What are SRECs?
The term SREC stands for Solar Renewable Energy Credit and is a tradable credit that represents all the clean energy benefits of electricity generated from a solar electric system. Each time a solar electric system generates 1000kWh (1MWh) of electricity, an SREC is issued which can then be sold or traded separately from the power.
Ohio SRECs are currently trading for $320 – $350 per SREC, or $0.32 – $0.35/kWh so SRECs generated by your photovoltaic system are worth two to three times the retail cost of the electricity they generate. These SRECs represent an income stream to owners of solar power systems which helps pay for the cost of the system while the electricity produced reduces the owner’s utility bill. So you can save money on your utility bill and get paid for being a good citizen of the planet and generating clean, renewable energy!
SRECs can be sold on an as generated basis, or some buyers are offering upfront payments for 5 to 10 year contracts on all the SRECs your system can generate.
So who purchases SRECs?
SRECs are purchased by electrical utilities or energy suppliers who need to meet a Renewable Portfolio Standard (RPS). SRECs are also being purchased by third party traders known as SREC aggregators. The value of SRECs are determined by three major factors:
- State RPS requirements
- Value of the state’s Solar Alternative Compliance Payment (SACP)
- Supply and demand of SRECs in your state
What’s an RPS
A Renewable Portfolio Standard (RPS) is a state or federal policy that requires electricity suppliers to provide a certain percentage of their electricity from renewable energy resources. More than 30 states have RPS programs, and many of these states have solar RPS requirements that specifically mandate a minimum percentage of energy be produced from solar energy sources. Energy suppliers meet RPS requirements by creating or purchasing SRECs, or by paying a non-compliance fine to state regulatory authorities.
In May of 2008 the state of Ohio adopted Senate Bill 221, which defines Ohio’s RPS. Here is short summary of the 88 page bill
- Ohio utilities must provide 25% of retail electricity supply from alternative energy resources by 2025
- 12.5% must be generated from renewable energy resources (Photovoltaics, solar thermal, wind, geothermal, biomass, landfill gas, fuel cells, hydroelectric )
- At least 50% of renewable energy requirement must be met by in-state facilities
- Solar carve out of 0.5% ( 0.5% of the renewable benchmark must be met using solar power)
- Remaining 12.5% generated by advanced energy: clean coal, advanced nuclear power, CHP, fuel cells
In short the public utilities of Ohio have some legislated mandates to produce more clean energy each year until 2024 when they will be producing 25% of their power from renewable resources.
What’s an SACP
As mentioned above the utilities must show that .5% of their power is coming from solar, and if they can’t meet that they have to pay a Solar Alternative Compliance Payment (SACP). The SACP is the amount that utilities must pay per MWh (or per SREC) of solar electricity that they are unable to generate themselves or buy rights to through SREC purchases in order to meet the state Renewable Portfolio Standard (RPS) solar requirement.
Utilities that cannot meet their compliance standard are buying SRECs as long as the price is less than the SACP. Utilities incur costs in purchasing SRECs, so the maximum price they are willing to pay may be below the SACP. For instance, if a utility calculates that the cost to purchase an SREC is $50, they may not be willing to pay more than $50 less than the SACP. At that price, they can save money by simply paying the SACP. The SACP is fixed in any given year, but the price of SRECs varies based on the market forces of supply and demand.
Here is what Ohio utilities must pay if they don’t meet the compliance schedule
As you can see the SREC price is slightly lower than the SACP. Here is a nice chart put together by Bricker and Eckland summarizing SB 221 and the non compliance payments. SB 221 Summary Chart
Currently Ohio SRECs can be sold in Ohio, Pennsylvania, and the District of Columbia. Michigan just adopted an RPS starting in 2010 so they may be added to the list. Kentucky, West Virginia, and Indiana do not yet have RPS legislation in place. The market is growing and changing quickly so check back for more updates.