What are Solar Renewable Energy Credits?
If your business has considered installing a solar photovoltaic system in New Jersey, you may have heard something about SRECs. The last thing we all need is yet another confusing acronym – however, SRECs are truly the secret ingredient behind the robust investment returns attainable from commercial solar projects in New Jersey today.
New Jersey SREC’s
A little background: New Jersey has an aggressive Renewable Portfolio Standard (“RPS”) which requires that an increasing percentage of the electricity consumed in the state each year must come from renewable energy sources (with goal of 22.5% from renewables by the year 2021). In addition, there is a specific RPS requirement that solar energy provide a fixed and increasing portion of the total electricity pool.
SRECs themselves represent the renewable attributes of solar generation, bundled in minimum denominations of one megawatt-hour (“MWh”) of production (i.e. 1 SREC = 1 MWh of solar production). SRECs are traded in an open market-place, and SREC prices are driven by the underlying supply and demand dynamics.
To keep things simple, we like to think of SRECs on a per kilowatt hour (kWH) basis which is consistent with how most consumers think of their electricity costs. The current spot price for SRECs is equivalent to more than $0.60 per kWh (or $600 per SREC). By way of comparison, the average cost of electricity in NJ is about $0.14 per kWh.
New Jersey’s SREC program provides a means for SRECs to be created and verified, and allows electric suppliers to buy and retire these certificates in order to meet their solar RPS requirements. If suppliers fail to satisfy their solar RPS obligation, they must pay the Solar Alternative Compliance Payment (“SACP”), which sets a natural ceiling price for SRECs (i.e. the price at which electric suppliers would simply pay the penalty versus buying SRECs).
NJ SREC Trading
The ultimate impact of the SREC market in NJ is that commercial solar project owners are able to generate a significant cash flow stream from the sale of SRECs, entirely separate from and additive to the electricity cost savings.
For example, a 1MW net-metered commercial solar photovoltaic system that produces 1.2 million kWh in a given year could provide the system owner with over $700,000 of cash income from the sale of SRECs, while also saving the system owner over $160,000 in electricity costs (i.e. the electricity that is now produced from the onsite solar, and therefore not purchased from the utility).