We spoke with Brad Bowery from SRECTrade about the SREC market and how SRECTrade is making it easier for homeowners to understand and monetize SRECs.
RS101: So to start off I’d love to get a quick overview of what an SREC is. Then we’ll get on to what you guys do.
BB: What the SREC represents is the aspect of the energy that is created by a solar system that’s actually solar. There are various ways to create electricity including coal and natural gas. When that electricity is created and enters into the grid, regardless of what type of facility produced it, it’s still electricity. An electron is an electron. You can’t differentiate it. The way that it’s differentiated in states that are looking to promote solar is through the creation of these SRECs. So for every megawatt hour of electricity that’s produced by a solar system, an SREC is also created. You can sell your electricity to your utility or you can use it yourself. But regardless you’re still getting this SREC created for your account that you can then sell into the market.
RS101: And SREC stands for?
BB: A Solar Renewable Energy Certificate. The concept behind it is to create a market based subsidy for solar. So rather than having a fixed priced subsidy that over time may become too expensive or too much of a burden on the community. The value of an SREC declines over time as the cost of installing solar goes down and supply increases in the market. And so the value of an SREC is determined by supply and demand. The can be worth as much as 4, 5, or 10 times the amount that the electricity is actually worth.
RS101: Wow. How are they worth more?
BB: In states where these programs exist there is a requirement that the utility companies, and not just the utility companies, but the companies that produce the power and sell to the utility companies, what we call a ‘load serving entity’ – a company that sells electricity into a state, they have to purchase these solar credits to offset the dirty electricity that they’re selling into the state. And if they don’t, for every solar credit that they’re short, or SREC that they’re short, they’re required to pay a fine to that state. And so what’s nice about the program is that it places the burden on the electricity suppliers to subsidize solar.
RS101: How active does the home owner need to be in working with SRECTrade to sell their SRECs over the 20-30 year life of their system?
BB: There are several ways to sell SRECs. You can either enter into a long term contract where you’re either selling all of your SRECs for a payment upfront or you’re just locking in a price. You sign a contract and someone guarantees you a fixed price over the term of the contract. In that case you don’t have to do anything once that contract is signed other than make sure that the readings get delivered to the system so the SRECs get generated. The other way you can do it, and what’s more common because the pricing tends to be better, is that most customers will sell in the spot market. And that’s where our auctions come in. We have a monthly auction. And so when you sign up with us we try to make that as easy as possible. If you want to do it yourself you can manage the whole process yourself and trade on our platform on a regular basis. In that case you’re coming monthly. Or maybe you might wait and come every few months and do the transactions. Or, if you’d like you can also sign up for our premium service. It’s called easy REC and what we end up doing is that we take care of everything for the customer from start to finish – do the registrations, and there’s really not much that they need to do.
RS101: How about people who choose to work with a power purchase agreement or a solar lease? Are SRECs still relevant to them?
BB: It depends. In some power purchase agreements and in some solar leasing agreements – whomever you’re [buying the power from] will also take the SRECs. It really depends on the contract. What we’ve found is that there is enough interest in the SRECs from the side of the owners that some of the PPA and solar lease companies are actually offering an option to keep your SRECs. Instead of getting a system that’s almost completely paid for, you’re paying something, but you get to keep the SRECs and earn some of that return.
RS101: I noticed that SRECs are only available in a handful of east coast states it looks like. What does it take for a state to be able to offer SRECs?
BB: There’s 3 key things that we look for. The first is, you’ll hear the terms RPS or RES thrown out which stand for Renewable Portfolio Standard or Renewable Electricity Standard. We’re obviously hoping for a nationwide RES which is what’s been talked about lately in legislation. But what’s nice about the SREC markets in the states that already exist is that these are actual laws that are in existence. New Jersey has an RPS that says that X percent of your electricity has to come from solar by 2020. Every year there’s a target that the buyers need to hit. And that’s what we look for. The first thing is that you need to have that law. So your state needs to include in addition to just having an RPS, they need to say that X% has to come from Solar. And that’s what’s missing from California so far. California has an RPS. I think it’s 20% – a requirement of 20% – but there’s no carve-out for solar, and that’s really important.
The next thing is that you also need to be able to separate the electricity from the SREC and be able to create SRECs and trade them in a separate market. In California right now, if you are a solar producer and you sell your electricity to your utility, you also have to sell your credit to the utility. And the utilities also have to purchase the credit from you. They can’t purchase credits from facilities that are outside their area separate from the electricity. That’s a rule that’s changing pretty soon.
California recently changed that law in March, and they’re still in the process of implementing it. But pretty soon you’ll start to see the opportunity to actually trade RECs separate from the electricity. The problem is that in California it’s going to, when it starts it’s just going to be a generic REC market. It’s not going to be a solar REC market. So there’s still no carve-out for solar and that’s what we’re hoping for in California. And the last thing is that there’s a fine. In some states you might have an SREC program, but there’s no fine that enforces compliance. You really need something that incentivizes the electricity companies to go out and pay something for these SRECs. In New Jersey that fine today is $675, which is pretty steep. In DC it’s $500. In Ohio is $450. So every state has a different fine that’s set, but you need that fine. California’s generic REC market is going to start with a $50 fine. We’re looking at that and hoping it’s a precursor to a more robust and eventual SREC market.
RS101: If we’ve got a home owner in New Jersey who’s watching this and thinks, “OK, I want to go solar and I want to have the system give me the best financial return possible. At what time do they come and talk to SREC trade?
BB: The reality is that in these markets it’s very difficult to finance a system without knowing about SRECs. And in any conversation you ever have about putting up solar SRECs are going to come into that. The more you can learn about it, when you enter those conversations, then better you’ll be. Installers have to be able to offer something to their customers and to be able to talk about SRECs if they want to sell projects in these states. Regardless of whether or not you come to us first you’re still going to have an installer who is going to be able to talk about this stuff. We work with over 100 installation companies in the North East and the Mid-Atlantic and they essentially outsource this service to us to handle.
What we have set out to do in addition to being a service provider and a marketplace, we also want to offer / provide free education to anyone who wants to learn about SRECs. So our website, SRECtrade.com has more information about SRECs than anywhere else on the web, and we do that purposefully. We’re very open about what we learn. We put it up there for everyone else to see. The one thing I would want to know if I were reading this right now that I think a lot of people don’t realize when they’re doing solar in certain states is being aware that even if your state doesn’t have a solar market or an SREC market, you may be eligible to sell into other state markets.
RS101: Oh, interesting!
BB: A great example of that is West Virginia. We’ve got several installation companies we work with in West Virginia. There’s absolutely no renewable portfolio standard in West Virginia, but Ohio, Pennsylvania, and DC all allow customers who are sited in West Virginia to participate in their SREC markets.
RS101: Where do you see the SREC market going in the next five years?
BB: The way we see it is that it tends to be that as certain states have success other states look to it and follow on. So New Jersey’s done really well and made a big splash. I think that they really do rival California on a per capita basis at least in terms of solar. Following their lead Massachusetts just started a program this year. New York has a bill pending. It’s the solar jobs act in New York that will be a huge market if it happens. Connecticut has a bill that passed the house and the senate that got vetoed by the governor. The overall energy bill was vetoed by the governor. So that’s how close Connecticut was to emulating New Jersey. It’s very realistic to think that in 5 years there will be 20 states with SREC markets and maybe as many as 35 or 40 in the long run.
RS101: Brad, than you very much for chatting with us, it’s been a pleasure.
BB: Thank you. Thank you for having me.