In SREC state markets, the Renewable Portfolio Standard (RPS) requires electric suppliers to secure a portion of their electricity from solar generators. The SREC program provides a means for Solar Renewable Energy Certificates (SRECs) to be created, and sold, for every megawatt-hour (MWh) of solar electricity created. SREC’s are sold separately from the electricity and represents the "solar" aspect of the electricity that was produced. The value of an SREC is determined by the market subject to supply and demand constraints. SRECs can be sold to electricity suppliers needing to meet their solar RPS requirement. The market is typically capped by a fine or Solar Alternative Compliance Payment (SACP) paid by any electricity suppliers for every MWh they fall short of the requirement.
A combination of extremely aggressive annual solar goals and a tough infrastructure and demographic environment have kept the DC SREC market under-supplied. However, efforts to promote greater access to solar such as a 2013 community net metering law and initiatives to promote greater penetration of solar among low-income residents, promise to increase District solar installation rates , and the CleanEnergy DC Omnibus Amendment Act of 2018 promise to increase solar installation build rates across the District.
Washington DC is easily the strongest solar SREC market in the nation and local policy has recently been expanded to reinforce long term confidence of SREC’s. The CleanEnergy DC Omnibus Amendment Act of 2018 increased the District’s renewable energy mandate to 100% by 2032 and extended the solar mandate from 5% to 10% by 2041. This means that the Alternative Compliance Penalty (ACP), the underlying driver of SREC prices, is also extended out to 2041.
There were 4,502 solar facilities registered in DC as of January 1, 2019. These facilities generate around 175,000 SRECs per year. There are also 2,241 facilities not located in DC that will continue to qualify to sell approximately 25,000 SRECs per year in the DC market under the grand-fathering rule.
Since the new DC RPS requirements was bolstered to 10% until 2041, we expect SREC pricing to remain strong until the end of 2023, decrease by $100 for years 2024-2029, before stabilizing at around $200-$250 per SREC from 2029-2041, assuming SREC supply remains well below the RPS requirements. In other states where shortages have driven SREC values up we have seen steep decreases within a year or two as the prices created a climate that encourages overbuilding and leads to a crash.
The city needs to add more than 27 MW of solar by end of 2020 to meet the current RPS targets of the District. We anticipate the new requirements along with policies which were recently passed such as Community Solar and Property Assessed Clean Energy (PACE) financing will encourage a substantial amount of solar development in DC. There are a significant number of solar developers searching for large projects in DC. Because of its relatively small size the risk of an oversupply developing is larger than it would appear.
View SRECTrade's (an SREC broker) analysis report (PDF) on the fundamentals behind SREC's and a projected decrease in oversupply in 2020 & 2021.
SREC's are an integral part of incentivizing a solar PV project. The incentive can be retained and brokered to cover your costs over the long-term, or the SREC right can be signed over to the installer for a lump-sum payment upfront to offset your high upfront costs. SREC's can be extremely profitable if the situation remains stable, and can end up providing over a 200% percent return on your investment.
There are different SREC brokerage companies out there. When brokering SREC's you have two different options of either getting the spot market price minus a specified commission percentage (usually around 5%) paid to the broker, or, signing on to a termed contract (usually between 3-5 years) providing a guaranteed locked in rate (minus commission as well). Locked in agreement rates can be substantially lower, however, will protect you from any rate fluctuations or risks such a collapse of the SREC market due to RPS demand being met for the year.
Risks Associated With Brokering SREC's
What was witnessed in Maryland in 2016 was a testimony and a reminder of the uncertainty behind the SREC market. Between a day and a night the MD SREC market went from being worth close to $200 an SREC, to under $20. This was detrimental to solar owners and investor as their return on investment just skyrocketed from 6 years to almost double than that.
Signing on to termed agreement can provide some relief to this risk, for the short term at least, but rates under such an agreement are 25% to 30% lower than spot market prices.
Also since utilities have to comply by April 1st of each year, the trend we have witnessed is that SREC prices will peak the previous 2 months prior to compliance. After April, SREC prices typically hit their lowest rates, during summer months, and start to go back up around December. To get the highest rate, best time to sell SREC's is March of each year.
Selling SREC's upfront, or surrendering them to your installer at the time of the install, has proven to be the most popular option among residents we've spoken to that have gone solar. One local installer estimates that about 70% of customers who purchase their systems do not retain their SREC's and prefer to have the credit applied to their purchase cost to lower their upfront costs.
Selling your SREC's upfront can reduce your upfront costs by up to 60%. That could reduce the cost of a 5 kW project from over $17,000 to around $8,000, before the tax credit.
Also getting the upfront credit on your SREC's will protect you from any market turbulence such as was observed in summer of 2021, or collapse of market value as observed in neighboring SREC market states.
Last reason observed of why people have sold their SREC's upfront is simply because they don't want to deal with the hassle of brokering them for the next 15+ years and would rather get them out of the way on their system upfront to know exactly what their certain economic prospects are on the solar PV system.