Solar Renewable Energy Certificates

Solar Renewable Energy Certificates (SRECs) or Solar Renewable Energy Credits are a form of Renewable Energy Certificate or Green tag. SRECs are available in states where a Renewable Portfolio Standard (RPS) exists with a specific allocation for solar energy. SREC programs provide a means for SRECs to be created on behalf of a solar panel owner and sold to state electric suppliers to meet the solar RPS requirement. Electric suppliers are required to use the SREC program to show compliance with this part of the State’s Renewable Portfolio Standard.

The SREC is separate from the value of the electricity itself and permits the owner or purchaser to claim the benefits of the clean energy production by effectively subsidizing the cost of the installed system. SRECs are designed to provide individuals and corporations with an economic incentive to investing in solar electric systems which improve the electric distribution grid. They represent the renewable attributes from a solar facility, bundled in minimum denominations of one megawatt hour (MWh) of production. The additional income received from selling the solar certificates increases the economic value of an investment. Instead of up-front subsidies from the state, solar system owners can recover their investment by selling certificates to utilities.

Prices

Typically, there is no assigned monetary value to an SREC. Instead, SREC prices are a function of (1) a state's solar alternative compliance payment (SACP) and (2) supply and demand for SRECs within the relevant state.


SACP The SACP is the fee that energy suppliers must pay if they fail to secure SRECs as required by state regulations called a RPS. A state's ACP therefore generally sets a cap on the value of SRECs because energy suppliers 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. The SACP fee often decreases over time within each state, thereby putting downward pressure on SREC prices.


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, putting downward pressure on prices.

SREC demand is determined by the state RPS solar requirement, typically a requirement that a certain percentage of the energy supply into a state must originate from qualified solar energy resources. According to Sol Systems, an SREC market maker and one of the largest SREC aggregators in the country, RPSsolar requirements are set to universally increase in the coming decade, as will SREC demand. An increase in demand for SRECs means upward pressure on prices.


Market Outlook In the long run, the glut of inventory for solar panels, technological advances in current technologies, the introduction of new technologies, and sophisticated financing mechanisms may significantly increase solar development and subsequently SREC supply, thereby decreasing SREC values. On the other hand, the recent credit crisis has slowed the construction of large-scale solar projects in many states, limiting the supply of SRECs and therefore stabilizing their value in many states in the near future.


Contract Terms Finally, an important determinant in SREC prices is the length of SREC contracts. Long-term SREC contracts offer customers stability and guarantee long-term revenue streams, but may provide a slightly lower price in exchange. In contrast, spot prices for SRECs may be higher, but can be riskier for system owners. According to SRECTrade, SRECs traded as high as $680 in New Jersey in 2009. Prices in other states ranged from $200-375 dollars depending in large part on the state's individual ACP, according to Sol Systems.

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 a trading platform. Once a solar system is certified with the state agency and registered with a trading platform, SRECs can be issued using either an estimate table or actual meter readings by the trading platform - depending upon state regulations. In some cases, smaller installations may be able to use estimates, while actual meter readings are required for large installations. One SREC is created for every MWh of electricity produced from a qualified solar renewable energy generator. In Pennsylvania, New Jersey, Delaware, Ohio, Maryland and the District of Columbia solar systems are registered with, and SRECs are issued by PJM-EIS GATS.

From http://en.wikipedia.org/