The Development of the U.S. SREC Market

Chris Williams, HeatSpring
August 23, 2011 | 13 Comments

Now that the east cost solar market is mainly driven by SRECs, we've been getting a lot of questions from solar installers about what they need to know about them and how to communicate their value to clients. Last week, I spoke with Sam Rust from SRECTrade to discuss these inquiries. The full video interview is at the bottom of the post. The following is an overview of what we discussed with the appropriate timestamps.

(00:20) What is an SREC? How are they made? Why do the programs differ in different states?
(1:35) The key SREC markets in the U.S.
(2:00) Out-of-state vs closed-off SREC programs
(2:40) How out-of-state SRECs work. What are the rules that govern who can sell SRECs into another state?
(4:21) The development of solar thermal SRECs and the requirements for the few states that allow them
(5:50) Why states aren't pushing for solar thermal SRECs at the moment
(7:20) Thoughts on the current transparency and understanding of how the SREC markets work and if they will improve in the near future
(9:25) Does SRECTrade have a stance on SREC markets that are preferred over others or best practices in creating and administering SRECs? What drives the development of the difference between states SRECS programs
(11:10) The balance between solar rebates and SRECs
(12:00) How federal incentives can distort the state level SREC markets and prices
(13:00) What do you find are the typical things that installers need to be educated about SRECs?
(15:25) Thoughts on the elusive "long-term SREC" contract
(17:05) Why load serving entities (power generators) only want to purchase SRECs in 1-3 year increments
(19:00) Do you think Wall Street will be getting into SRECs? Will they be bankable and traded like other commodities?
(20:00) What makes the Massachusetts SREC market special?
(21:10) The development of SRECs
(22:40) Comparing and contrasting feed-in-tarrifs in California and SRECs in the east coast market. How the development of different programs is driven by the political environment and utility regulation.

Chris Williams is the Chief Marketing Officer at HeatSpring Learning Institute and writes about solar and geothermal marketing, sales, design and installation. You can find more interviews with industry experts at HeatSpring TV or contact him @topherwilliams or cwilliams@heatspring.com

The information and views expressed in this blog post are solely those of the author and not necessarily those of RenewableEnergyWorld.com or the companies that advertise on this Web site and other publications. This blog was posted directly by the author and was not reviewed for accuracy, spelling or grammar.

13 Comments

Michael Gross
September 6, 2011

I have purchased a 10KV PV system in Pa and it is working, however, I cannot get any SRECS Sold at all.
I hope you installers are trying to get you legislature representatives to support solar. I feel Pennsylvania fix the SREC market by not allowing outside states to sell in, as they limit us to sell to them. And the small PV power requirement for Pa must be increased to continue the market or Pa Solar will STOP due to low payback. I cannot SELL ANY SRECS so i am losing 25% or more of my payback and therefore Solar too costly. Please write to your state legislatures and solar associations. A concerned owner.

ANONYMOUS
August 26, 2011

phil--you understanding of the ACP is simply wrong. It is a ceiling price only.

Fred Widicus
August 26, 2011

NJ went afoul when it changed its policy regarding Qualifying solar projects--allowing infront of the meter solar farms over 2MWp was a HUGE mistake and the main reason the market #s have crashed so dramatically. NJ changed the rules for short term correction that over shot by a mile--next time NJ should "think" before you "does"/look before you leap.

Phil Manke
August 25, 2011

The way I understand it, SACP's provide the floor for SREC pricing. If they are set too low, the ute's will simply pay them and let the SREC's acrue till the price on the trading board comes down, and recent past has shown, it will fall, and into their pockets, as the DC market collapse showed. Therefor, SREC's without a significantly high SACP is a futile gesture. There are also other things that I see may happen in SREC markets, like satisfaction of carbon payment indebtedness. this happens when Ute's have enuff to keep their carbon payment balance in check. The SREC market could adjust this in time if left , again, with a significantly high SACP.
It should be noted that carbon payments are low per MWHr, just how low I do not know, but far lower than SREC's because solar payouts are few in comparison. I'd sure like it if Wisconsin had a viable SREC market. I can only hope for a solar carve out here. Then SREC Trade could open shop here too! Formerly, WI credits were tradable on the DC board, but that market has tanked from oversubscription,; the UTE's, et al, got enuf.
Please correct me if I am wrong.

