Comparing SREC Aggregators

apples and oranges Comparing SREC Aggregators

Anyone interested in installing panels, or who already has, has probably heard of solar renewable energy credits, or “SRECs”. An SREC is basically a rebate for PV system owners. But instead of one big payment based on capacity (e.g., $1.00/watt), the rebate is based on solar electricity generation, and thus paid out over time. PV system owners receive an SREC every time they generate 1,000 kWh of electricity from their PV panels, which they can then sell. The dollar amount fluctuates with respect to the annual targets laid out by state legislatures; if more systems come online in a year to generate electricity (and earn SRECs) than the annual targets, the price of the SRECs drops until the targets increase to create a scarcity in the market. It’s a neat mechanism that states are still tweaking, but there is a lingering question many homeowners with panels are left asking themselves: How do I actually sell these things?

We’ve covered the rise of leasing companies in residential solar, and we expect that trend to continue. But perhaps because SREC prices have dropped in some states, SREC markets have recently been given a bad name. Yet several states are still trading above $200 (and as high as $540 in Massachusetts), and several homeowners would still rather own their systems and sell SRECs rather than lease their panels and fork the SRECs over to the leasing company or installer. But homeowners don’t have the leverage nor the time to go up to a big energy company and ask them to buy 2 SRECs for $250 apiece. Instead, there are brokers/aggregators that trade SRECs on behalf of homeowners. Below is an overview of what to look for when selecting a broker/aggregator to monetize your SRECs.

Transparency. Definitely the most important one. All aggregators find buyers to purchase SRECs. However, some trade on behalf of their customers, while others actually purchase their customer’s SRECs, then re-sell them at a mark-up. The latter approach is typically less transparent for the homeowner, because for the business model to work, the aggregator has to make revenue from buying low and selling high. For example, an aggregator under this model may purchase a number of SRECs from its customers during an oversupply when prices are low, then re-sell them at a later date when prices come back up. The homeowner doesn’t know what the real market value is, nor when the final sale was made.

An aggregator that simply trades SRECs without taking a speculative position usually earns its revenues from a straight commission out of the traded price. This model lends itself to greater transparency, because the aggregator’s interests are more closely tied to the homeowner’s; higher prices for the homeowner means larger revenues for the aggregator.

Volume. Generally speaking, buyers in SREC markets are energy companies that supply electricity to power grids. Most of these companies aren’t going to buy a measly 5 SRECs directly from you, since their quotas climb to several thousand SRECs per year; 5 SRECs in one transaction is a lot of work for a small gain. That’s why you need an aggregator in the first place. Regardless of the model an aggregator chooses, as a rule of thumb, aggregators that offer larger volumes per transaction achieve higher prices. This is partially because of the efficiencies larger volumes achieve, but also because aggregators with large volumes will attract more buyers that places bids to buy, which typically creates an upward pressure on prices.

Aggregators may not have a precise idea of their market share in a particular state, but they’ll have a good idea of how many systems – and therefore SRECs – they have under their services. For example, SRECTrade has over 6 MW in their aggregation, the largest in Massachusetts, according to a senior broker there (name Steven?).

Flexibility. What are the different options offered to sell your SRECs? Some aggregators exclusively trade in spot, or over-the-counter transactions, some broker contracts ranging from 1-5 years, some do a mix of both. Spot trades tend to be more volatile, since buyers adjust their bids based on the supply and demand in the market. Brokered contracts set a fixed price for a period of time for SRECs, but usually this price is lower than the spot market trades. Each homeowner has different appetites for risk that would determine which of these options to choose, and this appetite (like all appetites) can change over time, so why not choose an aggregator that offers several options?

Another consideration for flexibility are the contract terms. Typically, aggregators that do not take a speculative position on SRECs (see above section on transparency) do not lock their customers into contract obligations for their services. Obviously, aggregators that broker forward contracts obligate their customers to stay with them for the duration of the contract. If, for example, you sign up with an aggregator that brokers a contract to sell your SRECs for $100 for three years, but then the spot market jumps to $200 during those three years, you can’t opt out for the higher spot trades (another reason why flexibility in options is preferable).

I hope this provides a nice overview to help differentiate between aggregators. If you are thinking of leasing your system (in which case you likely would not own your SRECs), check out our post on what to look for. Or, if you want to go straight to the pros, fill out a quick evaluation form and we’ll contact installers your area!

Posted by Stuart Ivy

Original Article on Residential Solar 101