In an effort to help slow down climate change, governments and the energy industry have created programs that encourage homes and businesses to use clean energy instead of fossil fuels. In some states, that means utilities are required to generate electricity from clean sources, and Solar Renewable Energy Credits (SRECs) help them meet those requirements if they can’t generate enough solar energy on their own.
Solar Renewable Energy Credits incentivise the creation of new solar power production, so they appeal to people who want to see more electricity produced from clean energy sources. With this article, we'll give an SREC definition, explain how they work, how to sell them, and their role in the greater renewable energy marketplace.
What Are Solar Renewable Energy Certificates (SRECs)?
Let’s start with an answer to the basic definition question, “What is an SREC?”
Solar Renewable Energy Certificates, also known as Solar Renewable Energy Credits, are a way to “sell” the benefits created by solar power, and create a market for those benefits. SRECs are a system that quantifies and verifies how much installed solar power a home or business produces, and allows utilities to pay for that solar production.
In energy industry terms, 1 Solar Renewable Energy Credit represents 1,000 kilowatt-hours (kWhs) or 1 Megawatt-hour (MWh) of electricity created using 100% solar power.
Solar Renewable Energy Certificates are typically combined with state-level renewable energy standards to help utility companies and power plants meet clean energy goals. SRECs encourage people to create more solar power, because selling solar renewable energy credits can generate additional income.
SRECs and RECs: What Is The difference?
A Renewable Energy Certificate (REC) is a tool developed by the United States energy industry. 1 REC represents the environmental benefits associated with 1 MWh of electricity generated from renewable energy, including solar and wind. Each REC serves as a legal claim that the electricity came from 100% renewable energy sources.
A Solar Renewable Energy Credit (SREC) takes things a step further by confirming that 100% of the energy used to make that clean electricity came from solar power. Because some states have defined solar generation requirements in addition to renewable energy generation requirements, the certificates help keep track of this specific type of electricity.
How Do SRECs Help The Renewable Energy Industry?
Solar Renewable Energy Credits motivate homeowners, businesses, and utility companies to invest in renewable energy generation. States have created SREC markets to encourage the development of new solar power.
- A Renewable Portfolio Standard (RPS) is created to formalize the state’s clean energy goals.
- The RPS requires utility companies to produce a certain percentage of their energy from renewable energy sources, to encourage participation in renewables.
- If they can’t generate the electricity themselves, utilities can purchase SRECs as proof that they paid someone to produce that renewable electricity for them, using in-state solar power systems.
With Solar Renewable Energy Credits, the utility is essentially buying the exclusive right to count someone else’s clean energy production from solar panels as their own.
SREC programs give homeowners, businesses, and industry leaders clear insights into the production and distribution of resources. Since a Solar Renewable Energy Credit verifies that the electricity comes exclusively from solar energy, you can easily tell the amount of solar energy produced, compared to other energy resources.
Programs like SREC increase the adoption of clean energy sources and help reduce climate change, which helps contribute to the growth of the solar energy industry.
How Are SRECs Created?
The creation of SRECs involves the state government, state public utility commission (PUC), utilities, private businesses, and individual homeowners. The basic process is as follows:
- The government passes legislation to create a Renewable Portfolio Standard (RPS) that establishes how much power generation within a state must be from renewables.
- The RPS then specifies that a certain percentage of the renewable energy produced must come from solar power. This is known as a “solar carve-out”.
- The PUC requires all utilities to provide proof that a certain percentage of electricity provided to ratepayers has come from solar.
- Utility companies have the option to pay money to purchase SRECs and take credit for the power generated by solar power systems operated by businesses, homeowners, and other third parties.
There are 35 states, plus Washington DC, that have a Renewable Portfolio Standard. Of those 36, 17 have solar carve-outs as part of that RPS. Of those 17, only 7 utilize SRECs as the incentive. This includes Washington DC, New Jersey, Maryland, Illinois, and Pennsylvania.
Massachusetts had a market but recently closed new applications to transition their program to a different incentive. Ohio also had a market but passed legislation to eliminate their RPS in 2026.
To create and produce SRECs, a solar power system must be certified by a state regulatory agency and then registered with the registry that’s been authorized by the state to create and track the credits. Depending on state regulations and the size of the solar power system, certificates can be based on either production estimates, or actual meter readings.
How Does The SREC Market Work?
(NOTE: If you go solar with Palmetto, we can help you sign up with SRECTrade, our partner and national SREC brokerage firm, to sell your SRECs. SRECTrade has established a seamless sign-up process when you go solar with us, so you just sign the documents we provide, and Palmetto handles the application process.)
An SREC is first sold by renewable energy producers, and can then be aggregated and traded by energy industry brokers, retail electric providers, and utility companies. This creates a market for those certificates and gives them value.
Homeowners and businesses can sell certificates directly to utilities or through aggregators. However, most utilities prefer to buy a large number of credits through a single aggregator, instead of buying small quantities of credits from a large number of individual producers.
Who Buys SRECs?
Utility companies buy SRECs to comply with renewable energy regulations created in the states where they operate. Since these companies don't always generate enough renewable energy in-house, they can choose to buy SRECs from third-party solar generators (including individual homeowners with home solar photovoltaic (PV) panels) to meet industry requirements.
Some solar companies, financing companies, electricity suppliers, and related industry organizations also purchase SRECs upfront from solar panel system owners to help reduce out-of-pocket installation costs and then sell the credits once they have been created.
How Do I Sell SRECs?
Some states with solar requirements have established an SREC market to facilitate the sale of credits. If you live in a state with a market, you may want to sell your certificates to utilities directly.
However, utility companies want to minimize their costs, so they want to purchase SRECs from the fewest number of sellers possible. As a homeowner, you can sell the SRECs created by your photovoltaic system to an aggregator on a long-term contract, and then that aggregator bundles those credits and sells them directly to the utility.
What Is An SREC Worth?
SREC prices by state can vary, depending on where the solar energy is generated, because market policies and behaviors constantly evolve. In most cases, you can only sell credits in the state where you created the solar electricity.
Two factors determine the SREC prices:
- Supply and Demand - The relationship between the amount of SRECs people create, and the amount of SRECs utilities need to buy.
- Solar Alternative Compliance Payment (ACP) - ACP is a tax or penalty created to ensure a utility company meets the state’s renewable energy goals. If the utility company doesn’t buy enough credits, they must pay the ACP. Thus, the upper limit of an SREC’s price is usually the same or similar to that of the ACP.
SREC values can depend on how it’s sold, either on the spot market or by contract. With a spot market, credits are sold every month, or every quarter, for their current value. With a contract, the solar system owner locks in a fixed price per SREC for a longer, multi-year period.
Spot market prices are generally higher, but they can fluctuate widely, while contractual sales have lower valuations, but the earnings are more consistent over the contract period.
In general, the typical homeowner in an SREC market can expect to earn anywhere from $10 to $100 for each credit they sell and will generate 10+ credits per year. However, as mentioned, this SREC value can change significantly depending on many factors.
Get Solar Renewable Energy Credits
A Solar Renewable Energy Credit (SREC) is a “certificate" proving that 1,000 kWh of electricity was generated exclusively from solar energy. As a homeowner with a solar energy system, you can sell the certificates you create, either directly or indirectly, to a utility company looking to meet its renewable energy requirements. By encouraging homeowners, businesses, and utility companies to adopt renewable energy, SRECs help curb climate change.
If you’re interested in using solar energy to power your home and want to know if SRECs can help you save even more money, you should talk to Palmetto today! Our experts will help you design the best solar power system for your home, and make sure you maximize your potential savings. Get started today with a Free Solar Design and Savings Estimate.