Ultimate Guide to Solar Renewable Energy Credit (SREC)

SERC, or Solar Renewable Energy Credit (Solar Renewable Energy Certificates), is a specific credit that is used whenever you have extra energy from your solar power plant. The primary aim of this program is to motivate homeowners to get their electricity generated from the solar plant and reduce dependence on the electrical grid. However, unlike popular solar incentives like federal solar tax credit, SRECs aren’t available to everyone and vary from one state to another. The extra income you get from SRECs is one of the many financial benefits of going solar.

With Jackery Solar Generators, you’re eligible to get up to 30% tax rebates to save a chunk from its upfront cost, and you can save a lot on electric bills. Besides, its high-capacity battery makes it a viable companion for home emergencies and off-grid living.

Key Takeaways

• SERC is a way to compensate homeowners for generating electricity from solar energy.
• It exists to motivate more people to use electricity produced from solar energy.
• You can sell these SERCs to utilities and any other organizations under the mandate of renewable energy.
• Only eight states in the US have SRECs in place.
• SERC markets are volatile and subject to supply and demand, so it’s important to keep track of them and sell at the right time to make maximum earnings.
• You must select a broker and its contract depending on the risk quotient.  

What Is A Solar Renewable Energy Credit (SREC)?

To define what SREC is, it’s an incentive paid to homeowners to generate electricity from solar energy. For each MWh (1000 kWh) of electricity, the utilities pay you 1 SREC. For example, a 7kW solar generator producing around 10MWh of electricity per year would give you 10 SRECs. An SREC is just a solar-specific version of REC that accounts for overall renewable energy.

Important Terms:

Renewable Portfolio Standards (RPS): Every year, utilities must account for some portion of their electricity to generate from renewable sources.

Solar carve-out: It is an RPS requirement that sets the amount of electricity utilities must generate annually from solar energy. It often dictates the SREC market or price of each SREC, as the utilities must purchase a specific amount to comply with the requirement.

Renewable Energy Credits (RECs): Credits utilities purchase from renewable energy producers to meet their renewable portfolio standards.  

Solar Renewable Energy Credit (SREC): A type of renewable energy credit that utilities issue on producing 1000 kWh of electricity from solar energy.

Why Do SRECs Exist?

RPS regulations require utilities to generate a certain portion of electricity from renewable resources. In addition to generating energy themselves, utilities can purchase SRECs to comply with the regulations and avoid paying penalties. RPS exists in multiple states, but SRECs exist in a handful of states with solar carve-outs. In other words, only these states generate a certain amount of electricity from solar energy. Utilities can purchase and sell SRECs in only these states.

The primary aim of having SRECs is to create an incentive and demand for solar growth. In other words, more people would use solar energy to produce electricity to earn SREC, thereby reducing the potential dependence on the electrical grid and alleviating the negative impacts of climate change. Now, although the motive of these SRECs seems very noble and can potentially drive the adoption of solar energy, it has many drawbacks. Following are the pros and cons of SREC:

Pros

Financial Incentives: SRECs provide an additional revenue stream for homeowners who produce solar energy, so the more they generate, the more they earn. This way, utilities can also stay on par with the requirements set by RPS.

Environmental Benefits: More production of clean energy means less reliance on the electrical grid and fossil fuels and lower emissions of greenhouse gases.

Market-Driven Approach: Based on the set target and solar energy produced within the time, utilities can decide to purchase the number of SRECs. They can also choose to divide the equation between purchasing SRECs and generating solar energy based on their needs and capabilities.

Cons

Market Volatility: When utilities have the option to produce solar energy or purchase SRECs, it potentially makes it difficult for homeowners to predict the price of SRECs in the future. Also, too many people producing solar energy hoping to make extra bucks might end up cutting down the demand for SRECs and, in turn, the financial benefits.

Complexity: Purchasing and selling SRECs can be time-consuming and complex, as utilities must maintain accurate production data and monitor market rules. Besides, SREC programs vary from state to state, so understanding market conditions and regulatory compliance can be challenging.

Policy-Dependent: Purchasing and selling SRECs completely depends on state policies, and any changes potentially affect the market and intent of producing solar energy.   

How Does SREC Work?

Solar Renewable Energy Credits (SRECs) are a market-based, tradable instrument that represents legal property rights to the “renewable-ness” of energy generation—in other words, the amount of solar energy used to generate electricity. The process starts with Renewable Portfolio Standards (RPS) setting up a solar carve-out, followed by enforcing it to all utilities in the area. SRECs are then used as proof of compliance with these standards.

Now, these are sold separately from actual electricity, and the owner can claim that they are “being powered with” or “using” the solar energy associated with the REC.  If you have an SREC associated with your renewable energy project, you can sell it to another party, irrespective of who they are: homeowners or utilities.

An SREC owner can work with a buyer or aggregator to make a direct purchase or use an auction to sell them. The most common way, however, is through brokers, who take a percentage from it to facilitate the transactions. And once sold, you can no longer claim it as your own and rather generate additional revenue.

