SRECs: What are they and what value do they have?

Intro to RECs and SRECs

As a quick primer, REC stands for Renewable Energy Credit (or Renewable Energy Certificate).  A REC is a commodity, which is used to track the “green” attributes from 1 MWh of renewable energy generation. An SREC is a REC generated from a solar project.

RECs (of any type) can be decoupled from the actual electricity generated by a renewable energy project, and sold separately.  However, it is critical to understand that ownership of the REC is essential to making claims about renewable energy.  So, for example, if Entity A purchases electricity generated by a wind project, but the RECs are sold to another Entity A, then Entity A cannot claim to be using green energy.  However, since Entity B purchased the RECs, they can claim to be using renewable energy, even if the actual electrons they use were generated from a coal plant. It may sounds confusing, but it’s really just an accounting method to ensure that the green attributes are not counted twice.

Beyond tracking green energy production, SRECs are also a commodity which provide monetary value to a project. The actual value depends on the market conditions, and can vary tremendously over time and from one market to the next. Recent figures indicate SREC prices ranging from $25/MWh to more than $400/MWh in different areas. The SREC market and associated value is impacted by the aggressiveness of the goals and the market supply, which is in turn affected by policy requirements project eligibility (location, size limitations, install date, etc.).  The penalty costs for not meeting set-aside obligations also impacts SREC values.

At these prices, SRECS can represent a significant contribution to annual project revenue.  On the high end, SRECs can be worth two or three (or more) times more the value of the electricity generated by a project, at least during the initial period when high SREC prices apply. (The value for SRECs typically reduce over time, whereas electricity prices typically increase. Furthermore, SRECs may only apply for a portion of 20 year project life.)

The Massachusetts SREC Program

With that general background, it’s worth delving into a concrete example of why SRECs matter.

Massachusetts (historically not viewed as a prime solar resource state) has had an SREC market since the Solar Carve-Out Program for the state RPS was initiated in January 2010.  The original program targeted development of 400 MW of solar PV across the Commonwealth, and was so successful that a total of 654.4 MW of capacity from nearly 12,000 projects has been qualified, and the program stopped accepting applications in 2014.

The second phase of the Massachusetts Department of Energy Resources (DOER) Solar Renewable Energy Credit program (SREC-II) was initiated on April 25, 2014.  This program is used to meet the RPS Solar Carve-Out II, with a goal of 1,600 MW of solar PV projects by 2020 (including the solar project capacity already covered under the SREC-I program).

Solar PV Generation Units must meet the following requirements to participate in the MA RPS Solar Carve‐Out II:

  • Capacity of 6 MW DC or less per parcel of land
  • Interconnected to the electric grid in the Commonwealth of Massachusetts
  • Use some generation on‐ site (includes any new or existing load, including parasitic loads from operating the unit itself)
  • Commercial Operation Date of January 1, 2013 or later

Unlike the SREC-I program, the SREC-II Program assigns an “SREC Factor” to each project based on market sectors.  The SREC Factor is used to determine the total qualifying amount of SREC IIs generated by a project, since SREC-IIs are calculated by multiplying the SREC factor times the number of MWh generated.  A list of the market sectors, project requirements, and applicable SREC factor is shown in the table below.

SREC-II Market Sector Categories

SREC-II Market Sector Categories

The Massachusetts SREC-II Program is set up to provide a higher level of support for development of smaller projects and systems that generate power for on-site use, or are built on land with limited other development opportunity such as landfills and brownfields.  This is apparent in part from how the SREC factors are set up. In addition, the DOER is also limiting the amount of projects that will be approved in the Managed Growth category by setting an annual cap in total capacity.  None of the other market sectors have a cap.

There is a Solar Credit Clearinghouse Auction to provide price support for the MA SREC programs. The fixed auction price for SREC-IIs varies from $285 in 2015 to $180 in 2024.  Actual prices for SREC-II’s may be even higher than this, although there are no guarantees.

At these prices, the SREC program can be a huge factor in project revenues. As an example, the graph below shows potential annual revenue / value associated with a hypothetical 500 kWDC ground mount array in MA, categorized in Market Sector B.  The system is assumed to generate 625 MWh per year to offset on-site electricity consumption, as well as 563 SREC-IIs based on the SREC Factor of 0.9.  Massachusetts has a pretty high electric costs—using the average retail rate over the last year, which was about $160/MWh, the project would save nearly $100,000 in the first year from electric costs.  However, even with these high rates and the decreasing value of SRECs over time, SRECs could provide more than half of the project’s value in the first 10 years.

example project revenue for the first 10 years

Example Project Revenue for the First 10 Years

As noted, the MA SREC program has been successful in spurring meaningful growth of the Solar PV market in the state, despite its relatively modest solar resource. It wasn’t so long ago that if you weren’t planning to build your PV project in the Southwest, you might as well forget about it. Now, programs like the MA RPS and associated SRECs have totally changed the math. As with many projects, “follow the money” is always good advice. For solar projects (at least in the northeast) that usually means – follow the SRECs.

About Ali Schmidt

Anneliese Schmidt (Ali) is a project manager and lead technical analyst for ANTARES. She is experienced in technology evaluation and selection, performance and economic modeling, cost estimation, renewable energy site selection and evaluation, and assessment of greenhouse gas emissions and criteria pollutants. Her expertise covers technologies including photovoltaic and solar energy systems, biomass energy systems (including cogeneration and cofiring), and biofuel conversion technologies.

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