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What are SRECs and how do they benefit homeowners?

If you're a homeowner considering solar power for your home, you've probably heard of the many federal and state level incentives that can help bring the cost of solar energy down and make it more affordable. While the tax rebates are certainly attractive cost reducers, you won't really see the benefits they can bring you until you file your taxes. For more immediate gratification, what really excites most homeowners are Solar Renewable Energy Certificates, otherwise known as SRECs. 

What is an SREC?
An SREC is a Solar Renewable Energy Certificate, though in some cases they are called Credits. Either way, there is no difference between Certificates and Credits. For every 1,000 kWh (1 Mwh) of electricity generated by a solar PV system, whether it's on a home, a business, or a solar farm, one SREC is generated.

States with SREC programs have required all electricity providers to adhere to a Renewable Portfolio Standard (RPS). This means that each provider must allow for a certain portion of their total electricity generation to come from renewable sources – in this case it's solar power. When a solar PV system generates an SREC, the owner of the system can sell the SREC to the electricity provider at a price determined by a somewhat open market (see below for more on the SREC market). The forces of supply and demand decide how much your SRECs are worth.

States with SREC programs require providers to buy SRECs from solar generators in order to meet the RPS requirements. At the end of each year, the state will check with the provider to ensure that RPS requirements have been met. If the provider has purchased an insufficient amount of SRECs from the various solar power generating customers, they will be fined. This fine is called a Solar Alternative Compliance Payment (SACP) and sets a dollar amount at which the provider will be fined for every SREC short of the RPS they are. The SACP varies from state to state, but is usually set high enough so that the provider has an incentive to buy SRECs from customers rather than just paying the fine.

States such as New Jersey and Massachusetts have very high RPS requirements, and those requirements are climbing even higher. It's no coincidence, then, that both states are among the leaders in solar installations. High RPS requirements mean more opportunities for homeowners and businesses to sell SRECs, making solar an even smarter investment.

How much are SRECs worth and how do you sell them?
As has been noted, SREC prices are mostly determined by the market – there is no one set price for an SREC. The prices are largely set through supply and demand.

If many customers are generating SRECs and selling them, that increases the supply of the SRECs the provider can buy. Thus, the SREC prices are lower. Fewer customers selling their SRECs means that supply is low. Therefore, the amount at which you can sell an SREC is higher. There are some government controls in the SREC market that do affect prices, however.

High Performance Building Magazine reported that the SACP, though technically a fine, can act as a sort of price ceiling. One example of this quasi-price ceiling can be seen in Massachusetts, which has set its SACP fine set at $550 for every SREC short of the RPS requirement the provider falls. This means that if the SREC price set by the market climbs higher than $550, the provider will have an incentive to just pay the fine instead of buying the additional SRECs – creating, in effect, a price ceiling. Massachusetts has also set a price floor of $300 – if the price set by the market falls below this mark, the customer will be protected from the drop.

Homeowners can sometimes sell their SRECs directly to the provider. Some providers, however, do not want to deal with such a small amount of SRECs, preferring to buy them in bulk. In this case, individual homeowners can sell their SRECs to a broker or an aggregator. The homeowner can either call the broker and report when they have generated an SREC, or simply sign up for automated reporting. The aggregator buys the SRECs from individual homeowners and bundles them before selling them to the provider. 

SRECs and you
After looking at what SRECs are and how they work, you may wonder what the exact benefits are. One key benefit is that SRECs are bought and sold separately from the electricity they generate. This means that a homeowner can offset his or her electric bill with a PV system, and then sell SRECs on top of that. 

The Solar Energy Industries Association (SEIA) found that the average size of residential solar PV systems was 5 kW, and research by SRECTrade, an SREC aggregator, found that a 10 kW system generated about 12 SRECs per year. This means that the average home will generate about 6 SRECs per year – further offsetting the cost of installing a solar PV system on your roof.

It's important to note that each state has its own unique SREC programs, and some don't have any at all. Homeowners should ask their providers for more information on SRECs.

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