Solar RPS requirements are meant to create a
marketplace for SRECs and a dynamic incentive for the solar industry. Solar RPS requirements demand that energy suppliers or utilities procure a certain percentage of electricity from qualified solar
renewable energy resources in a state. These energy suppliers and/or utilities can meet solar RPS requirements by purchasing SRECs from homeowners and businesses that own solar systems and produce SRECs. Homeowners and businesses can then utilize the sale of the SRECs they generate to help finance their solar systems. SRECs can be sold in a variety of ways, such as on the
spot market, at auction, or by negotiating long-term contracts.
Supply and demand SREC supply in a particular state is determined by the number of solar installations qualified to produce SRECs and sell SRECs in that state. As more solar systems are built, SREC
supply will increase. SREC
demand is determined by a state's RPS solar requirement, typically a requirement that a certain percentage of the energy supplied into a state originate from qualified solar energy resources. Of those 36, only 17 have specific solar carve-outs mandated in their RPS. And of the 17 with solar carve-outs, only 7 utilize SRECs as the incentive type.
Massachusetts' SREC market recently closed new applications to the program to transition to a different type of incentive.
Ohio is no longer included in the list because the state passed legislation to eliminate their RPS altogether in 2026.
Prices Typically, there is no assigned
monetary value to an SREC. SREC prices are ultimately determined by market forces within the parameters set forth by the state. If there is a shortage in SREC supply, pricing will rise, resulting in an increase in the value of the incentive for solar systems and an intended acceleration in solar installations. As SREC supply catches up to SREC demand, pricing will likely decrease, resulting in an intended deceleration in solar installations. Over time, SREC markets are designed to find the equilibrium price that encourages enough installation to meet the growing demand set forth by the RPS. Generally speaking, SREC prices are a function of (1) a state's solar alternative compliance payment (SACP); (2) the
supply and demand for SRECs within the relevant state; and (3) the term or length over which SRECs are sold.
Spot sales Spot prices for SRECs are generally higher than prices found in long-term contracts since the system owner is taking on market risk. If increases in supply outpace the growing demand, spot prices could fall. SRECs have traded as high as $680 in
New Jersey. Meanwhile, other state SREC market prices range from $45 in Delaware to $271.05 in Massachusetts. In addition to the strength of spot market demand in states experiencing supply shortages, the general lack of availability of viable long-term contracts and the heavy discounts applied to these contracts have left some system owners and project developers seeking ways to finance solar through spot transactions. In June 2010,
Diamond Castle, a New York-based
private equity firm, announced that it would be financing projects strictly with equity to avoid the premiums paid in long-term contracts.
Long-term contracts In addition to providing
cash flow security and stability, long-term SREC contracts are often required by
banks or other lending institutions unwilling to accept market and legislative risks associated with SREC markets. However, SREC contracts longer than 3 years can be difficult to secure in some SREC markets because, in deregulated electricity markets, energy suppliers rarely have electricity supply contracts longer than three years. Some SREC aggregators have managed to negotiate 3- to 10-year agreements and can offer similar length contracts to their residential and commercial customers. In most cases, long-term contracts demand some sort of premium over market prices to compensate the off-taker for putting up the credit to guarantee the contract if prices drop. This premium is also affected by the general lack of availability of credible off-takers in the market. In some markets, however, where short-term supply has overtaken demand, long-term prices can be better than spot prices. == References ==