All you need to know about Solar Energy Credits.
In 2020, solar generation made up 3.3 per cent of total United States energy generation. It is the fastest-growing electricity source and more people are adding solar panels to their homes thanks to projects such as Solar Energy Credits.
Over the past decade, there has been more than a 70% decline in solar renewable energy technologies costs. Businesses are also doing their part, creating a soar in renewable energy development through sustainability goals. However, roughly only 4% of homes in the United States are currently powered by solar energy.
But did you know, that if you have solar panels on your commercial or residential property, in exchange for utility bill credits, you can sell the electricity produced? Well, this article will hopefully answer all the questions you may have about Solar Energy Credits.
What Are Solar Energy Credits (SRECs)?
Solar Energy Credits, also known as “SRECs” are renewable energy credits, allowing owners of solar panels to earn credits for each megawatt-hour (MWh) or kilowatt-hours of electricity that their solar panels generate.
SRECs are different to federal solar tax credits that we will cover later on. SRECs were introduced to help utilities hit the regulations set by states in the United States, ensuring they generate a specific percentage of electricity from renewable sources.
The regulations set by each state are known as renewable portfolio standards or RPS. To reach the requirements of the renewable portfolio standards, utility companies must purchase renewable energy certificates to show evidence their electricity was bought from a renewable source.
What States Have SRECs?
In the United States, there are only a select number of states with an SREC market. Also, there is a limited selection of states that can sell their systems SRECs to other states. Solar generators in West Virginia can sell SRECs in Ohio for example.
| State | SREC price |
| New Jersey* | $234 |
| Massachusetts* | $322 |
| Maryland | $78 |
| Ohio | $9 |
| Pennsylvania | $33 |
| Washington DC | $415 |
| Delaware | $40 |
*New Jersey aren’t accepting new applications to its SREC program.
What Is The Difference Between RECs And SRECs?
SRECs are credits rewarded for electricity that has been generated by solar panels. Similarly, RECs work for energy generated by renewable energy sources, including wind power and solar. Both RECs and SRECs are tradable commodities, however, SRECs must be from solar facilities.
RECs are certificates that transfer all the renewable parts of renewable energy to the owner. RECs are produced after a type of renewable energy source has generated one megawatt-hour (MWh) of electricity, then delivered to the grid.
Every exchange of RECs is recorded and tracked, ensuring that after it has been sold once, it cannot be purchased again. Each REC is uniquely numbered and will include information such as the type of renewable resource, where they were generated as well as a date of generation stamp.
What Are Renewable Portfolio Standards?
Renewable Portfolio Standards, also known as RPS are regulations that utilities have to meet. Utilities are required to generate a specific percentage of power from renewable sources. It varies from state to state, with some states having higher standards than others.
Across the United States, RPS can be known as the Clean Energy Standard or CES. However, CES usually covers energy sources that have zero carbon emissions.
Looking at nuclear energy, for example, it isn’t considered a renewable source, however, due to being carbon-free, we can class it as a clean energy source.
38 states in the nation have RPS regulations, with some having to generate a certain percentage of renewable energy from solar. The states that have Renewable Portfolio Standards are:
| State | New RPS/CES Target | By Years |
| California | 100% | 2045 |
| Colorado | 100% | 2050 |
| Connecticut | 44% | 2030 |
| Delaware | 40% | 2035 |
| Maine | 100% | 2050 |
| Maryland | 50% | 2030 |
| Massachusetts | 35% | 2030 |
| Minnesota | 26.5% | 2025 |
| Nevada | 100% | 2050 |
| New Jersey | 50% | 2030 |
| New Mexico | 100% | 2045 |
| New York | 70% | 2030 |
| Oregon | 100% | 2040 |
| Virginia | 100% | 2045/2050 |
| Washington | 100% | 2045 |
| Washington D.C. | 100% | 2032 |
| Guam | 100% | 2045 |
| Puerto Rico | 100% | 2050 |
Why Are SRECs Important For Home Solar Systems?
