in many states are set to increase in the coming decade.SREC prices
Typically, there is no assigned monetary value to an SREC. SREC prices are ultimately determined by market forces within the parameters set forth by the state. If there is a shortage in SREC supply, pricing will rise, resulting in an increase in the value of the incentive for solar systems and an intended acceleration in solar installations. As SREC supply catches up to SREC demand, pricing will likely decrease, resulting in an intended deceleration in solar installations. Over time, SREC markets are designed to find the equilibrium price that encourages enough installation to meet the growing demand set forth by the RPS. Generally speaking, SREC prices are a function of (1) a state's solar alternative compliance payment (SACP), (2) the supply and demand for SRECs within the relevant state, and (3) the term or length over which SRECs are sold.Spot sales
Spot priceSpot price
The spot price or spot rate of a commodity, a security or a currency is the price that is quoted for immediate settlement . Spot settlement is normally one or two business days from trade date...
for SRECs are generally higher than prices found in long-term contracts since the system owner is taking on market risk. If increases in supply outpace the growing demand, spot prices could fall. SRECs have traded as high as $680 in New Jersey. Meanwhile other state SREC market prices range from $200 in Delaware to $500 in Massachusetts. Similar prices have cleared in SREC auctions. In addition to the strength of spot market demand in states experiencing supply shortages, the general lack of availability of viable long-term contracts and the heavy discounts applied to these contracts have left a some system owners and project developers seeking ways to finance solar through spot transactions. Most notably, in June 2010, Diamond Castle, a New York based private equity firm, announced that it would be financing projects strictly with equity in order to avoid the premiums paid in long-term contracts.