We’ll start with the textbook definition: An SREC is a certificate representing the “green attributes” of one megawatt-hour (MWh) of electricity generated from solar energy.

What does this mean in practice? If you install solar panels on your home, you roof will, in effect, start generating kilowatt-hours (kWh). As these kWhs add up, you’ll be on your way to making one SREC — which, as noted above, is the equivalent of one MWh, or 1,000 kWh.

How many SRECs does a system produce? It depends generally on the size of the system and the amount of sunshine available. By way of example, a 7-kW home solar energy system in Somerset County, New Jersey, would, according to our solar cost calculator, produce roughly eight SRECs over the course of a given year.

Now comes the good part. Once you’ve accumulated an SREC (or two or three), you’ll be able to sell your credits. Exact SREC prices vary from state to state, but the highest price recorded so far has been around $680 in New Jersey. At this price, SRECs would generate $5,440 in annual revenue for our hypothetical 7-kW solar array in Somerset County. Put differently, we would earn $0.68 for every kWh that our system produces — this in a state where the average residential price of electricity is around 16 cents. Clearly, SRECs in New Jersey provide a generous incentive!

To be fair, SRECs are traded actively in only a handful of states — but that number is growing. Also, it’s important to note that the going price of an SREC tends to fluctuate, and that $680 levels are likely the exception, not the rule. Finally, in some states, like Colorado, utilities offer an upfront payment for all the SRECs a given system is expected to generate — rather than buying them over time.

How did all this SREC business get started? Many states have passed a Renewable Portfolio Standard (RPS), legislation requiring them to produce a certain percentage of their electricity from renewable resources by a certain year. For example, New Jersey’s requires the state to produce 22.5 percent of its electricity from renewable resources by 2020. State requirements vary based on their political support, baseline level of renewable electricity in use, and level of public investment. An RPS almost always includes a policy plan to incentivize renewable energy development and installation within their state. In the residential sector, this is most traditionally done though subsidies awarded based on the number of watts of renewable energy installed. California’s solar rebate programs, for example, award a per-watt payment to homeowners who install solar panels.

Many states include a provision specifically for solar energy, requiring a smaller percentage of total renewable energy to be met by solar photovoltaics. Each electricity provider that does not meet this percentage must purchase SRECs to correct their deficit, and non-compliance means a hefty fine. As a result, SRECs are sold for prices determined strictly by the market for RPS compliance. It’s a simple case of supply and demand: fewer solar installations means higher prices for available SRECs, creating an incentive for future solar installations.

So far, Delaware, Maryland, Massachusetts, New Jersey, North Carolina, Ohio, and Pennsylvania, have funded and implemented SRECs to promote the level of solar energy development that their policies demand. To see how SRECs might affect your solar system, check out our solar cost calculator. Or, if you’ve got burning questions, post them below!

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Despite its reputation as a solar hot spot, New Jersey’s solar rebate program was closed this summer due to state funding shortages. The landmark Solar Renewable Energy Credit (SREC) program was, and still is, going strong, but the lack of traditional rebates deterred many residents from making the commitment to get solar.

New Jersey is back in the residential solar game. However, there’s no telling how long the current rebates will be available. The New Jersey Clean Energy Program is probably flooded with applications as we speak. Get your rebate while they last!

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What does this mean for solar in New Jersey? Hopefully, nothing too dire. When the state ran out of funding for its generous solar rebate a couple years ago, all solar activity ground to a halt for months. And then the state rolled out the market-based SREC program, revitalizing the commercial and industrial solar sectors. The residential market, however, didn’t truly pick back up until the state–then under the leadership of Governor Jon Corzine, a huge solar proponent–reinstated a modest rebate. Combined with the revenue stream provided by SRECs, the reduced solar rebate has been enough to make projects feasible for the average homeowner. In fact, payback periods for home solar installations in New Jersey have been lower than anywhere else in the country due to this unique set of incentives.

If new Governor Chris Christie cuts the solar rebate entirely, my guess is that the industry will once again lose momentum in the residential sector. Relatively predictable income from SRECS make securing bank financing easy, but without the rebate to reduce up-front costs, the solar price tag becomes prohibitive for most home and business owners. The excellent federal tax credit, equal to 30 percent of solar costs, has a direct and positive impact on cash flow but again, does not help with out of pocket expenses.

But if the rebate is reduced to, say, $1/watt? While no numbers have been bandied around as of yet, this is not out of the question–the current rebate has a base level of $1.55/watt for residential systems, with $0.25/watt adders available for home energy audits and systems that utilize New Jersey-made components. $1/w would still offset approximately 15 percent of average system costs. Knock that down a further 30 percent with the federal tax credit, tack on revenue from SREC sales, et voila: financially viable solar will still be available for New Jersey residents.

Christie’s grab for previously earmarked clean energy funds has upset solar professionals, who–understandably–don’t get why one of the only healthy, growing sectors of New Jersey’s economy should be penalized in order to prop up budget shortfalls elsewhere. It may be a long month of waiting for news, but we’ll keep you posted.

