Could SRECs Add Solar Faster than FITs in the USA?

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Paying solar owners cold hard cash to supply clean power to the grid has proved to be the best way to get more people to actually do it.

Two mechanisms for getting instant cash back are SRECs – Solar Renewable Energy Credits and FITs – Feed-in Tariffs. Both pay solar owners cash for their contribution of clean power to the grid.

FITs revolutionized European solar adoption, especially in Germany and Spain. SRECs drove tiny New Jersey’s rooftop solar adoption rate to rival that of gigantic California within just a few years. Stephen Lacey at Renewable Energy World thinks that SRECs could be the easier sell in the US.

SRECs rely on renewable energy legislation that requires utilities to add more clean energy (already the law in 30 some states) but with one key additional requirement. If utilities can’t (or won’t?) buy or build their own clean electricity, they are then required to buy “credits” from anyone who can. Since anyone with a roof can generate solar power, there has been a boom in homeowners adding solar in New Jersey to sell their SRECs to utilities.

Now six states, Delaware, Massachusetts, Maryland, New Jersey, Ohio and Pennsylvania have followed New Jersey’s lead and offer SREC programs. All seven states offer trading sites for homeowners: Sol Systems, SRECTrade and Flett Exchange.

FITs requires utilities to sign long-term contracts for renewable electricity at a higher price (fixed by legislators in advance) with the higher price amortizing the initial investment in new power plants plus a profit, over twenty or thirty years. For FITs to drive change, a price of twice or three times the cost to generate electricity is needed. When legislators offer too low a tariff, as recently in Turkey and Israel, nothing happens.

New Jersey’s SREC sellers have average earnings of 57 cents a kilowatt-hour, much more than the cost of generating solar electricity, which is paid by utilities themselves. Ratepayers do not pay for the SRECs.

But the problem with SRECs is uncertainty. If too many solar projects get built, with everyone selling their SRECs, there could be a SREC glut, so prices would drop dramatically as SREC owners compete to get buyers.

By contrast, FITs offer certain returns over 25 – 30 years, so their attractiveness is clear to investors. But the cost of paying the extra for FITs is spread out among all the rest of the ratepayers, hardly an easy sell in a Tea Party America successfully trained to disbelieve the very real dangers posed by climate change yet terrified of legislation. So, the best bet for getting more rooftop solar power on the grid in the US is with “free market” SRECs.

One solution proposed to the long-term earnings uncertainty of SRECs could be to require long term contracts by utilities, like with FITs.

Another very obvious solution would be to simply keep raising the ceiling of renewable requirements for utilities as each goal is met.

California initially had a rooftop solar ceiling of 2.5% of peak power demand. But last year, with cheaper options for homeowners here, (PPAs from SunRun, or leases from Solar City and Sungevity) homeowners broke through the ceiling midyear. California was lucky to have a Democratic majority that was able to – barely – then expand the ceiling up to 5%.

But since this kind of policy is dependent on legislation, it would be wiser for states to set the rising rates in advance for the long term, rather than risk it being overturned each time Republicans take power and roll back renewable energy legislation to favor traditional extractive energy, as they did in New Mexico, and Arizona. Virtually all of the GOP state gubernatorial candidates in the last election pledged to favor the energy agenda of the $20 billion Koch Brothers.

But in states that now have Democratic control, to encourage investment certainty, new long term legislation could be written so that if solar rooftop generation approaches X percent, that utilities must always buy X + ? percent the following year. That way rooftop solar can simply keep growing, and at no cost to ratepayers.

Image: 1BOG

Susan Kraemer@Twitter