Solar renewable energy credits (SRECs) are some of the best incentives for residential solar system owners. You can earn money by selling a certain amount of electricity output from your solar panels to utilities needing to meet their state-based renewable energy generation requirements. A typical residential solar system owner could earn several thousand dollars annually by selling SRECs. Learn more about SRECs, which states have SREC markets, how pricing works, and more in this guide.
Key Points
- Solar renewable energy credits (SRECs) are incentives that allow customers to earn credits for selling energy produced from their solar panels to utilities.
- Currently, only seven states and Washington D.C. have SREC markets.
- If you live in a state with an SREC market, you can sell SRECs to utilities and earn money.
- Supply and demand determine SREC prices.
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What is an SREC?
SRECs are market-based solar incentives enabling you to earn a credit for each megawatt-hour (MWh) of electricity your solar panels produce. For example, once your solar panels produce a specific wattage of electricity, typically 1 MWh (or 1,000 kilowatt-hours), you can sell it as one SREC to an electricity supplier and receive monetary compensation.
Representing the “greenness” of your electricity, SRECs are an essential tool for decarbonizing the power grid and encouraging homeowners to go solar. SRECs don’t replace other consumer incentives like net metering or tax credits. They are used as an additional way to lower your upfront solar panel costs and accelerate the return on your investment.
Only owners of solar energy systems qualify for SRECs. If you lease your solar panels or hold apower purchase agreement via a third-party solar system owner, you won’t be eligible for SRECs. In these situations, the company providing your lease or PPA will qualify for SRECs.
What is an RPS, and how is it connected to an SREC?
SRECs are closely tied to renewable portfolio standards (RPS) — state-based mandates requiring utilities to obtain a certain percentage of electricity from renewable sources. Electric utilities operating in states with RPS mandates must meet their renewable energy generation obligations or pay the penalty for failing to comply. RPS requirements vary between states in size, structure, and use. RPS targets within a state can also vary and change over time. For example, Colorado increased its RPS target to 100% by 2050, while Minnesota boosted its goal to 26.5% by 2025.
States with RPS requirements can have “carve-outs” for solar energy, meaning that electricity suppliers must buy or generate a certain percentage of electricity sales from solar systems. Suppliers can purchase these SRECs from residential solar energy system owners to meet their RPS goals.
An average U.S. residential solar system size of 8 kilowatts (kW) can produce up to 10 MWh of electricity each year, allowing a homeowner to earn up to 10 SRECs a year (1 MWh equals one SREC) worth several thousand dollars. Therefore, these credits can be an attractive incentive for homeowners to go solar.
Which states have SRECs?
While 38 states and Washington D.C. have passed RPS legislation, only seven states and Washington D.C. have active SREC markets as of 2022:
- Delaware
- Illinois
- Maryland
- New Jersey
- Ohio
- Pennsylvania
- Virginia
- Washington D.C
Some states with SREC markets accept SRECs from other states with no such market. For example, if you own a solar energy system in Michigan, you can cash in on an SREC in Ohio. To sell SRECs in a state accepting out-of-state SRECs, you must register and certify your solar system in that state. In Massachusetts, only those who installed their solar systems before 2018 are eligible for SRECs since the state closed its SREC program.
How are SREC prices determined?
SREC prices change throughout the year depending on supply and demand conditions. An oversupply of SRECs in a given market decreases prices, while a shortage can push prices up. Depending on these conditions, values can be as low as $4 or exceed $400 per SREC.
As noted on this page, electric utilities may face fines if they don’t meet their state’s RPS requirements. The markets with the best SREC prices have the steepest penalties and strong RPS requirements.
How can I sell my SRECs?
SRECs are electronic certificates traded directly between sellers and buyers in online markets or by an SREC broker or aggregator. These third-party traders can help you sell your certificates to electricity suppliers. You must use a designated online marketplace whether you sell them independently or via a broker.
Some of the leading SREC trading platforms are Sol Systems, SRECTrade, Knollwood Energy, and SREC Marketplace. These markets typically issue payments to sellers quarterly. Unsold SRECs typically expire after 3–5 years.
If you sell your home with a solar system approved for selling SRECs, you can transfer your account to a new homeowner. However, the terms and conditions of the transfer depend on the specific SREC aggregator and marketplace you work with. Therefore, it’s important to check with them about the transfer process before handing over your SREC account to a new owner.
Do I have to pay taxes on my SREC earnings?
Yes, the Internal Revenue Service (IRS) considers your SREC earnings as taxable income on federal and state income taxes. An SREC marketplace where you trade your credits may or may not provide tax forms to report them as income to the IRS. But you can claim them on the “Other Reportable Income” part of your federal and state tax filings. It’s important to consult a tax professional to determine how to properly report SREC income in your tax returns.