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NextEra’s energy portfolio (PDF) includes 310 gross megawatts of solar energy and over 7,640 gross MW of wind power. The solar energy in NextEra’s portfolio comes from seven California solar installations. The NFL purchased wind and solar RECs, meaning that you watched the Saints win a partially solar-powered game last night.

The NFL’s efforts to green the Super Bowl got a lot less media attention than one lonely little ad, however. The by-now infamous Audi Green Police commercial is hilarious–and controversial. Some feel the commercial plays to fears that greater environmental regulation could lead to “green policing”, while others champion its willingness to take a stand on the fact that personal behaviors will have to change if we truly want to move towards a clean energy future. Haven’t seen the ad? Take a look:

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Set at 5 percent in 2010, the minimum benchmark increases by 1 percent annually under the Green Communities Act. Both the RPS and the new requirement for long-term contracting are meant to provide certainty for clean energy developers and help them obtain the financing needed to build successful projects. (DOER Press Release)

Eligible renewable energy technologies are those with Renewable Energy Credits (RECs)–so, solar energy systems are most definitely included. The state’s new Solar Credit Market gets its backbone from a solar carve-out in the state’s RPS. That is, within the percentage of a utility’s energy portfolio that must come from renewable sources, a specific percentage of that must come from solar power only. Massachusetts solar installations, which were on hiatus for a few months last year as the state tried to figure out how to re-fund its solar rebate program, are expected to boom this year as a result.

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…the new programs – Commonwealth Solar II and Commonwealth Solar Stimulus – will begin accepting rebate applications from residents and businesses seeking help financing their solar photovoltaic (PV) systems. The new rebate programs will be benefit from a two-pronged funding scheme. Funding for Commonwealth Solar II, providing rebates for small residential and commercial photovoltaic (PV) systems (5 kilowatts or less), will come from $1 million per quarter in existing funds from the Massachusetts Renewable Energy Trust.

The press release doesn’t stipulate how much funding an individual project can expect to receive; under the original Commonwealth Solar plan, residential rebates began at $1/watt but could be over $4/watt, if the applicant qualified for adders like moderate income, moderate home value, or Massachusetts-made solar components. However the rebate breaks down this time, $1 million per quarter in funding should help a substantial number of small solar projects get off the ground.

Accessing federal funds (ARRA), Governor Patrick will be able to offer solar installations of 5-200kw rebates as well. But the real buzz in the state is around the proposed Solar Credit market. This is essentially a market in which the solar renewable energy credits (SRECs) associated with the electricity produced by solar panels in the state can be sold, the proceeds going to the owner of the solar installation. This is the very successful model currently being used in New Jersey, most notably. Why the state couldn’t just call it an SREC program is beyond us–but we’re happy to see Massachusetts getting into the SREC game, regardless. For a state that has consistently provided thought and legislation leadership on renewable energy issues, its programs to help offset the high cost of solar installations have lagged behind neighbors like New York. Way to ring in the new year, Massachusetts!

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Here are some of the main points of the Solar Loan II program as laid out in yesterday’s press release:

• Any solar installation is eligible, including residential, commercial, industrial, government, etc., as long as it’s a project of a PSE&G electric customer
• Projects may not exceed 500 kw
• The loan may cover up to half of the gross cost of the solar installation, to be repaid over a span of up to 10 years for residential customers and up to 15 for all others
• Participation in the loan program does not affect eligibility for other solar incentives, such as New Jersey’s solar rebate and the federal tax credit

But here is what may be the coolest part of this program: the loan may be repaid with cash, or with the solar renewable energy certificates or SRECs generated by the system. This means you would be repaying your solar loan with value entirely produced by your solar panels. And the clever use of SRECs doesn’t end there: PSE&G will use the SRECs it receives to help offset the bill for this program, which is being footed currently by a surcharge on its customers’ monthly bill.

PSE&G’s electric customers will pay for the cost of the solar program through the RGGI Recovery Charge (RRC), which is included in the delivery part of their monthly bill. PSE&G will sell the SRECs it receives for loan repayment in an auction, and credit the proceeds from the sale to customers through the RRC, which will offset a portion of the program costs. The average residential customer who uses 722 kilowatthours in a summer month and 6,960 kilowatthours annually will pay about 36 cents more per year than they do now.

New Jersey’s unique package of incentives–a rebate coupled with a strong SREC trading program, on top of the federal tax credit–has made it one of the best states in the nation in which to pursue a solar installation for both homes and businesses. If you’ve been on the edge, you’re a PSE&G customer, and financing is what’s been holding you back, it may be time to take the leap.

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To take a closer look at how solar Renewable Energy Certificates (REC) markets work, we’ll use the great state of New Jersey as a case study.  In the late 1990s, New Jersey deregulated the electricity market in order to secure a greater diversity in the electricity supply and lower the cost of electricity by spurring competition.  To ensure that competition did not drive electricity suppliers to purchase cheaper and more polluting supplies of power, the legislature set up the rules and regulations for net metering practices and categorized sources of renewable energy.

• Class I is defined as power from solar, wind, fuel cells, geothermal, ocean, and methane gas from landfills or a biomass facility.
• Class II includes mostly hydropower facilities.  When the state created the renewable portfolio standard (RPS) in 2004, solar energy gained a special percentage carve-out of 2.12% of generation.  This remains one of the most aggressive targets for solar PV generation in the country.

