Clean Contracts vs. SRECs
Energy Self Reliant States
The low risk and transparency of CLEAN Contract Programs can provide states with more solar at a lower cost than solar renewable energy certificate (SREC) programs, says a new report released last week. Produced by the Institute for Local Self-Reliance (ILSR), CLEAN v. SREC: Finding the More Cost-Effective Solar Policyfinds that an otherwise identical solar project installed for $4.00 per Watt in the nation’s second-largest solar market, New Jersey, costs ratepayers 20 percent more when financed by SRECs rather than CLEAN Contracts.
The report also models the potential impact of New York’s proposed solar Solar Industry Development & Jobs Act of 2011 and finds that “the CLEAN Contract Program provides 40 percent greater ratepayer savings than an SREC program while providing 13 percent more solar power.”
CLEAN Contracts finance solar power development by requiring utilities to offer long-term (e.g. 20-year) contracts on a first-come, first-served basis at per-kilowatt-hour prices sufficient to attract solar development. The policy (under various names) has provided financing for nearly 90 percent of the world’s solar power. In contrast, SRECs represent the environmental value of a megawatt-hour of solar electricity. Their price is high when there is a shortage of solar and low when there is a surplus of solar relative to the state’s mandated quantity. This “market-based” mechanism served eight U.S. states fairly well until recent oversupply crashed nearly every state SREC market simultaneously.
“Many states were attracted to SRECs by the deceptive allure of the market,” said John Farrell, ILSR senior researcher and report author, “but this report highlights the irony: the volatility and cost of SRECs make this ‘market-based’ policy an inferior choice to CLEAN Contracts for states hoping to establish a robust and resilient solar market.”
The report details the major differences in the two solar policies, focusing on the risk factors for developers. In all categories – including policy transparency, longevity and certainty – CLEAN Contracts make the process of developing solar projects less complicated and less risky. CLEAN Contracts also more accurately price solar power than SRECs, because the former provides a modest return on investment based on the actual cost of installing solar power projects while the latter represent the surplus or shortfall of solar relative to a state-mandated demand for solar (and can fluctuate wildly).
The result is that CLEAN Contracts deliver more solar power at a lower cost.
CLEAN v. SREC: Finding the More Cost-Effective Solar Policy can be downloaded on ILSR’s Energy Self-Reliant States website at http://energyselfreliantstates.org/content/clean-v-srecs-finding-more-cost-effective-solar-policy.