What is an SREC?

By Ben Delman on February 6, 2016

Solar Renewable Energy Credits, or SRECs, can be the most confusing part of going solar. Nevertheless, they are vitally important to understand because they will be worth a significant amount of money over the life of your system.

SRECs are credits you earn based upon your system’s production. Your system will produce one SREC every time it produces a megawatt-hour (1,000 kWh) of electricity. You can estimate the number of SRECs your system will produce by multiplying the size of the system by 1.2. So, a 5-kilowatt system will produce approximately six SRECs each year.

SRECs exist because many states require their utilities to produce a certain percentage of their electricity from renewable energy sources. One of the ways utilities can meet these targets is by purchasing your credits.

This system has led to the creation of a market for SRECs. Think of it as you would the market for stocks or bonds. Prices will rise and fall based upon a the supply and demand for the credits. How you decide to sell your SRECs depends on your individual financial needs and risk tolerance.

There are three ways to sell your SRECs:

  • Sell the rights to all of your system’s SRECs upfront for a cash payment.
  • Sell your SRECs via a contract for a set period of time, usually three, five, or ten years.
  • Register your SRECs yourself and trade them on the spot market.

Selling your SRECs upfront or over a contract period of time is likely to provide you with a lower overall return, but it does provide greater financial predictability compared to selling SRECs on the spot market.

If you are considering a solar lease, rather than the purchase of a system, you should inquire as to who controls the SRECs. The solar company will usually keep the system’s SRECs in this type of financial arrangement.

You can learn more about SRECs and the pros and cons of the different ways to sell them here.