Solar Renewable Energy Certificates (SRECs) or Solar Renewable Energy Credits, are a form of Renewable Energy Certificate or "green tag" existing in the

United States of America The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 states and a federal capital district, Washington, D.C. The 48 contiguo ...

. SRECs exist in

states State most commonly refers to: * State (polity), a centralized political organization that regulates law and society within a territory **Sovereign state, a sovereign polity in international law, commonly referred to as a country **Nation state, a ...

that have

Renewable Portfolio Standard A renewable portfolio standard (RPS) is a regulation that requires the increased production of energy from renewable energy sources, such as wind, solar, biomass, and geothermal. Other common names for the same concept include Renewable Electric ...

(RPS)

legislation Legislation is the process or result of enrolling, enacting, or promulgating laws by a legislature, parliament, or analogous governing body. Before an item of legislation becomes law it may be known as a bill, and may be broadly referred ...

with specific requirements for

solar energy Solar energy is the radiant energy from the Sun's sunlight, light and heat, which can be harnessed using a range of technologies such as solar electricity, solar thermal energy (including solar water heating) and solar architecture. It is a ...

, usually referred to as a "solar carve-out". The additional

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. F ...

received from selling SRECs increases the financial value of a solar

investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

and assists with the financing of solar technology. In conjunction with state and federal incentives, solar system owners can recover their investment in solar by selling their SRECs through

spot market The spot market or cash market is a public financial market in which financial instruments or commodities are traded for immediate delivery. It contrasts with a futures market, in which delivery is due at a later date. In a spot market, s ...

sales or long-term sales, both described below.

Specifications

SRECs represent the environmental attributes of a solar facility and are produced every time a solar system produces one thousand

kilowatt-hour A kilowatt-hour ( unit symbol: kW⋅h or kW h; commonly written as kWh) is a non-SI unit of energy equal to 3.6 megajoules (MJ) in SI units, which is the energy delivered by one kilowatt of power for one hour. Kilowatt-hours are a comm ...

s (kWh) of electricity. For every 1000 kilowatt-hours of electricity produced by an eligible solar facility, one SREC is awarded. For a solar facility to be credited with that SREC, the system must be certified and registered.

Certification

To produce SRECs, a solar system must first be certified by state regulatory agencies, usually public service commissions (PSCs) or public utility commissions (PUCs), and then registered with the registry authorized by the state to create and track SRECs. Once a solar system is certified with the state agency and registered with a registry such as the PJM Generation Attribute Tracking System (PJM-GATS) or New England Power Pool Generation Information System (NEPOOL-GIS) (for

Massachusetts Massachusetts ( ; ), officially the Commonwealth of Massachusetts, is a U.S. state, state in the New England region of the Northeastern United States. It borders the Atlantic Ocean and the Gulf of Maine to its east, Connecticut and Rhode ...

), SRECs can be issued using either estimates or actual meter readings depending upon state regulations. In some cases, smaller installations may be able to use

estimates In the Westminster system of government, the ''Estimates'' are an outline of government spending for the following fiscal year presented by the Cabinet (government), cabinet to parliament. The Estimates are drawn up by bureaucrats in the finance ...

, while actual meter readings are required for large installations. Solar installations may be registered in states other than the state in which they are physically located and many SREC aggregators will navigate the certification process on behalf of their customers to ensure that systems are certified in the states with the highest SREC values to ensure long-term

price stability Price stability is a goal of monetary and fiscal policy aiming to support sustainable rates of economic activity. Policy is set to maintain a very low rate of inflation or deflation. For example, the European Central Bank (ECB) describes price s ...

Solar Alternative Compliance Payment

Many states have a law called the

(RPS), which mandates that the state's utility must produce a minimum amount of

solar power Solar power, also known as solar electricity, is the conversion of energy from sunlight into electricity, either directly using photovoltaics (PV) or indirectly using concentrated solar power. Solar panels use the photovoltaic effect to c ...

every year. If they cannot do so with their power generation facilities, they must purchase SRECs. The Solar Alternative Compliance Payment (SACP) is the fee that energy suppliers must pay if they fail to secure SRECs as required by their state's RPS. Because energy suppliers and

utilities A public utility company (usually just utility) is an organization that maintains the infrastructure for a public service (often also providing a service using that infrastructure). Public utilities are subject to forms of public control and r ...

may simply pay the fee if SREC prices approach the fee level, a state's ACP generally sets a cap on the value of SRECs. 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. In many states, the SACP is scheduled to decline over time to eventually phase out the solar industry's reliance on SREC sales as an

incentive In general, incentives are anything that persuade a person or organization to alter their behavior to produce the desired outcome. The laws of economists and of behavior state that higher incentives amount to greater levels of effort and therefo ...

for installing solar.

Market

Solar RPS requirements are meant to create a

marketplace A marketplace, market place, or just market, is a location where people regularly gather for the purchase and sale of provisions, livestock, and other goods. In different parts of the world, a marketplace may be described as a ''souk'' (from ...

for SRECs and a dynamic incentive for the solar industry. Solar RPS requirements demand that energy suppliers or utilities procure a certain percentage of electricity from qualified solar

renewable energy Renewable energy (also called green energy) is energy made from renewable resource, renewable natural resources that are replenished on a human lifetime, human timescale. The most widely used renewable energy types are solar energy, wind pow ...

resources in a state. These energy suppliers and/or utilities can meet solar RPS requirements by purchasing SRECs from homeowners and businesses that own solar systems and produce SRECs. Homeowners and businesses can then utilize the sale of the SRECs they generate to help finance their solar systems. SRECs can be sold in a variety of ways, such as on the

, at auction, or by negotiating long-term contracts.

