The state of Massachusetts wants to encourage you to go green. In addition to the tremendous Solar Rebate Program, they’ve decided to reward people generating solar energy by letting them sell their clean energy back to the utilities. So in addition to the significant savings you’ll receive by reducing your electric bill, a 5kW solar system should net you even more money annually in SREC income.
Unfortunately, the SREC program is the most complicated aspect of getting solar panels. Basically, the state has told the power companies that they must produce a certain amount of their electricity from renewable sources each year. Specifically, 5% of their energy was required to come from solar panels in 2010, increasing by 1% every year. But they are falling short of that goal. So what they can do is pay me for my solar power so that they can say that I’m generating solar energy for them and then add me to their 5% goal. Granted, I’m only a drop in the bucket, but with all the solar panel installations across the state it adds up.
This program is administered by the Massachusetts Department of Energy Resources (DOER) and they have stated that for each megawatt hour (1,000 kWh) that a system generates, one Solar Renewable Energy Certificates (SREC) will be created. It is estimated that a 5 kW solar system will generate a little less than 6 SRECs per year. A solar panel system will generate SRECs for 10 years.
When the SREC program first started, the supply of SRECs was much less than the utilities needed so SRECs were selling for over $500 each. And then for awhile, after the solar market grew quicker than expected, the supply of SRECs became oversupplied and SRECs sold for less than $200. Since that time, however, the market has stablized and SRECs are selling close to their auction price of $285. Here's a updated SREC pricing chart.
Beginning on April 25, 2014, the SREC-II program began. This program is a successor to the first SREC program and the major details of the program remain the same for residents. The one significant difference is that instead of SRECs being worth a flat $285 every year, they're worth $285 for the first three years and then decline in value by 5% each year thereafter. However, don't be deterred - this is still a very generous incentive and represents the biggest chunk of your payback. A 5-kW system installed in 2014 will generate a total of about $14,000 in SREC payments over its 10 years of eligibility.
While SRECs are sold in an annual auction in July for a fixed price, they can be sold on the open market at any time after they become available. They become available quarterly on the 15th day of the following quarter plus one month. Payments typically will be received within a month of they're being sold. To explain more clearly:
So there is a significant delay after producing the energy before the SRECs can be sold. But this is only really noticeable until you produce your first SREC. After that, you'll be generating SRECs regularly. For more specifics regarding SRECs, please see my blog and sign up for my mailing list.
According to one SREC aggregator’s contact with the IRS, the proceeds of SRECs should be considered an offset to the purchase of the solar energy system, and are therefore not taxable. The IRS also stated that the sale of SRECs does not fit within the transaction types that would initiate the generation of a 1099. If you are uncertain, please contact a tax professional.
Even though you’ll make more money annually from selling your SRECs, don’t forget your significant monthly savings by generating your own electricity. Or proceed right to the solar company ratings page to claim up to $500 in savings and get estimates from qualified solar installers.