A Solar Renewable Energy Credit (SREC) is a tradable commodity representing the non-polluting value of 1,000-kilowatt hours (kWh) of electricity produced by a solar electric system. 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.
Twenty-nine states and the District of Columbia have enacted Renewable Portfolio Standards (RPS) legislation that requires electric utilities, electricity suppliers and/or electric distribution companies to produce a certain amount of the electricity they sell from renewable sources.
A number of these jurisdictions, including Maryland, have a “solar carve-out” within the RPS requiring a specific percentage for solar production within the state . Any company in Maryland that sells electricity must either produce the required amount of solar electricity from its own assets, purchase SRECs from PV system owners or pay an Alternative Compliance Payment (ACP) into a fund that will be used to support the construction of solar systems in the state.
Maryland’s solar requirement took effect in 2008 requiring approximately 2,500-megawatt hours of solar electric production or 2,500 SRECs. The amount of solar electricity required to be produced increases each year until 2022 at which time solar electricity should account for a full 2% of all the electricity consumed in Maryland.
Suppliers not meeting their obligations are required to pay an Alternative Compliance Payment which effectively sets the maximum value of an SREC on the open market. Maryland’s ACP is $400 per MWh through 2014. A 5 kW solar PV system will produce approximately 6 SRECs per year. Current market prices are approximately $275 per SREC and are likely to remain in the upper $200s for the next several years barring an oversupply of SRECs relative to the utility requirements.
To earn and sell SRECs a system owner needs to apply and be certified as a Renewable Energy Facility by the state Public Service Commission. Once certified, a system owner has several options for selling their SRECs, including agents, brokers, auctions and exchanges.
SRECs are an important part of the financial analysis of a solar investment. It’s a good idea to ask installers and brokers about the current market value of SRECs and how they can help you to maximize your return on investment. [2011 Western MD Solar Tour]