Supply and demand

SREC supply in a particular state is determined by the number of solar installations qualified to produce SRECs and sell SRECs in that state. As more solar systems are built, SREC

supply Supply or supplies may refer to: *The amount of a resource that is available **Supply (economics), the amount of a product which is available to customers **Materiel, the goods and equipment for a military unit to fulfill its mission *Supply, as ...

will increase. SREC

demand In economics, demand is the quantity of a goods, good that consumers are willing and able to purchase at various prices during a given time. In economics "demand" for a commodity is not the same thing as "desire" for it. It refers to both the desi ...

is determined by a state's RPS solar requirement, typically a requirement that a certain percentage of the energy supplied into a state originate from qualified solar energy resources. Load-serving entities or organizations that supply electricity to the state must meet these requirements. RPS solar requirements in many states are set to increase in the coming decade.

States with SREC markets

There are currently 35 states (and

Washington, D.C. Washington, D.C., formally the District of Columbia and commonly known as Washington or D.C., is the capital city and federal district of the United States. The city is on the Potomac River, across from Virginia, and shares land borders with ...

) with existing Renewable Portfolio Standards (RPS). Of those 36, only 17 have specific solar carve-outs mandated in their RPS. And of the 17 with solar carve-outs, only 7 utilize SRECs as the incentive type.

' SREC market recently closed new applications to the program to transition to a different type of incentive.

Ohio Ohio ( ) is a U.S. state, state in the Midwestern United States, Midwestern region of the United States. It borders Lake Erie to the north, Pennsylvania to the east, West Virginia to the southeast, Kentucky to the southwest, Indiana to the ...

is no longer included in the list because the state passed legislation to eliminate their RPS altogether in 2026.

Prices

Typically, there is no assigned

monetary Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: med ...

value to an SREC. SREC prices are ultimately determined by market forces within the parameters set forth by the state. If there is a shortage in SREC supply, pricing will rise, resulting in an increase in the value of the incentive for solar systems and an intended acceleration in solar installations. As SREC supply catches up to SREC demand, pricing will likely decrease, resulting in an intended deceleration in solar installations. Over time, SREC markets are designed to find the equilibrium price that encourages enough installation to meet the growing demand set forth by the RPS. Generally speaking, SREC prices are a function of (1) a state's solar alternative compliance payment (SACP); (2) the

supply and demand In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris_paribus#Applications, holding all else equal, the unit price for a particular Good (economics), good ...

for SRECs within the relevant state; and (3) the term or length over which SRECs are sold.

Spot sales

Spot prices for SRECs are generally higher than prices found in long-term contracts since the system owner is taking on market risk. If increases in supply outpace the growing demand, spot prices could fall. SRECs have traded as high as $680 in

New Jersey New Jersey is a U.S. state, state located in both the Mid-Atlantic States, Mid-Atlantic and Northeastern United States, Northeastern regions of the United States. Located at the geographic hub of the urban area, heavily urbanized Northeas ...

. Meanwhile, other state SREC market prices range from $45 in Delaware to $271.05 in Massachusetts. In addition to the strength of spot market demand in states experiencing supply shortages, the general lack of availability of viable long-term contracts and the heavy discounts applied to these contracts have left some system owners and project developers seeking ways to finance solar through spot transactions. In June 2010, Diamond Castle, a New York-based

private equity firm A private equity firm or private equity company (often described as a financial sponsor) is an investment management company that provides financial backing and makes investments in the private equity of a Startup company, startup or of an existin ...

, announced that it would be financing projects strictly with equity to avoid the premiums paid in long-term contracts.

Long-term contracts

In addition to providing

cash flow Cash flow, in general, refers to payments made into or out of a business, project, or financial product. It can also refer more specifically to a real or virtual movement of money. *Cash flow, in its narrow sense, is a payment (in a currency), es ...

security and stability, long-term SREC contracts are often required by banks or other lending institutions unwilling to accept market and legislative risks associated with SREC markets. However, SREC contracts longer than 3 years can be difficult to secure in some SREC markets because, in deregulated electricity markets, energy suppliers rarely have electricity supply contracts longer than three years. Some SREC aggregators have managed to negotiate 3- to 10-year agreements and can offer similar length contracts to their residential and commercial customers. In most cases, long-term contracts demand some sort of premium over market prices to compensate the off-taker for putting up the credit to guarantee the contract if prices drop. This premium is also affected by the general lack of availability of credible off-takers in the market. In some markets, however, where short-term supply has overtaken demand, long-term prices can be better than spot prices.

References

{{reflist

External links

Database of State Incentives for Renewables & Efficiency (DSIRE)

New Jersey SREC ProgramMaryland SREC ProgramPennsylvania Alternative Energy Credit (AEC) Program
Carbon finance Climate change in the United States Renewable energy certification Solar power in the United States