Solar Renewable Energy Certificates (SRECs)

Summary

Under Maryland law, an SREC represents the generation attributes of 1 megawatt-hour (MWh) of electricity generation (or equivalent) from a qualifying solar facility. Electricity suppliers must purchase and retire solar renewable energy credits (SRECs) in order to meet their compliance obligations under the law, or pay a Solar Alternative Compliance Payment (SACP) for any shortfalls in SREC purchases. The SACP operates as a theoretical ceiling on the price that a supplier would pay for SRECs to fulfill obligations under the Maryland RPS.* In Maryland the SACP is set at $400 per MWh for 2009 - 2014, but will decline in future years, ultimately reaching $50 per MWh in 2023 and thereafter. Under this system, SRECs represent a significant source of revenue for owners of qualifying solar facilities, with a value determined by demand in the trading market. 

All net-metered customers and renewable on-site generators in Maryland own all RECs or SRECs produced by their systems unless or until a customer or generator chooses to sell or otherwise transfer the RECs or SRECs to another party. A Maryland SREC has a three-year lifetime during which it is valid for compliance (i.e., the calendar year during which it was generated plus the next two calendar years). Once a facility qualifies as an eligible solar generator, it is eligible to produce SRECs for as long as it remains in service as an eligible generator. Residential solar water heating systems are not permitted to generate more than 5 SRECs annually.

Program Description

In order to begin producing SRECs for the Maryland RPS*, a solar generator must apply for certification as a qualifying generator from the Maryland Public Service Commission (PSC). In general, a PV facility must be connected to the distribution grid serving Maryland** in order to qualify as a source of SRECs for meeting an electricity supplier's compliance obligation under the state RPS. However, through 2011 SRECs from solar facilities not connected to the distribution grid serving Maryland were eligible to be counted under the state RPS to the extent that SREC offers from Maryland facilities were not sufficient to meet the standard. In February 2012 the PSC determined that sufficient Maryland-sourced solar resources existed during 2011 to meet the standard, rendering out-of-state resources ineligible. Solar water heating facilities must be commissioned on or after June 1, 2011; not be used for the sole purpose of heating a pool or a hot tub; and use SRCC OG-100 certified equipment. Residential solar hot water systems are limited to producing maximum of 5 SRECs in a given year. SRECs produced by solar thermal systems are calculated by the conversion rate 1 SREC = 3,412 BTU. 

  
After a facility is certified by the PSC, it must establish SREC account with the PJM-EIS Generation Attribute Tracking System (GATS). In general, the system owner or their representative must enter energy generation data from a revenue-quality meter into the PJM-GATS system at least once annually in order to be issued an SREC. Owners of PV systems of 10 kilowatts (kW) or smaller (referred to as Level 1 solar facilities) that are used for on-site generation may use an engineering estimate based on an energy production schedule established by the PSC in lieu of providing actual generation data. Owners of systems that are not certified as Level 1 solar facilities are also required to submit an on-site generation form to the PSC within one week of entering their generation data into the PJM-GATs system. Non-residential solar water heating systems must be equipped with a meter that meets the standards of the International Organization of Legal Metrology (IOLM). Residential solar water heating systems may be equipped with an IOLM-compliant meter, or may use an SRCC OG-300 thermal performance rating for the purposes of SREC creation.

In a characteristic unique to Maryland, solar generators in Maryland are required to offer SRECs for sale to Maryland electricity suppliers prior to offering them for sale to any other buyer. In order to help generators comply with this requirement, the PSC operates a web site where generators can post SREC offers. Currently, SREC purchase contracts directly between a solar generator and an energy supplier must have a term of at least 15 years. However, as a result of H.B. 258, beginning October 1, 2012 the minimum term requirements will not apply to Level 1 facilities. For Level 1 solar facilities only, the purchase must take the form of a single, up-front payment arrived at by calculating the net present value of SRECs over the life of the contract using a standard SREC value of 80% of the SACP and federal secondary credit interest rate in effect as of January 1 of that year as the discount rate. If after 10 days the SREC(s) have not been sold to a Maryland electricity supplier, the facility owner is free to sell their SREC(s) to any buyer. 

The PJM-GATS Public Reports web site contains a variety useful pieces of information, including monthly weighted average SREC trading prices for Maryland and other states. Note that the SREC trading prices reported here for each state refer to facilities located in that state. In some cases, the SRECs may have been sold into the SREC market in another state rather than the state of origin. 
 

History

Maryland's Renewable Energy Portfolio Standard, enacted in May 2004 and revised in 2007 and 2008, requires electricity suppliers (all utilities and competitive retail suppliers) to use renewable energy sources to generate a minimum portion of their retail sales. The renewables requirement increases gradually, ultimately reaching a level of 20% from Tier 1 resources in 2022 and beyond, and 2.5% from Tier 2 resources from 2006 through 2018. The Tier 2 requirement sunsets at the end of 2018, dropping to 0% in 2019 and beyond. The law was amended in April 2007 to include a solar-photovoltaic (PV) requirement of 2% by 2022, which is included within the 20% by 2022 Tier I renewables requirement.

In May 2010 S.B. 277 accelerated the solar compliance schedule and made several other related changes to the law, but did not change the ultimate 2% by 2022 requirement. In May 2011 the law was amended yet again to allow solar water heating systems to qualify under the standard. In May 2012 the solar compliance requirements were accelerated again for the period from 2013 - 2020 and the ultimate target of 2% was solar moved up from 2022 to 2020 by S.B. 791. As with the other resource tiers, the requirement ramps up progressively over time in annual increments from an initial requirement of 0.005% in 2008, to 0.025% in 2010, and so forth towards the ultimate 2% by 2020 requirement.

*Solar facilities located in Maryland may also be eligible to participate in other states' SREC markets. In some cases this may allow SRECs sourced from facilities located in Maryland to trade above the theoretical price ceiling set by the SACP.

**Beginning in 2012, this criterion should in most cases limit qualification to solar facilities physically located in Maryland. In addition, it could also impose size limitations on facilities by requiring that facilities be connected to the grid at the distribution-level voltages, as opposed to transmission-level voltages.