By Barbie Carpenter 

States across the country are looking for ways to incentivize the use of renewable energy. Many state governments have established a system of solar renewable energy credits (SRECs) to encourage the adoption of solar power. While this system can be complicated, understanding precisely how it works allows homeowners to take full advantage of the many benefits of solar power.

SRECs are an incentive for homeowners to install solar panels.

SRECs are credits given to homeowners who generate their own electricity through residential solar power systems. For every kilowatt hour of electricity their solar panels produce, the homeowner receives one SREC. The reason so many people are excited about SREC programs is that these credits can be sold to utility companies—this is essentially another source of monthly income for solar-powered households.

Homeowners generally don’t deal directly with the utility companies in order to cash out their SRECs. Many SRECs are traded via aggregators or credit brokers. These third-party groups purchase a high volume of credits from distributed solar generators (like home solar arrays, or community solar farms) and then sell them in bulk to utility companies. But why do utilities want to purchase SRECs anyway?

SRECs are an extra motivation for homeowners to go solar

Households in Metuchen are saving an average of $780 per year on their electric bills.

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Solar panels under clear sky

SRECs are part of a broader initiative to switch to renewable energy.

SREC programs were borne out of a series of state-level regulations called Renewable Portfolio Standards. Renewable Portfolio Standards are essentially a state’s long-term goals for reducing their territory’s reliance on fossil fuels. States with RPS regulations—29 in all, plus the District of Columbia—require regional utility companies to partially rely on electricity generated from renewable sources.1 In order to meet their renewable energy goals, state governments collaborate with Public Services or Utilities Commissions (PUCs). These groups regulate their state’s utility providers and make sure that utility companies adhere to their renewable portfolio standards.

State governments recognized that home solar systems could create a network of grid-connected distributed solar generators. This source of solar electricity could be used indirectly by the utility companies in order to fulfill their RPS requirements: Since every kilowatt hour of solar electricity used by a home is less power drawn from the grid, utility companies needed a way to take credit for these arrays to meet their RPS goals. The solution was to commoditize the production of solar electricity beyond the usual utility bill savings. Homeowners can now make extra cash by allowing the utility company to take credit for their solar production through the purchase of SRECs.

The value of SRECs varies depending on location and market conditions.

Many states—particularly those near the East coast—have established solar renewable energy credit (SREC) programs in recent years.2

As with any commodity, the value of SRECs varies based on market conditions.3 It’s basic economics: A region with many solar-powered households will result in more SRECs on the market, thus reducing their value to the utility companies. On the other hand, when SRECs are in limited supply and utility companies need them to meet standards, their value can increase dramatically.

Although the value of SRECs fluctuates based on supply and demand, homeowners can often net a modest amount of money from the sale of SRECs. Each credit can be sold for around $200, give or take 20%.4 Since solar arrays in most regions are capable of producing the energy equivalent of five or six SRECs a year, that translates to at least $1,000 of extra income per solar-powered household.

Solar panels reflecting a blue sky

Solar renewable energy credits are a major incentive for those considering the switch to solar.

The benefits of solar power are indisputable. Homeowners who invest in residential solar panels enjoy a variety of perks—including reduced energy costs, which leaves extra money in the bank account every month. What’s more, a residential solar array increases a home’s property value and reduces a household’s carbon footprint.

For homeowners in states with SREC programs, these credits are yet another incentive to install solar panels. The truth about home solar is that supplemental income from selling SRECs can help further offset the cost of installing a residential solar system. SREC programs, along with a wide range of tax incentives and rebates, make a solar installation more financially viable for more homeowners than ever before.

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Bibliography

  1. National Renewable Energy Laboratory. “Renewable Portfolio Standards.” NREL.gov. United States Department of Energy, 6 July 2015. Web. 22 Feb. 2017.
  2. “SREC Markets.” SRECTrade. SRECTrade, Inc., n.d. Web. 23 Feb. 2017.
  3. “Making Sense of Solar Renewable Energy Credits.” Ekotrope. Ekotrope Inc., n.d. Web. 23 Feb. 2017.
  4. Flett, Michael. “New Jersey SREC Prices End a Four Year Rally.” Flett Exchange. Flett Exchange LLC, 3 Nov. 2016. Web. 08 Mar. 2017.

Editor: Kelsey Tollefson

Executive Editor: John Lenker