Sam Rust
August 25, 2011

Hi all,

Thanks for commenting on Chris's posting. To clarify a couple key points:

1) SRECs are priced based on the additional costs inherent to the upfront cost of installing solar power. The thinking is that these additional costs are justified because of the environmental benefits of solar. The SREC value itself is not meant to represent the value of reduced emissions in the same way carbon credits are.

2) The SACP pricing is set by any given state's renewable portfolio standard, as mandated by the state's legislature. For a variety of reasons, each state has decided to mandate different SACP prices.

3) Solar electricity (which has value separate from SRECs) is accounted for, and compensated by, a state's net metering laws. Solar system owners benefit from the electricity savings inherent to free and clean power- regardless of what happens to their SRECs.

Sam

Phil Manke
August 25, 2011

I use a Mac also, with Safari. Sam had jerkey vid and unclear audio.
I see SREC's as a way to sell subsidy for my solar produced energy, nothing more. I could keep them, but why? The carbon payments would then go where? To others or the government? No, I feel that I deserve credit(s) for solar energy for being an early adopter, and higher credits for being earlier, too. They will scale down over time as carbon (and the credits paid for producing it) is replaced by solar energy, electric and thermal. Right now, if done correctly and in balance, SREC's should indeed cover the cost of money to install solar, as NJ et al has shown it speeds adoption of solar energy production at no cost to goverment accounts. The Ute's are already paying carbon credits, a paltry amount at that, and most of it comes back to their established interests in wind and hydro, so a significant "solar carve-out" is necessary. Then, the production market is opened to the masses of private installers that will be balancing the national grid drain with their production. It must certainly be the lobbying pressure of the Ute's that keeps this approach from massive use nation wide. Wouldn't solar thermal and electric flood the country if it were profitable to those installing it? Some may let their installers or ute's keep the credits, and that is where openness in agreements must be ensured. It is a learning curve to be sure, but where money is involved, we get smarter faster. Specially if we can gain from a former main cost outlay. Delaying on this only allows the Ute's to position and posture for control of future costs.
National SREC establishment (with solar carve-out) needs to be a major issue on up-coming election profiles. Wouldn't you put up panels if it paid sooner than later and covered loan costs?

Brad Bowery
August 25, 2011

Marvin is perpetuating a concept that stems from "voluntary" REC markets where the primary purpose of purchasing RECs is for the marketing value associated with renewable energy. If you go to your local grocery store and there is a sign inside that says "this store is powered by wind energy" even though you don't see wind turbines outside, it is very likely that the store purchased RECs from another organization for marketing purposes. A key to making voluntary REC programs work is that the seller of the RECs does not use them for marketing purposes.

Meanwhile, most SREC markets are "compliance" markets where the electricity producers are required to purchase the SRECs by state Renewable Portfolio Standard laws, not for marketing purposes. Solar owners who sell SRECs (and nearly all of them do) can use the proceeds to pay off the investment while contributing to a statewide effort to go solar. SRECs will sell anywhere from $50 to $650 per MWh, while voluntary RECs will trade for less than $3 per MWh. Therefore, I don't think you'll see any companies buying SRECs for marketing purposes any time soon.

In technical terms, SRECs sellers do give up the environmental attributes - but most utility incentive recipients also give up these attributes in the fine print of their contracts. In reality, SRECs are viewed as a state-sponsored performance-based incentive. Either way, I'd rather see utilities paying homeowners and businesses to meet the state solar goals than to do it themselves. In the long-run, distributed, localized solar power generation is where solar can out-compete other technologies.

Finally, in under-supplied markets, SREC pricing is driven by the SACP, which is the fine paid by electricity companies for non-compliance. It is typically set by the state's utilities commission. In an over-supply situation, the SACP won't factor into pricing which will be determined by the market (i.e. the minimum SREC price at which solar makes economic sense).

Marvin Hamon, P.E.
August 25, 2011

Chris,

You sound fine but Sam sounds like he is on a really low bandwidth connection. It sounds the same to me on the heatspring website. I'm using Safari on a Mac if that would matter.

