New Jersey Solar Energy Credits Provide Cash Payments to Homeowners, Businesses

In New Jersey — and a growing number of other states — owners of solar energy systems are able to sell things called solar renewable energy credits (SRECs). In a nutshell, SRECs provide cash payments to homeowners and business owners who install solar panels.

We’ve got a fairly no-nonsense explanation of how SRECs work here. And see the bottom of this post** for a full description from the New Jersey Clean Energy Program. But, for now, this is essentially what you need to know:

Solar photovoltaic (PV) panels generate electricity. (Some of you may be saying “duh,” and that’s OK.)
One SREC commonly refers to 1,000 kilowatt hours (kWh) — or 1 megwatt hour (MWh) — of electricity.
So, every time a solar panel system generates 1 MWh of electricity, its owner is entitled to sell one SREC.

Two questions follow, naturally:

(1) How much can you sell an SREC for?

AND

(2) What does this price mean for the typical owner of a residential solar energy system?

Lucky for us, New Jersey keeps up-to-date data on SREC trades across the state, which means we can get a glimpse into how the price of these credits varies over time:

SRECs traded at around $550 in 2010 in New Jersey

Data from the New Jersey Clean Energy Program

As you can see, SREC prices in New Jersey started out 2010 at around $540 and climbed steadily throughout the the first half of the year. The highest monthly average price (weighted) was recorded in November, when your average SREC fetched $615. This means New Jersey homeowners who sold their credits in that month could have received $615 per SREC — not bad, particularly when you consider the following:

A 5-kilowatt (kW) residential solar panel system in New Jersey would generate enough electricity over the course of a year to make five SRECs. At the average price through November 2010, a system of this size would yield around $2,900 in annual SREC payments to the system owner.
A 7-kW system would generate about eight SRECs in its first year of operation — and, in 2010, would have yielded about $4,000 in SREC payments.

Ask anyone who has installed solar power in New Jersey over the past year or so, and you’re sure to get positive reviews on the state’s efforts to promote renewable energy.

The bad news? It’s not possible to trade solar renewable energy credits in all states (although, as noted above, the number is growing). New Jersey has the most developed SREC market — and the one that with the highest SREC prices — though Pennsylvania, Massachusetts, Pennsylvania, Maryland and a few others are beginning to catch up. For instance, see Solar Home & Business Journal’s recent article on how tradable renewable energy credits (TRECs) may eventually become a part of California solar energy market.

**Here’s the New Jersey Clean Energy explanation of SRECs:

Each time a system generates 1,000 kWh of electricity an SREC is earned and placed in the customer’s electronic account. SRECs can then be sold on the SREC tracking system, providing revenue for the first 15 years of the system’s life.

Electricity suppliers, the primary purchasers of SRECs, are required to pay a Solar Alternative Compliance Payment (SACP) if they do not meet the requirements of New Jersey’s Solar Renewable Portfolio Standard (RPS). One way they can meet their RPS requirements is by purchasing SRECs. As SRECs are traded in a competitive market, the price may vary significantly. The actual price of an SREC during a trading period can and will fluctuate depending on supply and demand.

natacha Said,

January 10th, 2011 @4:13 pm

People who own solar energy systems can capitalize on SREV values in a variety of ways. They can sell SRECs via the spot market at current prices (this is good for the most risk tolerant solar owners), they can lock in a multi-year rate through a long-term contract, or they can pre-sell several years of SRECs in exchange for a one-time lump-sum payment (this is good for the most risk averse solar owners). Sol Systems is the nation’s largest and oldest SREC aggregator and they offer each of these options. For more info, see http://www.solsystemscompany.com/srec-options

solargal Said,

January 12th, 2011 @3:15 pm

Does anyone realize that NJ’s SREC market is imploding? They already have 1100MW in the pipeline for solar pojects, many of which are 4MW or larger. Why would a utility buy an SREC from a residential system when they can buy all they need (and at a quantity discount) frome one large system?

dpopp Said,

January 13th, 2011 @9:40 am

The SREC price information in this article is partially correct. The SREC prices
the author is referring to is the Cumulative Weighted Average Price (CWAP) for NJ
SRECs. This price is published by the New Jersey Clean Energy Board and takes
into account both spot and long-term SREC contracts. The CWAP price of $615 is a
considerable discount to where SRECs are trading in the open marketplace. For example,
NJ SRECs, are trading for $655.00 on the Flett Exchange. Flett Exchange is an exchange
and brokerage firm that transacts and monetizes SRECs. Flett Exchange provides the
most accurate price for spot SRECS and has the largest and most diverse pool of buyers
who competitively bid your SRECs. Flett Exchange also brokers long-term fixed and pre-
paid SREC contracts for commercial solar facilities. For the most accurate SREC prices
visit http://www.flettexchange.com.

Adam Sewall Said,

January 13th, 2011 @9:41 am

Thanks for your comment, solargal.

There certainly has been a lot of activity in NJ’s SREC market. But my understanding is that many homeowners sell their SRECs onto aggregators, which then sell on to utilities. Ultimately, a utility will buy SRECs wherever it can find the price and quantity it seeks.

Also, the activity of large project developers isn’t the only reason SREC prices are expected to come down over time — most states, like NJ, have an alternative compliance payment that decreases year over year.

All this said, your point is well taken — and I expect we’ll see increased interest among regulators to require that a percentage of SRECs come from small systems/distributed generation — e.g., California’s current discussion surrounding Tradable SRECs (TRECS) and New Mexico’s 3% distributed generation requirement (granted, NM’s SREC market is not yet viable).

http://www.srectrade.com/new_mexico_srec.php