The closing of the doors last week at a mid-Atlantic states solar installer highlights the uncertainty of the photovoltaic market and brings to the fore the vagrancies of renewable energy credits (RECs) and in particular solar renewable energy credits (SRECs).
Renewable energy credits are tradable, non-tangible energy commodities that have value and are creatures of state law. Given that this most recent failed solar installer was based in Maryland, one of thirty states that created a RECs market, Maryland law is a good place to start.
Maryland’s Renewable Energy Portfolio Standard law, originally enacted in 2004 and revised almost every year since, requires all electricity utilities use renewable energy sources to generate a minimum portion of their sales. Currently being phased in, the law requires that 2% of the energy come from solar-photovoltaic by 2020.
Under Maryland law, an SREC represents the generation attributes of 1 megawatt-hour (MWh) of electricity generation from a solar installation. Electricity suppliers must purchase and retire SRECs in order to meet their compliance obligations under the law, or pay a Solar Alternative Compliance Payment (SACP) for any shortfalls in SREC purchases. The SACP operates as a theoretical ceiling on the price that a supplier would pay for SRECs to fulfill their obligations. (In Maryland the SACP is set at $400 per MWh though 2014.)
All net metered utility customers and solar on site generators in Maryland own SRECs produced by installations unless or until they choose to sell or otherwise transfer SRECs to another party. A Maryland SREC has a three year lifetime during which it is valid for compliance. SRECs represent a significant source of revenue for owners of solar installations, with a value determined by demand in the trading market.
In order to begin producing SRECs, a solar installation owner must apply for a one time certification from the Maryland Public Service Commission. In general, a photovoltaic installation must be connected to the distribution grid serving Maryland in order to meet a utility’s obligation. Owners of photovoltaic systems of 10 kilowatts or smaller (Level 1 solar facilities) may use an approved engineering estimate in lieu of metering and providing annual generation data.
Unique to Maryland, solar generators in Maryland are required to offer SRECs for sale to Maryland electricity suppliers prior to offering them for sale to any other buyer. In order to help generators comply with this requirement, the PSC operates a web site where generators can post SREC offers. Since October 1, 2010, SREC purchase contracts directly between a solar generator and a Level 1 solar facilities, must take the form of a single, up-front payment arrived at by calculating the net present value of SRECs over the life of the contract using a standard SREC value of 80% of the SACP and federal secondary credit interest rate in effect as of January 1 of that year as the discount rate.
But that is it. There are few, if any other laws in Maryland or elsewhere about SRECs, including the sale of SRECs by third party marketers. There is no national registry of RECs issued. This law firm has given opinions on RECs transactions that RECs are properly accounted for and no double counting has taken place, but it is the Wild West out there.
As government increasing seeks to implement energy policy by requiring utilities purchase more renewable energy and with the ASHRAE Standard 189.1 requirement that every building be designed to be ‘renewable energy ready’ coupled with that standard’s prescriptive energy path requiring on-site renewable energy, photovoltaic installations will become significantly more common.