What are SRECs and solar performance payment?
Solar performance payments—also called performance-based incentives (PBIs)—are an important solar incentive in over half of the states. The name is self-explanatory: payments are based on the performance of your system—that is, how much energy your panels produce. That energy is measured in kilowatt-hours (kWh), with one thousand kWh equaling a megawatt-hour (MWh).
There are a few types of solar PBIs:
Feed-in Tariffs – Per-kWh payments for all the energy your panels produce
Performance Premiums – Per-kWh payments in addition to energy bill savings, based on your system’s total output
Solar Renewable Energy Credits (SRECs) – Certificates that each represent one MWh of solar energy, which can be sold to utility companies
Most states (33 of them to be exact) have PBI programs of one kind or another. They’re different from rebates or tax credits as they require your system to be working and producing kilowatts. Some PBIs are quite small, netting solar owners a couple hundred dollars a year. Larger ones can bring $5,000 or more for the average homeowner, quickly paying back an initial investment in solar and earning the system owner a handsome return in just a few short years.
Let’s go over the most popular kinds of PBI:
A feed-in tariff (FiT) is a payment for solar electricity. Under a FiT program, your solar panel system is attached to a separate meter and all the solar electricity it produces is sent to the grid. You get paid the FiT price—which is typically higher than retail cost of electricity—for every kWh of electricity your panels make.
FiT programs have been very successful in other countries, specifically Germany and the United Kingdom, but haven’t been very popular in the United States. States that have or had a FiT program include California, Florida, Oregon, Vermont, and Wisconsin. Some cities within states that do not have FiT may have a local FiT program in place.
One state that has an excellent FiT program is Rhode Island, where solar owners are paid $.38/kWh for their panels’ electricity—double the retail price people pay for electricity in the state. If you live in Rhode Island – or any state that has a FiT program – contact a solar expert to find out how you can get solar for zero down and save thousands of dollars per year.
The Value of Solar Tariff
The Value of Solar Tariff One new development in the FiT world is what’s called a “Value of Solar” tariff (“VoS”). It’s a way to look at all the benefits from solar and assign them a value, which is then levelized over a long period of time. Because VoS tariffs are levelized over a long-term contract, they tend to be higher than retail rates now, which helps homeowners pay off solar panels quickly, and stay steady as inflation and other factors cause electricity prices to rise over time (which helps utility companies predict what their future costs look like).
So do VoS tariffs work? Nobody knows, but we may find out soon; Maine is poised to try a statewide VoS program soon.
A performance premium is a payment above the net metering rate for the electricity your panels produce. Basically, your utility company needs the solar power generated by local solar grids to meet its targets under your state’s Renewable Portfolio Standard. They are willing to pay solar owners to meet those targets.
The best example of a performance premium in the U.S. right now is in Minnesota, where the state’s largest utility—Xcel Energy—will pay an extra 8 cents/kWh for your solar power through its Solar*Rewards Program. It’s a great way to make some extra cashr, and it reduces your payback time by a year!
This is the biggest of the performance payments, and the smartest way to incentivize solar electricity. One SREC is awarded to a solar owner each time their panels generate a MWh of electricity. In most places in the U.S., a standard 5-kW home solar system would pump out about 6 MWhs in a year. The SRECs generated this way can be sold to the utility company as “proof of generation,” which they need if they want to hit solar targets under your state’s RPS solar carve-out quota.
Here’s a summary of how it works:
- The state requires utility companies to get 500 MWhs of solar energy per year, or else will penalize the company $400 for every MWh they’re short.
- For the utility company, planning and building their own solar farms is too difficult and expensive. On the other hand, they don’t want to pay those fines.
- By selling your SRECs for $375 apiece, you and the utility companies both benefit; the utility company doesn’t have to pay the fine, and you earn cash.
- This is subject to solar targets remain unmet and that the fines don’t go away, both which can happen at any time.
States with Performances-Based Incentives