Commercial real estate owners across the country are increasingly turning to on-site commercial solar systems to address sustainability challenges while securing strong financial returns. Although solar energy is a sound financial and sustainability investment, there are many factors to consider when adopting commercial solar. Here we look at renewable energy credits (RECS) and how they can be utilized with a solar project for maximum benefit.
A renewable energy credit (REC) is a tradable certificate that represents the environmental benefits of electricity generated from renewable energy. RECs are a key component of various renewable energy incentive programs and are designed to encourage the adoption of solar power. For every megawatt hour (MWh) of electricity generated by a solar facility, one REC is created. This certificate represents the environmental attributes of the electricity being produced from a renewable source. The commercial solar energy system owner must register the system with the appropriate governing body or designated REC program administrator. The system’s generation data is then certified, and RECs are issued based on the verified renewable energy production. The value, lifespan, and regulations surrounding RECs can vary state by state, and system owners can either sell or retire them. Retiring RECs ensures the project goes toward ESG goals such as 100% renewable by 2030 and similar requirements.
Certain markets carve out specialty “solar RECs” or “SRECs” that have their own market. Below are some of the key SREC markets and their latest SREC prices.
States and districts such as New Jersey and Washington, D.C. offer extraordinarily lucrative SRECs while others such as Maryland and Pennsylvania offer SRECs that — while not as valuable — still create important positive impacts on solar project economics. Additionally, certain states like New Jersey have regulators set a fixed SREC price while other markets like D.C. fluctuate based on market dynamics. Commercial solar economics and regulations can swing widely just by crossing state lines. In states with very high SREC prices such as New Jersey and Washington, D.C., selling these SRECs can dramatically impact the economics of solar projects and lead to payback periods as low as three years and IRRs in the 25% to 30% range. In other states with low (or no) value SRECs, it may make more sense to retain the SRECs rather than sell them.
In some instances, the owner of a commercial solar system in lucrative REC markets may want to retain their RECs for sustainability benefits but feel compelled to monetize them given the substantial returns. In this instance, REC arbitrage, also referred to as REC swap, can be a potential way of retaining the sustainability benefits of RECs while capitalizing on their value. Using REC arbitrage, a solar system owner in say, New Jersey, would sell their SRECs and use that money to buy cheaper RECs in a market such as Ohio where SRECs sell for far less. As a result, the system owner would now have successfully monetized their SRECs while retaining all the associated sustainability benefits. The specifics on this approach will vary depending on your internal ESG goals and guidelines.
Navigating SRECs — and solar overall — can be a daunting process at first. SolarKal has the necessary experience and expertise in the commercial solar energy space to deliver the best returns for our clients and optimize their outcomes. If you’re interested in learning more about how your organization can leverage solar to make progress on its sustainability goals while saving thousands of dollars annually, get in touch with a SolarKal solar advisor today!