System hosts or utilities can also choose to sell the SRECs associated with their on-site solar generators or purchase cheaper ones from other geographically eligible green power resources to make claims about clean power generation. This is called “REC arbitrage,” where the host gets the financial benefits of solar REC while making environmental claims and remaining compliant with RPS standards.

Which States Have SRECs Market?

While 38 states in the country have RECs in place, only 8 of them have SREC programs in place, where individuals can sell and purchase solar credits. These include:

• Delaware
• Maryland
• Massachusetts
• New Jersey
• Ohio
• Pennsylvania
• Washington DC
• Virginia

In addition to these, individuals from Indiana, Kentucky, Michigan, and West Virginia can sell their SRECs in Ohio’s SREC market despite not having their own market.

SREC trading is a pretty new thing, and the markets came into existence when solar targets were first set up in Pennsylvania and New Jersey in 2005, followed by Washington D.C. and Delaware in 2007. Things began to ramp up when New Jersey shifted greater reliance on SREC markets from just a rebate program to support solar projects. Since then, the rest of the states have implemented their solar carve-outs, and every state has a separate target for the usage of solar energy, with New Jersey being the highest.

By taking advantage of this program, individuals and businesses not only cut down their carbon footprint but save on energy costs in the long run. The individuals get extra money by selling them at the right time.

How Much Are SRECs Worth?

Renewable Portfolio Standards (RPS) regulate the market demand, and depending on it, the prices of SRECs vary between $3.50 to $400. Just like stock prices or even the price of a commodity, the prices of SRECs increase when there’s an increased demand and reduced supply, and prices fall when there’s an oversupply. Over a year, your revenue for generating 8.5MWh of electricity can get as high as $3145 in Massachusetts.

The following table outlines how much SRECs were selling as of April 2024:

Source: SRECTrade and SOLSystems

**Annual credits assumed 10-13 per year

As mentioned, the values are subject to change and depend on how you sell it. For example, SOLSystems has four ways to pay for the credits:

Upfront: The broker pays a one-time lump sum payment for your expected production (typically for 15 years). For example, their current rate in Washington, DC, is $1510 per kW for 15 years, while there’s no such contract option in Delaware.

Profit Share: Guaranteed base price credit and a potential to earn more if the market price increases.

Annuity: Guaranteed an amount, typically for 3-5 years.

Brokerage: Sell your SRECs at the highest market price.

While you have a contract for guaranteed or fixed payments, you risk losing money when the market credit price per kWh is high, or you’re at a profit if the price declines. Irrespective of the contract type and market price, getting an SREC is always an added bonus, which you get alongside the costs you save on going solar.

Aside from these, the prices you get for your SRECs depend on the penalties utilities pay for not meeting the targets. Also known as Alternate Compliance Payments (ACPs), some utilities choose to take the penalties rather than purchase SRECs because of the higher price ceiling of the latter. This, in turn, cuts down the demand in the next quarter and lowers prices.

How to Earn & Sell SRECs?

Selling SRECs seems a smart way to go renewable and earn some money with it as well, but it all goes without saying that you must do it right. SRECTrade and Sol Systems are the two largest brokers whom you must look to sell, but there are a few things you must do before and after, which are as follows:  

Step 1: Register Your System

SREC registration is fairly straightforward, and you can do it on your own or let the companies do it for you. Irrespective of the way, your system is registered with the Public Service Commission and then submitted to the GATS or Generation Attribute Tracking System managed by PJM. You should get the approval within 5-7 business days and start earning credits.

Step 2: Choose Who You Want to Sell

Now that you’re registered, it’s time to choose who you choose to sell your SRECs, and SRECTrade and Sol Systems are the two largest brokers out there. There are Flett Exchange, SubTribe, and Carbon Solutions Group, amongst other options available. Go through their offerings and pricing trends, and opt for one accordingly.

Step 3: Create an Account

Whichever broker you select,  you must provide your email ID and set up a profile with them by providing relevant details. You also might need to provide relevant details of your solar system, so make sure to keep them alongside.

Step 4:  Select the Contract Type

Once you’ve registered and chosen the broker, you typically will get four options: Annuity, Profit Share, Upfront, and Brokerage. As mentioned in the previous section, the type of contract you opt for depends on whether you’re willing to take a risk in this volatile market or get a lump sum amount for a fixed number of years (typically 15).

Step 5: Give Permission

As you create the account and finalize the contract type, they’ll send the contract via DocuSign. It contains all the terms and conditions of the contract, so ensure that you fully go through it.

Once you’re content with the terms, provide your signature. Then, provide access to your Enphase account, where you’ll receive the SREC credits. If you don’t have an account on Enphase, then create one, provide the broker with its access, and cross-check the details before submission. Typically, it takes around 40-80 days to get the permission, but any misleading information affects your chances, so try to be careful.

Step 6: Sell your SRECs

When an aggregator comes in, they sell your SRECs to the utilities in exchange for a small fee, and the rest of the earnings are sent through your Enphase account.