In addition to the federal investment tax credit, in which 30% of your solar investment can be written off against your taxes no matter where you live, states like New Jersey have begun to offer tremendous local incentives for residents to adopt solar lifestyles. One of those incentives is known as a Solar Renewable Energy Credit (SREC), which can appear confusing at first but is actually quite straightforward.
Think of it this way: your rooftop photovoltaic (PV) system is your own business enterprise. In the world of business, as a company generates revenue, it issues stocks and bonds, which are then sold in a financial market, bringing in even more money for the firm. Your PV system isn’t generating financial revenue, however; it’s generating clean energy “revenue.” And as you generate a predetermined amount of energy, you are issued a “share” in the form of an SREC, occasionally known as a Green Tag, which you can then sell on t
he market to the highest bidder.
Why would anybody want to buy an SREC from you? The answer is that many states have what’s known as a renewable portfolio standard (RPS), in which the state has decided that a certain percentage of its total electricity has to come from solar power each year. Power utilities need to meet that percentage, or pay huge fines. So they turn to residential and commercial suppliers (i.e. you) to buy green power credits.
In New Jersey, for example, once your installer has connected your PV system to the grid, you’ll earn one SREC for every 1000 Kilowatt hours (kWh) of generation, which is the same as one Megawatt hour (mWh). Mid-Atlantic states typically get 10,000-12,000 hours of usable sunlight per year, so for every kilowatt in your PV system, you’ll get 1-1.2 SRECs annually. So if a typical home requires a 7 kilowatt system, you can expect to earn at least 7 SRECs per year. Once you install your system, you can earn SRECs for fifteen years, and they last for two years once issued.
Now, onto the fun part—making money. Once you register your system with the SREC tracking system, you’ll create an online account that will log your green power generation. You’ll be issued energy credits, which you can then post onto a message board on the website and negotiate the terms of your sale directly with utility buyers. For those who’d prefer to let someone else handle the negotiations, you can arrange to have an agent or “aggregator” handle the sales of SRECS.
So how much can you expect to make? Well, in New Jersey the state has issued what’s known as a Solar Alternative Compliance Payment. It’s the penalty per mWh that utilities have to pay if they don’t have enough SRECs relative to their target. This year it’s around $690, which acts as ceiling price (i.e. they’ll never pay you more, but they will pay up to it per SREC). So far this year the average price has hovered around $550 per SREC in New Jersey. So if you’re generating 7 SRECs per year, that’s $3850 in cash coming in to you every year—not bad!