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How Are State SREC Markets Performing?

Americans like free-market based solutions, even if a market is based on the illusion that it's free. (Like the entire energy system, where there's not one unsubsidized electron or drop of fuel.)

Perhaps that's why renewable energy credit trading schemes have dominated in the U.S. Although these markets are dependent on government mandate and fiat currency, they create a trading platform that makes Americans more comfortable than, say, a Feed-in Tariff, which is sometimes seen through the U.S. lense as a heavy-handed tool to re-distribute wealth.

Never mind that these mechanisms are funded in the same way – and in some cases depending on how contracts are structured, can look very similar in design. The word “market” makes politicians salivate; the world “tariff” makes them cringe.

This way of thinking has driven states to develop solar incentive schemes based on Solar Renewable Energy Credits, or SRECs.

SRECs are tradable credits that represent one megawatt-hour of solar electricity. In states with specific solar targets under a Renewable Portfolio Standard, energy suppliers must accrue a certain number of SRECs to meet yearly goals. These power providers can either generate the SRECs themselves by investing directly in projects, or purchase the credits from project owners, brokers and aggregators.

The value of credits is based upon supply and demand: If there's a shortage of solar electricity in a given state, SREC prices will be high, thus stimulating more development. If there's an oversupply of solar, SREC prices will drop. Prices are capped by a penalty that power providers pay if they can't meet their targets.

Theoretically, an SREC market should provide a more dynamic way of determining the value of solar electricity in a particular state.

So is the policy working?

That was one of the key questions addressed at PV America, a conference focused on the Northeast and Mid-Atlantic states where SRECs dominate.

It's too early to determine the long-term effectiveness of SRECs, as they're still a fairly new mechanism. But with seven states and the District of Columbia now with credit-based markets in place, the cumulative experience is growing fast.

Below, Yuri Horwitz of the SREC financing company SolSystems talks about the successes and uncertainties in some of the leading East Coast markets.

We also caught up with Natalie Andrews of the Massachusetts Department of Energy Resources to talk about that state's emerging SREC market and how it differs from others in the region.

Massachusetts had troubles early on when one of the largest energy suppliers sued the government for requiring in-state SRECs – saying it was violating national commerce laws. The suit was settled, but it has other states with similar incentive schemes thinking about the potential consequences.

Jeff Wolfe, CEO of the installer/distributor groSolar, works on projects around the Northeast and Mid-Atlantic region. Below, he shares his thoughts on the ups and downs of SREC and rebate programs in the states he's working in. (Wolfe hesitates to call them “markets,” still believing their long-term viability hasn't been proven.)

And finally, we spoke with Carrie Cullen Hitt, president of the SolarAlliance, to chat about how to create successful, stable solar policy. With so many states facing severe budget constraints, there's been a backlash against incentives for clean energy – both taxpayer funded (rebates) and ratepayer funded (SRECs and Feed-in Tariffs).

While the backlash concerns Hitt, she also believes that if states have a solid market structure in place (i.e. good interconnection standards, streamlined permitting and net-metering), businesses will make it through the turbulence.

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