The Evolution of SREC’s

Greetings Solar Citizens!

Most of us in the solar industry are familiar with SREC’s- Solar Renewable Energy Credits- as a very effective method of reducing a solar system’s payback.  SREC’s are currently offered by a smattering of states across the US to incentivize their solar electric (go here for more information) and solar hot water ( go here for more information) market, (although there is limited participation  in solar thermal).  When a solar array produces 1000 kWh (or the equivalent in solar thermal), one SREC is earned. A typical 5 kW home will produce about 6 SREC’s per year. That SREC may be traded direct with your utility (in some states) or sold to a broker (like these guys) and traded state to state.  Your SREC value is normally reduced if you sell it out of state.  The SREC is a commodity and subject to market conditions,  which can mean wild swings in value.  For example, SREC’s are currently worth about $450 in the DC market, but about $30 in  PA.  The good news is that SREC’s are currently ticking up in nearly all markets.

The state of Massachusetts, one of the most active solar states in the country, was also a pioneer in incentivizing solar through SREC’s.  Current legislation in MA is taking the SREC market to the next level with its SREC-II program.  Although the SREC will still act as a strong incentive for all solar electric installations, Massachusetts is shaping their solar market by applying a weighting factor according to the solar application.

The first wave of SREC’s in Massachusetts was gobbled up by utility scale solar electric systems so quickly that the state met its SREC goals years early.  Although good from an environmental perspective, the state’s “solar surge” created a boom and bust business cycle in solar industry that hurt as much as it helped. Companies ramped up to meet a solar demand surge, and then had to scramble to find new opportunities to stay in business as the solar market ground to a halt.  By valuing smaller residential installations less than 25 kW more than say, rooftops or ground mount installations greater than 25 kW, Massachusetts can more easily control the SREC value, and therefore, the mix of solar installations. This creates a more sustainable and stable business platform on which to plan.

SREC’s have proven to be a powerful tool in a state’s renewable portfolio standard (RPS) to promote solar electric and PV installations.  The application of SREC’s to shape a state’s solar market, as in Massachusetts, is an evolutionary step in solar incentivization.  It is a plan that should be adopted by more states interested in gaining control of their solar market and helping associated businesses plan for a robust future with solar.