four step guide to how SRECs work

The rapid onset of climate change's adverse effects has underscored the pressing need for a nationwide shift towards renewable and dependable energy sources. In response to this need, state governments have introduced incentive programs to encourage households and businesses to embrace clean energy solutions. One such initiative is the Solar Renewable Energy Credit or Solar Renewable Energy Certificate, commonly referred to as SREC. Solar Renewable Energy Credits provide financial incentives for solar power system owners, offering them financial returns for their commitment to clean energy. 

What is an SREC (Solar Renewable Energy Credit)?

Let's start with the SREC meaning. A Solar Renewable Energy Credit (SREC) is a non-tangible certificate awarded to the owner of a solar panel system for every megawatt-hour (MWh) or 1,000 kilowatt-hours (kWh) of energy their system generates. For instance, if a system produces 12,000 kWh annually, the owner could earn around 12 SRECs per year. These solar energy credits have monetary value for the property owner, offering them an opportunity to generate additional income through clean energy production.

What Are Renewable Portfolio Standards?

To fully understand what solar renewable energy credits are and how they operate, it is essential to understand Renewable Portfolio Standards (RPS). These are policies that state that a specific portion of a state’s electricity must be generated from renewable energy sources. RPS significantly influence the SREC market. Some RPS include solar carveouts, specifically dedicated to energy generated from solar projects and home solar energy systems. Only states that have Renewable Portfolio Standards with solar carveouts have dedicated SREC markets. This is the key difference between RECs (renewable energy credits) and SRECs. In states with solar carve-outs, utilities can obtain a set number of SRECs annually, either by generating the power themselves or by purchasing and retiring the SRECs to meet the solar RPS requirements.

Earning and Selling SRECS

map highlighting states with SREC markets

Which States have an SREC Program?

While 38 states and Washington D.C. have Renewable Portfolio Standards in place, only 8 of these states have SREC programs in place where individuals can participate in selling solar credits. These states are:

  • Delaware
  • Maryland
  • Massachusetts
  • New Jersey
  • Ohio
  • Pennsylvania
  • Washington DC
  • Virginia

In addition to these states, individuals who own solar energy systems in some parts of Michigan, Indiana, Kentucky, and West Virginia can sell their SRECs in Ohio’s SREC market despite not having their own market for SRECs.

How do SRECs Work?

The process begins with Renewable Portfolio standards, which establish the required percentage of a state’s energy production that must come from renewable sources. From there, the public utility commission (PUC) of each state enforces the RPS to all electricity providers in the area. SRECs can then be used as proof of compliance with these standards. These SRECs are created at certified home solar systems or farms, which the PUC or a similar agency tracks through meter readings.

Overall, Solar Renewable Energy Credits incentivize homeowners and utility companies to adopt green energy. It can be helpful to think of an SREC as a “coupon” that a solar array produces for every set amount of electricity it generates. Note that this is separate from the actual energy from a solar energy system. With SRECs, solar can become an even more efficient and profitable energy solution for the individual.

How Many SRECs Will My System Produce?

One SREC is issued for approximately every 1 MWh (1,000 kWh) of electricity produced. To estimate it on your system, multiply the size of the system by 1.2. For example, for an 8-kW solar panel array, you’ll get around 9 to 10 SRECs every year.

How do I sell my SRECs?

To get started selling SRECs, ensure you understand your state’s SREC program and have a certified solar system that meets the program requirements. From there, you can register with an SREC aggregator or exchange platform such as SRECTrade or Sol Systems. Once your SRECs are generated, you can list them for sale on the SREC market, and you’ll be paid once they are sold. Not only will you be supporting renewable energy, but you’ll also be earning additional income! It is important to note that by selling and retiring your SRECs, you forfeit the ability to claim the environmental attributes of your solar energy system. This means that you will not be able to claim carbon neutrality in your home energy use. 

How are SRECs Valued?

Renewable Portfolio Standards (RPS) drive market demand. This gives solar system owners the chance to sell their SRECs through the SREC market to energy suppliers and utilities, helping them meet their state's solar carve-out requirements.

The value of an SREC can shift due to changes in supply and demand. In addition, SRECs can be traded, as well as bought and sold, further impacting their value.

Another important factor in the value of an SREC is the state's alternative compliance payment (ACP), which is the fee utility companies need to pay if they don’t meet the state’s RPS requirements. Companies will not pay for an SREC that costs more than the ACP fee, thereby setting the limit on SREC prices.

In the grand scheme of things, the availability of SRECs on the market plays a pivotal role in determining their cost, as does the state. Currently, SREC prices vary widely across states.

How much can I earn selling SRECs?

How much an SREC is worth largely depends on the state where you live. For example, in Ohio, SRECs are valued at around $4. Conversely, in Washington, DC, the value of an SREC is closer to $330.

SREC Value by State as of 2023

  • Maryland: $55
  • Massachusetts: $315
  • New Jersey: $215
  • Ohio: $4
  • Pennsylvania: $40
  • Washington, DC: $330
  • Virginia: $45

What happens to SRECs if I move?

As a rule of thumb, you can sell your house and move out while still retaining ownership of your SRECs. Solar homeowners, however, often use SRECs as a negotiation tactic. By transferring them to the new owner, they can often sell their property at higher prices.

Ultimately, SRECs can offer financial compensation to solar system owners, providing them with a counterbalance to the upfront investment of home solar installation. Simultaneously, SRECs play a key role in promoting the growth of renewable solar energy, a critical step in facilitating a clean energy economy.

To learn more about the additional financial incentives available for renewable energy and sustainable upgrades, check out our comprehensive guide to the Inflation Reduction Act!