It all starts with RPS. Renewable Portfolio Standards (RPS) are laws that vary state-to-state and that require utilities to add renewable energy to their portfolio of power generating technologies. In other words, utilities are required to use renewable energy for a certain percentage of their generated power. The RPS required percentages vary in different states, and are phased-in over varying lengths of time.
More than 50% of the U.S. states have established a RPS. The exact details of how it works varies by state, however the concept is basically the same in all states that have RPS.
Following is the New Jersey RPS compliance schedule. It shows the path to 2021, the point where the utilities have to obtain 22.5% of their generated electricity from renewable sources. Of this, a certain minimum part must be from solar, although solar can contribute more than the minimum percent - up to 100% without any penalty.
6/1/10 Solar – 0.3050%; Total – 8.297%
6/1/11 Solar – 0.3940%; Total – 9.214%
6/1/12 Solar – 0.4970%; Total – 10.14%
6/1/13 Solar – 0.6210%; Total – 11.098%
6/1/14 Solar – 0.7650%; Total – 12.072%
6/1/15 Solar – 0.9280%; Total – 13.077%
6/1/16 Solar – 1.1180%; Total – 14.103%
6/1/17 Solar – 1.3330%; Total – 16.158%
6/1/18 Solar – 1.5720%; Total – 18.247%
6/1/19 Solar – 1.8360%; Total – 20.365%
6/1/20 Solar – 2.1200%; Total – 22.5%
If a utility is not in compliance for the applicable RPS requirements in a given year, the utility must pay a penalty in the form of an Alternative Compliance Payment (ACP) and/or a Solar Alternative Compliance Payment (SACP) for renewable energy percentages that were required but not achieved.
The compliance payments (penalties) - in NJ the following schedule has been developed that shows the amount, per non-compliant MwH, that the utilities must pay as a penalty. The ACP declines each year by 3%.
2008-2009: $711 per MwH
2009-2010: $693 per MwH
2010-2011: $675 per MwH
2011-2012 :$658 per MwH
2012-2013: $641 per MwH
2013-2014: $625 per MwH
2014-2015: $609 per MwH
2015-2016: $594 per MwH
If a utility cannot comply with the RPS schedule through its own generation facilities, to avoid the full extent of the non-compliance payments, it is allowed to purchase a REC “Renewable Energy Credit” or a SREC “Solar Renewable Energy Credit” from another generator of renewable or solar renewable energy. A REC is equal to one MwH of power generated in the course of one year from the renewable source. For example, a homeowner or business that generates 3 MwH per year from solar power could sell three RECs (in this case, SRECs) to the utility. The value of the RECs or SRECs is based on supply and demand, and is essentially capped at the compliance penalty rate - as a practical matter a utility would be better off paying the ACP/SACP instead of buying a REC unless there was a savings associated with the REC approach.
In practice, utilities do not wish to purchase and keep track of RECs or SRECs in small individual purchases. So a REC broker/aggregator industry has been created giving RECs a market. A broker takes his own funds and market risk and purchases a quantity of RECs, and then syndicates or bundles them into groups of a sufficient size to be marketable to the utilities. An aggregator manages the SREC sales on behalf of the owner. SRECs can be bought and sold via contract or spot market through an online bulletin board system. At the time of this writing (May 2009), in New Jersey SRECs can be sold via an aggregator or broker for $500-600 or more each. SRECs for systems over 10kW in size must be metered. SRECs for systems under can be estimated by using the PVWATTS performance calculator. http://www.nrel.gov/rredc/pvwatts/version2.html To determine the expected solar radiation for a given area see our solar insolation calculator or solar insolation map.
This practice forces the utilities to move in the direction of renewable energy which has obvious benefits for US energy independence from imported energy with highly positive national security and balance of trade implications. Further, public policy is served by reducing pollution and carbon emissions from the use of fossil fuels to produce energy. Since large utilities cannot move as fast as needed, the incentive is created for distributed energy production by encouraging small widely dispersed energy production that can be fed into the power grid (see net-metering). This incentive and the ability to sell RECs make it much more affordable for homeowners, and for businesses of all sizes, to adopt solar or other renewable energy generation on their premises.
Each state sets it own rules and definitions for RPS, RECs and SRECs. The prices for RECs are very different state to state and month to month.
Solar Panels Plus LLC as well as other key players in the solar thermal industry have joined with national and regional organizations like SEIA and the MD-VA SEIA to lobby for inclusion of thermal energy generation in RPS accounting. As any high school physics teacher can tell you, a kWh, as a form of energy, is equal to 3413 BTUs (British Thermal Units). The use of solar thermal energy offsets a large amount of electricity and gas usage, particularly in the areas of water heating, building space heating (and cooling), manufacturing process heat and steam generation etc.