Solar Renewable Energy Credits, or SRECs can be the most confusing part of the solarization process. Nevertheless they are vitally important to understand because they will be worth a significant amount of money over the life of your stystem.
How you handle your SRECs depends on your individual financial needs and risk tolerance, so everyone approaches SRECs differently.
What is an SREC?
SRECs are separate from the physical electricity that your solar panels produce. Think of them like a “voucher” that proves that the electricity from your solar panels is renewable.
You get one SREC for every 1,000 kWh of electricity produced by a solar system.
These SREC “vouchers” are valuable because many utilities are required to purchase a certain number of them each year in order to meet sustainability requirements.
This video does a good job of further explaining how SRECs work.
Why do we have SRECs?
How much are SRECs worth?
It’s important to remember that the SREC market can change at any time and the price changes depending on the supply of SRECs. SRECs are high now, but you can’t be sure they will stay that way. Think of the SREC market like the stock market—it can change.
How many SRECs will my system produce?
How do I sell my SRECs?
Your installer can then help you use the certification number you receive to register your system on the Generation Attribute Tracking System (“GATS”) administered by PJM. PJM is a regional transmission organization that manages the electric grid for 13 states and the District of Columbia. Once you enter the website, you need to register your system with the certification number that you have from your utility commission and submit it to the GATS administrator. GATS should issue an approval in five to seven business days and your system will begin to generate credits.
Once you’re registered, you can sell your SRECs. The are three options for doing this. You can:
- Sell the rights to all of your system’s SRECs upfront for a cash payment.
- Sell your SRECs via a contract for a set period of time, usually 3, 5, 0r 10 years.
- Register your SRECs yourself and trade them on the spot market (like trading stocks on the stock market).
Let’s break down the benefits and drawbacks of each approach.
- You can use the upfront payment to reduce the out-of-pocket cost of your solar system. If you don’t have a lot of money set aside for solar, the upfront payment is a good way to make a system affordable.
- You eliminate all market risk of future SREC price fluctuations. You know exactly how much you will get from your SRECs and can calculate exactly how long it will take to pay off your solar system.
- The total lifetime return for your SRECs will likely be considerably less than if you chose one of the other options. This is because the company that purchases your SRECs takes on all of the risk related to future SREC prices.
The best option if:
- You don’t have the upfront cash to purchase a system outright (or don’t have the ability to borrow money at a low rate).
- You don’t want to take on any risk related to future SRECs prices.
- You don’t want to deal with SRECs in the future.
Where to get an upfront payment:
- Many installers will do this for you and reduce the total cost of your system. Just ask them if this is an option.
- Allows you to lock in SREC prices for a set period of time, protecting you from future fluctuations in the market.
- Lets you know how much you’ll be earning for your SREC over a period of time, so you can plan your finances accordingly.
- You don’t start earning SREC income until after you system is up and running, so it doesn’t help reduce the upfront cost of going solar.
- The longer your contract (i.e. 10 years vs. 5 years) the less you earn per SREC. This is because the SREC aggregator is taking on more risk with a long-term contract and because the expectation is that SRECs will go down in value over time.
The best option if:
- You are relying on SREC income to pay back the cost of your system and want to know exactly how much you will earn from SRECs over the length of your contract.
- You want to avoid fluctuations in SREC by locking in a single price.
- You can maximize your potential earnings from SRECs by selling them when SREC prices are high.
- You take on more risk that future SREC prices will fall and you won’t earn as much income.
- You manage your own SREC account and decide when to sell your SRECs on the spot market, which takes more time than a contract or upfront payment. (However, SRECTrade.com does allow for an automatic payment system, where it automatically sells your SRECs as your system produces them.)
Best option if:
- You enjoy learning about the SREC market and want to follow it more closely in order to maximize your SREC income.
- You are more risk-tolerant and willing to accept possible future fluctuations in the SREC market.