Pennsylvania requires solar SRECs to come from within the state

Previously solar renewable energy credits (SREC) could come from outside the state, but not be sold outside. Will the new law help the state’s very low SREC prices?

November 6, 2017 Mark Burger

Will the Pennsylvania legislation fix the crack in their SREC market?

One of the remaining states that allowed out-of-state transactions of solar renewable energy credits (SRECs) fell as Pennsylvania Governor Tom Wolf signed into law House Bill 118 as Act 40 on October 30th. Once the law goes into effect all PV systems taking advantage of the state’s SREC market must be located within Pennsylvania’s borders. The legislation corrected a problem in the state’s solar market that allowed SREC’s from outside the state to be bought toward meeting the Renewable Portfolio Standard, but not to be sold outside the state.

The result was a glut of out-of-state SRECs depressing the market value from hundreds of dollars to less than ten dollars in a few years. Pennsylvania SREC prices have dropped as low as $3.50 during the summer and early fall of 2017, and have risen modestly, likely as a result of the legislation, to $5.00. Some opponents of the legislation wanted to have the SREC market open both ways that would levelize prices and greater flexibility. Pennsylvania has set a target under its RPS to get 0.5% of electricity by compliance year 2020-2021. According to the Solar Energy Industries Association, the Keystone State has 0.17% of its electricity from the sun in 2016.

This legislation highlights the challenges of the SREC market which, in the attempt to set a value of generating pollution-free electricity, is still subject to state policies that establish markets for PV and other forms of renewable electricity. PV installation costs have greatly declined and, in many markets, are competitive with other forms of electricity generation, especially from new construction. But there remains significant barriers in determining the value of electricity from solar, particularly what is generated from end user owned customers that use net metering. These barriers include existing and potential impediments thrown up by utilities and their supporters such as fees and higher fixed prices for solar powered buildings and the elimination or weakening of net metering without considering more up to date valuing of PV electricity.

As a result, most state plans and incentives promoting PV and other renewable energy employ compliance tools such as renewable portfolio standards (RPS). The use and value of SRECs are often contingent on how much of the RPS goal is the in-state development of assets, and how much for compliance by seeking the attributes of renewable electricity from elsewhere. States that want to stress the former will tend to have higher value SRECs, especially if there are ambitious, hard number targets of indigenous installations. They will also tend to not permit, or permit at a lower value, out of state SRECs. Sometimes provisions are made to treat SRECs from adjoining states the same as in-state. Federal SREC or even carbon tax rates could level the playing field and rationalize PV markets, but odds of anything occurring on a nationwide basis anytime soon is small.

SRECs are measured in megawatt-hours (MWh). A 5 kW PV system that generates 7,000 kWh per year, or 7 MWh/yr, generates 7 SRECs per year. If priced at $5, the SRECs are worth $35 per; If priced at $50, $350 per year; if priced at $250, $1,750, and so on. PV system owners may choose to sell their SRECs directly through exchanges, or through solar installers or developers, usually at a discount . Transactions can be for single or multiple years. Some states, like Illinois, have a state sponsored agency conducting transactions that buy multiple years’ worth of SRECs up front or front loaded.

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