Solar Renewable Energy Certificate

In order to produce SRECs, a solar system must first be certified by state regulatory agencies, usually public service commissions or public utility commissions, and then registered with the registry authorized by the state to create and track SRECs. Once a solar system is certified with the state agency and registered with a registry such as PJM-GATS or NEPOOL-GIS (for Massachusetts),[2][3] SRECs can be issued using either estimates or actual meter readings depending upon state regulations.[4] In some cases, smaller installations may be able to use estimates, while actual meter readings are required for large installations. Solar installations may be registered in states other than the state in which they are physically located and many SREC aggregators will navigate the certification process on behalf of their customers to ensure that systems are certified in the states with the highest SREC values so as to ensure long-term price stability.

Many states have a law called a Renewable Portfolio Standard (RPS) which mandates that the state’s utility must produce a minimum amount of solar power every year. If they cannot do so with their own power generation facilities they must purchase SRECs. The Solar Alternative Compliance Payment (SACP) is the fee that energy suppliers must pay if they fail to secure SRECs as required by their state's RPS. Because energy suppliers and utilities may simply pay the fee if SREC prices approach the fee level, a state's ACP generally sets a cap on the value of SRECs. In rare cases SREC prices have approached and even surpassed ACP levels because SRECs can sometimes be recovered by charging more to electricity customers (rate basing), while ACP payments are usually precluded.[4] In many states, the SACP is scheduled to decline over time with the intention of eventually phasing out the solar industry's reliance on SREC sales as an incentive for installing solar.

SREC supply in a particular state is determined by the number of solar installations qualified to produce SRECs and actually selling SRECs in that state. As more solar systems are built, SREC supply will increase. SREC demand is determined by a state's RPS solar requirement, typically a requirement that a certain percentage of the energy supplied into a state originate from qualified solar energy resources.[4] Load-serving entities or organizations that supply electricity into the state are required to meet these requirements. RPS solar requirements in many states are set to increase in the coming decade.

There are currently 35 states (and Washington, D.C.) with existing Renewable Portfolio Standards (RPS).[5] Of those 36, only 17 have specific solar carve-outs mandated in their RPS.[6] And of the 17 with solar carve-outs, only 7 utilize SRECs as the incentive type. The following table shows 5 of the most competitive SREC markets in the U.S.:

Massachusetts has a very competitive SREC market as well, but recently closed new applications to the program in order to transition to a different type of incentive. Ohio is also no longer included in the list despite a previously successful SREC market, because the state passed legislation to eliminate their RPS altogether in 2026.[7]

Typically, there is no assigned monetary value to an SREC. SREC prices are ultimately determined by market forces within the parameters set forth by the state. If there is a shortage in SREC supply, pricing will rise, resulting in an increase in the value of the incentive for solar systems and an intended acceleration in solar installations. As SREC supply catches up to SREC demand, pricing will likely decrease, resulting in an intended deceleration in solar installations. Over time, SREC markets are designed to find the equilibrium price that encourages enough installation to meet the growing demand set forth by the RPS. Generally speaking, SREC prices are a function of (1) a state's solar alternative compliance payment (SACP), (2) the supply and demand for SRECs within the relevant state, and (3) the term or length over which SRECs are sold.

Spot price for SRECs are generally higher than prices found in long-term contracts since the system owner is taking on market risk. If increases in supply outpace the growing demand, spot prices could fall. SRECs have traded as high as $680 in New Jersey.[8] Meanwhile other state SREC market prices range from $45 in Delaware to $271.05 in Massachusetts.[4] In addition to the strength of spot market demand in states experiencing supply shortages, the general lack of availability of viable long-term contracts and the heavy discounts applied to these contracts have left some system owners and project developers seeking ways to finance solar through spot transactions.[9] In June 2010, Diamond Castle, a New York based private equity firm, announced that it would be financing projects strictly with equity in order to avoid the premiums paid in long-term contracts.[10]

In addition to providing cash flow security and stability, long-term SREC contracts are often required by banks or other lending institutions unwilling to accept market and legislative risk associated with SREC markets. However, SREC contracts longer than 3 years can be difficult to secure in some SREC markets because in deregulated electricity markets, energy suppliers rarely have electricity supply contracts longer than three years. Some SREC aggregators have managed to negotiate 3-10 year agreements and are able to offer similar length contracts to their residential and commercial customers. In most cases, long-term contracts demand some sort of premium over market prices to compensate the off-taker for putting up the credit to guarantee the contract in the event that prices drop. This premium is also affected by the general lack of availability of credible off-takers in the market. In some markets, however, where short term supply has overtaken demand, long-term prices are competitive and can actually be better than spot prices.[4]