So how can such targets be obtained?  In order to prove generation, suppliers and providers are required to earn or purchase Renewable Energy Certificates.  In the New Jersey REC market, certificates are broken down into three distinct categories corresponding to renewable energy types: Class I RECs, Class II RECs, and Solar RECs. Solar RECs are the most valuable in the sense that they can be used to meet any renewable energy category requirement set out by the RPS, whereas Class II RECs can only be used to meet Class II requirements.  As stated in the law, all RPS compliance will be submitted in the form of RECs.  Suppliers and providers that do not actually construct renewable energy plants can avoid installation and operation costs by simply buying credits from those who do pursue the renewable energy construction route.

Policymakers, aware that some would not only reject self-generation but also avoid submitting RECs altogether, provided guidelines for compliance.  If RECs are not earned or purchased, then a fine known as the Solar Alternative Compliance Payment (SACP) must be submitted in its place.  The SACP is a higher fine for non-compliance than the standard ACP for other renewable energy sources.  In addition, all monies gathered from the SACP will fund renewable energy and solar energy projects in the New Jersey Clean Energy Program. This financial structure is intended to ensure that if targets are missed and RECs are not purchased, a net positive outcome will result due to the growth in the Clean Energy Program.

Since its inception, the New Jersey RPS has been amended several times in order to both increase target percentages and ensure that the price of non-compliance will be higher than buying or generating a REC.  New Jersey’s solar REC market determines price based on the supply and demand of RECs.  Most importantly, however, it appears to have shifted the driving force of scaling solar away from a rebate-based program.  Such a shift has been accused of favoring large-scale producers of solar over residential users.  This is something we will be sure to keep our eyes on as the solar REC market in New Jersey continues to develop.

While REC markets have existed in the States for several years, the higher value placed on solar RECs in New Jersey is the first of its kind and can indeed scale installed capacity in the state if compliance mechanisms are  effective.  Only time will tell!  As of August 2009, over 90MW of solar was installed statewide.  At GetSolar, we’ll continue to check out New Jersey’s Solar REC market and similar REC mechanisms nationwide.

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Governor Rendell put the state’s first solar rebate program into action earlier this year, fleshing out the solar incentive policy which had previously only included tax credits. Now, the net cost of a solar installation in Pennsylvania can be more than 60% below gross (for residential solar installations, the rebate provides up to $22,500 on top of the 15% state tax credit and the 30% federal tax credit). Potential income from the sale of SRECs can now help residential and commercial solar installations pay for themselves even more quickly.

Rendell was also behind the state’s adoption of a Renewable Portfolio Standard (RPS) back in 2004. The RPS calls for 18% of the state’s energy to come from renewable sources by 2020. Allowing Peco to purchase SRECs–as opposed to other alternative energy credits or certificates–means the market for SRECs will both firm up and, hopefully, skyrocket within the state, as other buyers will almost certainly be approved if the state approved this one. In New Jersey, basing a solar incentive program largely around the trading of SRECs has shown great early success: each megawatt-hour of electricity produced by a solar installation is bundled and sold on the New Jersey market as a single SREC, and the proceeds go back to the owner. Each SREC has been selling for an average of over $400 (and often more like $600, though the lows have dipped under $200 per certificate).

It will be interesting to see how Pennsylvania’s leap into the SREC market will affect nearby Jersey. Peco has been approved to purchase the SRECs from anywhere within the regional grid (PJM Interconnection LLC), which services all of part of 13 states–of which New Jersey is one.

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That’s all changed. Homeowners can now take advantage of a new rebate, between $1.55 and $1.75/watt (the two shiny extra dimes per watt are only yours if you get  a home energy audit before installing your system). This is a huge step down from the program’s previous rebate level, which at one point was up around $4/watt. Still,

A typical solar power system that generates seven kilowatts costs about $60,000, state Board of Public Utilities spokesman Doyal Siddell said. A rebate would cover $12,250 of that cost. [APP.com]

Aside from the fact that a typical home solar electric system generates more like 3.5 or 4kw than 7, that’s not a bad rebate when you take into account the fact that homeowners can still take advantage of the SREC trading scheme on top of that. This might put NJ in the lead again. Think about a state like Massachusetts, which has a great set of tax incentives for commercial customers but a miserly base rebate of $1/watt for residential customers. Or even California, where the tiered incentive program has been so successful that, in some parts of the state, rebates have already been scaled back to around $2/watt with no auxiliary cash incentives available.

Commercial and industrial concerns in New Jersey will be eligible for a $1/watt rebate; again, that’s on top of the SREC trading program. Each 1-mw SREC is selling currently for over $450.

The new solar rebates will be available to applicants who get in queue before April 30th, 2009. Although the line only started forming yesterday, you might want to get a move on: the $27.2 million the state has made available for these rebates may not last long, if last year’s example is anything to go by.

For more information, spend some quality time on the website of New Jersey’s Clean Energy Program. Then, fill out the relevant GetSolar web form (Residential or Commercial) to determine if solar is right for you.

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