An owner of a renewable-energy system, such as a PV system, receives one Renewable Energy Certificate (REC) for every 1000kwh or mega-watt hour of energy produced. A certifying agency ensures that REC's are allocated accurately and that each is assigned a unique serial number. The REC can then be sold on the open market. Several organizations exist that facilitate this trading. The price of RECs float like shares of stock and varies depending on supply and demand.
However, the market for RECs is unique. In states with renewable portfolio standards (RPSs), which require that utilities produce a minimum amount of their electricity from renewable resources, those utilities that fail to meet their quota can purchase RECs. Purchasing RECs gives buyers the right to claim "green" energy produced elsewhere as their own to fulfill quotas. The price paid acts as a penalty mechanism. In return for the REC, the renewable energy producer receives funds that help offset cost of the initial system investment and / or contribute to future investment in renewable energy technologies.
The concept of trading in renewable energy certificates (RECs) is similar to the global market for carbon credits. Under the Kyoto Protocol, an international agreement, countries are allocated maximum levels of carbon dioxide that their industries may release into the atmosphere. The objective is to stabilize and then reduce the release of carbon dioxide, the primary greenhouse gas, into the atmosphere by setting low target levels of emissions. The protocol also sets up a market for carbon credits. If a country's emissions fall below their carbon dioxide target level, they can sell the surplus allocation to a country that has exceeded its target. One carbon credit equals 1 metric tonne (2205lbs) of carbon dioxide. The price of carbon credits fluctuates on the open market like shares of stock.
This activity has no met effect on the total amount of carbon dioxide emissions. However, it encourages further improvement in emissions reductions because those who meet their target receive awards in the form of salable credits. Meanwhile, those who do not meet their goal are penalized by having to pay for credits. This creates an incentive for industries to reduce pollution, in that they may find it less expensive to improve their processes of install emissions-control equipment than to pay the cost of expensive carbon credits.
FROM 2007 Edition of NJATC "Photovoltaic Systems"
Contact Solar Systems of Indiana, Inc. and we can explain your SREC options when installing a new or existing PV system and how they will help speed up system payback.