How is an SRECs worth determined?

The short answer is: it depends. The value of SRECs are determined by the supply and demand of the open market. To understand an SRECs value you first need to understand who buys them. 

The SREC Market

Due to legislation passed in certain states, utility companies are now required to source a certain amount of electricity generated from renewable sources to meet renewable portfolio standards (RPS).

If the utility company is unable to meet their RPS, they are subject to fines called Alternative Compliance Payments (ACPs). The utility company can meet their quota in one of two ways, they can build their own solar projects or  purchase a renewable energy credit on an open SREC market.

The market is fueled by the SRECs you generate as a renewable energy homeowner into the market. So, essentially your SRECs value is tied to the utility companies need. They may opt to pay the fine or buy RECs rather than invest in their own solar farms.

How is an SRECs Value Determined

The price of these RECs on the open market is determined by three principal factors:

1. The price of the Alternative Compliance Payment (ACP) for the utility company.

2. The supply of RECs on the market.

3. Available payout options for the market.

A utility company will make a strategic choice to pay the ACP (penalty) for not meeting the mandated quota of renewables in its portfolio or can opt to buy RECs on the open market. Similar to stocks, the price of a REC is determined by supply and demand. The more saturated the market, the lower their cost.

Because the ACP sets a price ceiling, the price of an SREC will never go higher than the ACP in order to entice utility company's to buy off the market instead of paying the penalty.