SRECs: What are Solar Renewable Energy Credits?
With grid electricity prices soaring, home solar is already a means of substantial energy savings. But homeowners in eligible states can sweeten the deal by selling Solar Renewable Energy Credits (SRECs) to earn hundreds or thousands of dollars each year.
In this article, we’ll answer:
- What is an SREC?
- Which states have SREC markets and how to sell them
- SREC prices
- And what happens to SRECs if you move
Let’s get started with the big question.
What is an SREC?
An SREC, or Solar Renewable Energy Credit, is given to a homeowner for every MW hour (1,000 kWh) of solar electricity their system generates. For example, a 7kW solar system generating 8.5MWh of electricity per year would earn 8.5 credits annually.
1 SREC = 1 MWh of solar production = 1,000 kWh of solar production
These credits can be sold to utilities through an open market for prices dictated by supply and demand.
For most solar owners, income from selling SRECs won’t provide the bulk of the savings by going solar – it’s more like the cherry on top of a hot fudge sundae. Although, in certain states, it can be one heck of a big cherry.
- Renewable Portfolio Standards (RPS): State regulations that require utilities to generate a certain amount of electricity from renewable sources
- Solar Carve-Out: A policy that requires a certain amount of a state’s renewable energy to come specifically from solar
- Renewable Energy Certificates (REC): Credits utilities can purchase from renewable energy producers to meet their renewable portfolio standards
- Solar Renewable Energy Credit (SREC): One type of renewable energy certificate that specifically represents 1 MW of solar electricity production
Why do SRECs exist?
SRECs exist to help utilities meet renewable portfolio standards (RPS) – state regulations that require utilities to generate a certain amount of electricity from renewable sources. More than 30 states have renewable portfolio standards.
In addition to producing renewable energy themselves, utilities are allowed to buy renewable energy certificates (RECs) in order to meet these standards and avoid paying penalties.
SRECs are just one type of REC that utilities can buy to meet their state’s renewable portfolio standards. That’s important because only a handful of states require that a certain amount of renewable energy comes specifically from solar – known as solar carve-outs.
These states with solar carve-outs – and a few others – are where solar owners can earn and sell SRECs.
Related reading: Solar Rebates and Incentives 2022
Which states have SREC markets?
As of October 2022, the following states have solar carve-outs and SREC markets:
- District of Columbia
- New Jersey
In eligible areas of Michigan, Indiana, Kentucky, and West Virginia, it’s possible to sell credits in Ohio’s market, despite the states not having solar carve-outs and SREC markets of their own.
This list is subject to change with state policies. Use the Solar Markets map on SRECTrade to find out if your state has a solar carve-out and an SREC market.
How do you sell your SRECs?
Strangely enough, SRECs are rarely sold directly to utilities. Similar to stocks, they are typically bought and sold through brokers.
The two largest brokers are SRECTrade and Sol Systems. You can think of them like E*TRADE or Robinhood for renewable energy credits. Just like stock brokers, SREC brokers typically take percentage based fees for facilitating your transactions.
In order to sell your SRECs on the market, you’ll need to set up a profile with a broker and register your solar system, which may require help from your installer or an inspector.
The value of an SREC varies $3.50 to nearly $400, depending on the market.
Just like the stock prices, SREC prices are dictated by supply and demand in the market and tend to fluctuate over time. When there’s an oversupply of credits, prices tend to fall. When there’s a shortage, prices tend to rise.
For a 7 kW system generating 8.5 MWh of electricity per year (worth 8.5 credits), a year’s worth of SREC income could range from $29.75 in Ohio to $3,145 in Massachusetts.
SREC market prices as of October 2022:
|State||Market price on SRECTrade||Market price on Sol Systems|
Prices subject to change with market. SRECTrade and Sol Systems did not list market prices for Illinois at the time of writing.
The value of an SREC also depends on how you sell it. For example, on Sol Systems, there are four contract options for selling SRECs:
- Upfront: A one-time lump-sum payment for your expected production (typically over 15 years)
- Annuity: Guaranteed, fixed payments (typically in 3-5 year terms)
- Profit Share: Guaranteed base price per credit, with potential to increase if market improves
- Brokerage: Sell your SRECs each quarter at the highest market rate
If you take a lump-sum or fixed payments, you risk leaving money on the table if SREC prices improve. If you choose to sell quarterly via brokerage, you risk selling for less if the market declines.
The important thing to remember is that it’s all gravy. Solar more than pays for itself in the long run – SREC income is just an added bonus!
Alternative compliance payments (ACPs)
Another thing that influences SREC prices are the penalties utilities pay for not meeting the goals in their renewable portfolio standard. These are known as alternative compliance payments (ACPs), and they effectively set a ceiling for SREC prices.
After all, if the penalty for missing renewable energy goals is cheaper than the cost of meeting them, utilities may choose to take the penalty.
SRECs if you move
The average stay in a house is around 16 years and solar panels last 25 years or more, so it’s not uncommon for homeowners to part with their solar system at some point.
The good news is that solar systems typically increase your home value, and being in an SREC market can increase it even more.
Most commonly, the solar system and credit rights are transferred in the sale, and the additional income can be used as leverage during negotiations.
In some cases, you may be able to keep your SREC rights and continue to sell your credits even after you sell the house and move.
Consult a real estate professional for advice about SRECs when you move.
SREC Frequently asked questions
What does SREC mean?
SREC stands for Solar Renewable Energy Credits. These credits represent 1 Megawatt-hour (or 1,000 kWh) of solar production and can be sold on SREC markets for additional income. SRECs are just one type of renewable energy credit (REC) that energy utilities can buy to meet state requirements for renewable energy production.
Some states mandate that a certain percentage of energy comes specifically from solar (known as a solar carve-out). These states – mostly in the northeast – are more likely to have SREC markets where homeowners can sell credits earned through their home solar production.
What is an SREC worth?
SREC prices are dictated by supply and demand forces and range from $3.50 to $370 per credit, depending on the market. Prices are capped the penalty imposed on utilities for not meeting their renewable energy goals, known as alternative compliance payments (ACP)
The value of an SREC also depends on how you sell it. For example, some solar owners choose to take a one-time lump-sum payment for 15-years worth of expected production, while others sell their credits quarterly at the market rate.
How do I sell my SREC?
Similar to stocks, SRECs are largely bought and sold through brokers like SRECTrade and SolSystems.
In order to earn and sell credits, you may have to set up a profile and register your solar system with the proper authorities.