SREC – What is it about?

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SREC – What is it about?

Solar Renewable Energy Credits or Solar Renewable Energy Certificates (SRECs) are electronic certificates and tradable commodities. These are like green tags associated with energy generated from renewable energy resources, such as sunlight and were introduced with the intention to promote solar energy production and usage.

One SREC is awarded every time one Megawatt-hour (MWh) or 1000 Kilowatt-hours (KWh) of clean electricity is produced by an eligible solar facility or a facility which is certified and registered.

SRECs exist in certain states that have passed the Renewable Portfolio Standard (RPS) legislation. This legislation makes it mandatory for electricity supply companies to generate a certain percentage of their electricity from solar energy or purchase SRECs from others that own solar energy generating facilities. This is also known as solar carve-out. Developing renewable energy facilities can be a costly proposition. So many companies purchase SRECs from eligible solar manufacturing homeowners and businesses to comply with RPS.

In 2005, New Jersey was the first state to incorporate Solar Renewable Energy Certificate programs. In 2013 there were seven U.S. states with SREC markets. The states are Delaware, Maryland, Massachusetts, New Jersey, Ohio, Pennsylvania and Washington, D.C. as marked by the black arrows in the map below.

U.S. States with SREC Markets as in 2013
U.S. States with SREC Markets as in 2013

U.S. States with SREC Markets as in 2013

How are SRECs Structured and Priced?

SRECs are electronic certificates that have unique ID numbers attached to them. They are monitored, counted, and stored on tracking platforms. SRECs can be sold to electricity suppliers to fulfill their solar RPS quota. They can be traded and an SREC is sold separately from the electricity. Like all other tradable commodities, value of an SREC is not fixed and is determined by the market. SREC price is mainly dependent on these major factors:

  • SREC Supply: The number of solar installations qualified to produce SRECs and trade them
  • SREC Demand: Arises from the number of RPS solar requirements specified by the state
  • Solar Alternative Compliance Penalty (SACP): The penalty amount set by each state separately and is the amount paid per SREC by the electric suppliers if they fall short and cannot collect the prerequisite number of SRECs
Here is the pictorial representation of the relationship between the value of SREC and the three factors
Here is the pictorial representation of the relationship between the value of SREC and the three factors

Here is the pictorial representation of the relationship between the value of SREC and the three factors.

So, if there is little or no demand for SRECs in a particular state, then the SRECs will have no values in that particular state.

How are SRECs Sold?

Sometimes energy suppliers fulfill their RPS requirements by purchasing SRECs from home and businesses owners that own solar systems and produce SRECs. Home and businesses owners can then use the capital from the sale of the SRECs.

It is sometimes expensive for electric suppliers to buy directly from individuals or solar owners. So there are agencies or brokers who provide the platform and connect the sellers with the suppliers for trading the SRECs. You can find state-wise details on SREC trading and prices on this website www.srectrade.com.

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