For owners of solar panels, SRECs are an extra financial incentive as you can sell any electricity they produce, putting more money in your pocket. However, it will depend on what state you live in, as the value of SRECs varies from state to state.
How much can you make from SRECs? Well, each year you can make upwards of several thousand dollars, or as little as a few hundred dollars. This will depend on factors such as weather and where you live.
In certain markets, an SREC can be worth more than $300. Looking at a typical 5 kW home solar installation, six SRECs could be earned each year.
What Do I Need To Qualify For Solar Energy Credits?
To qualify for Solar Energy Credits, the U.S. Department of Energy have certain requirements you must meet. Some of those include:
- Owning your home, renting a property is excluded.
- Having a new solar panel system, or using it for the first time.
- The solar panels must be owned by you.
SRECs vs Net Metering
SRECs are completely separate from net metering, meaning if your state allows you to sell SRECs, as well as net metering, you can earn money with solar generation from two different sources.
How Do I Sell SRECs?
Before selling SRECs, you need to take a few steps. Usually, the person or company that installed your solar panels can help with this, however, let’s take a look at the steps involved with selling SRECs.
- Registering your solar panels with the SREC program
- The SREC system will monitor your solar energy generation
- Aggregators purchases SRECs
- Utility companies buy them from aggregators
- You get paid your cut
Sometimes, in advance, your solar installer will offer to purchase the SRECs for your solar system. However, by selling your SRECs upfront, any price increases in the future means you’ll be missing out.
What Are Federal Solar Tax Credits?
Homeowners that purchase a new solar system can qualify for the federal solar tax credit. At the moment, homeowners will receive 26% of the cost of their system in a federal tax credit.
How much will I get back from federal solar tax credits? Well, on average, for going solar, homeowners receive around $4,000 to $6,000 in tax credits. There are a few factors that will determine the actual credit, such as where you live and the size of your system.
Let’s take an example:
Cost of solar system = $10,000
Solar tax credit (26%) = $2,600
Price of the solar system after tax credit = $7,400
Every United States resident has access to receive the federal solar tax credit. It is also available for both residential and commercial systems, however, we recommend taking advantage of this credit as the amount of the credit will diminish over time.
Who Is Eligible For The Federal Solar Tax Credit?
All United States taxpayers that buy a new solar system installation can receive the federal solar tax credit. Remember, solar leases, as well as solar PPAs, are not eligible for the federal solar tax credit.
What Solar Systems Are Eligible For The Federal Solar Tax Credit?
The type of inverter used, as well as the brand of the solar panels you purchase, will not have an impact on your eligibility when claiming the federal solar tax credit
Are Solar Batteries Eligible For The Federal Solar Tax Credit?
Yes, solar batteries are eligible. The National Renewable Energy Laboratory (NREL) give an overview of what parts of solar systems are included in this document. They say that “Battery systems that are charged by the renewable energy system 100% of the time on an annual basis can claim the full value of the ITC.”
How Do I Claim The Federal Solar Tax Credit
For you to claim the federal solar tax credit, Form 5695 must be submitted to the IRS. Don’t be alarmed, this is a relatively simple two-page form. Once you have completed the form, you will then include it when you submit your income taxes.
Here are the Federal Solar Tax Credit forms:
For those considering investing in solar, we recommenced that you claim the solar tax credit as soon as possible as the benefits of the credit are likely to diminish over the next few years.
What Will Happen To Federal Solar Tax Credits Over Time?
There are a series of changes in place to the federal solar tax credit, with more efficient tax credit would not be necessary as solar panels continue to get cheaper. Below are some upcoming changes:
| 2016 – 2019 ITC Changes | Refund of 30% for the cost of the system for residential and commercial. |
| 2020-2022 ITC Changes | 26% deduction of the cost of the system from their taxes for residential and commercial. |
| 2023 ITC Changes | 22% deduction of the cost of the system from their taxes for residential and commercial. |
| 2024 ITC Changes | Residential tax incentives are no longer available. 10% deduction of the cost of the system on taxes for commercial only. |