What’s an SREC?

By Robert Garrett
on February 14, 2012 6:12 pm

While those of us who work at Green Mountain Energy Company spend hours each day immersed in the renewable energy space, the vast majority of our customers do not.  Thus, I thought it might be helpful to take some time to demystify Solar Renewable Energy Credits, or SRECs. I know how frustrating it can be to listen to an industry insider speak in jargon and acronyms, so let’s get some basic definitions in place before moving on.

A Solar Renewable Energy Credit (SREC) is a tradable commodity that represents the environmental attributes created by the generation of 1 MWh of solar electricity. SRECs were developed as solar carve-outs within broader Renewable Portfolio Standards (RPS) programs that have been adopted in many states. Renewable Portfolio Standard generally requires energy suppliers/utilities to secure a specific percentage of their electricity from renewable sources. SREC markets currently exist in DC, DE, MA, MD, NC, NJ, OH, and PA. SREC markets can help to incentivize solar installations by providing a revenue stream that helps to shorten the time it takes to earn a return on the initial investment. SRECs can be generated by approved solar facilities, and these can range from utility scale to commercial rooftops to residential installations.

Let’s use New Jersey as an example of how a SREC market works. New Jersey’s RPS goals call for ramping up the percentage of electricity produced by renewable sources to 20% of the overall supply by 2021. The RPS goal for 2011 is 8% and, of that amount, 0.3% (about 306,000 MWh) is set aside, or “carved out”, for solar generators. Energy providers in the New Jersey market that are obligated to comply with the RPS can do so by purchasing RECs, or SRECs in the case of solar, to meet their requirements. Non-compliance triggers the enforcement of the Solar Alternative Compliance Payment, or SACP, which currently stands at $675 per MWh for Energy Year 2011. As of October 2011, SRECs were trading at $670, slightly less than the SACP.

The world of SRECs and the evolution of solar energy is a hot topic, worthy of a much longer discussion. Hopefully, this provides a good starting point; next time, I’ll discuss the volatility of the New Jersey SREC market and what that means for the U.S. solar industry overall.

For additional information on SREC Markets:

http://www.flettexchange.com/

http://www.srectrade.com/background.php

For additional information on Renewable Portfolio Standards (RPS) by state:

http://dsireusa.org/