I think the choice to sell an SREC should be made by the informed owner that understands what the SREC represents. My experience has been that customers with systems generating SRECs are only told that an SREC is something that comes with their system, it has a value and they can sell it if they want. They are not told what they are giving up when they sell.

There may be owners that feel strongly about using the solar energy they are generating with their systems and they may want to keep their SRECs and retire them. A commercial client may want to advertise that they run their business from the solar energy they are generating and the only way they can say this truthfully is if they keep their SRECs.

Some commercial clients may want to advertise that they run their businesses on solar energy but they don't have a solar system, so they buy SRECs.

Chris Williams, HeatSpring
August 25, 2011

Marvin,

Thank you for the comment. On my computer I haven't had the same audio issue. At what time did you first notice the problem? Do you notice the same thing on this video: http://blip.tv/heatspringtv/the-development-of-the-us-srec-market-5488727

I agree, the SREC does represent an environmental attribute, I believe Sam mentioned that briefly at the beginning in about 2 seconds. Also, fine point about selling SRECs. Are you suggesting people should not sell them? I'm confused on this point.

Chris

Marvin Hamon, P.E.
August 25, 2011

Chris,

Great topic, unfortunately I could not understand half of what Sam is saying due to the audio quality.

I think Sam really glossed over what an SREC is and this is something that for the most part people don't understand. Sam said how SRECs are generated but not what they actually represent, which is more than the 1000kWhr of energy generated.

An SREC represents the property rights to the environmental, social, and other nonpower qualities of solar electricity generation. It's a way of capturing the value of renewable generation over and above the value of the energy alone.

While it is a pretty fine point I think people should at least know that if they sell their SRECs that they are no longer the owner of their solar energy. As the saying goes you can't have your cake and eat it too.

I am one who is hoping for a national REC market in all types of renewable energy that small producers can be a part of.

Chris Williams, HeatSpring
August 25, 2011

Phil,

Thank you for your comment. I will follow up with Sam to have him address your points. Regarding the audio, could you please tell me which part was unclear to you? It seems to play differently on different browsers and I'm looking to increase the quality.

Thank you again for the time you took to post the comment.

Chris

Phil Manke
August 25, 2011

Thanks for the video. Sam's reproduction and speaking style left some crucial info undiscernable.
The confusion for me about SREC's is; How is the SACP set and by whom? It seems this is the one control aspect that was not addressed, and it alone is the deciding parameter of the SREC floor, right? I mean that if the whole pay in/ pay out balance of the SREC trading idea was in the open, the payout for solar right now would be collosal because so many carbon credits are being paid in, or should be, and comparatively few SREC's are paid out. It seems to me the SACP is purposely kept low to keep the Ute's from bailing on the whole program. IOW, if there are millions or perhaps billions in carbon producer penalties acrued, why aren't solar energy payments extremely high right now, and then due to scale downward as the solar production market becomes satisfied.
I realize that some cushion needs to be inherant in this program to maintain stability ongoing as solar becomes mainstream, but that is certainly a long way off, as things stand now, and could be adjusted for.
The only assumption I can make here is that Ute's are not being assesed any where near an honest valuation for their carbon polution. I know that too high an assesment going in would force Ute's to raise prices dramatically, but just what is the limiting factor in maintaining the favorable flow of huge incentive toward solar energy credits???

Chris Thompson
August 25, 2011

I own & operate a small renewable energy company in the state of Kansas called RETNEK, LLC. We market & install residential-sized Wind Turbines and small Solar PV systems, as well as GSHP's,
Solar water-heating systems, D/C-powered air-to-air Heat-Pumps, and many other renewable energy products. You can see some of our projects at www.retnekllc.com and I can be reached at chris@retnekllc.com----We have done most of our work for the Native American reservations, as they need these services and we realize that most of our work will come from government organizations at the local, state and federal levels. We most definitely need the larger financial organizations to get much more involved if we hope to see the renewable energy industry meet its full potential.

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Chris Williams, HeatSpring

Chris works with HeatSpring developing new products and managing online content. He combines his business education, technical training and hands on experience to help contractors grow their companies.