Recs vs solar panels: How do they compare?

One renewable energy certificate (REC) represents 1,000 kilowatt-hours (kWh) of renewable electricity generated. Renewable electricity can come from multiple sources, including wind, solar, hydropower,  organic plant and waste material (biomass), and the earth’s heat (geothermal).

One REC represents the positive environmental attributes of renewable electricity but not the electricity itself. When you buy RECs, you are not purchasing electricity to power your home. Rather, because there is no way to differentiate between renewable and non-renewable electricity once it goes onto the grid, buying RECs allows you to claim the benefits of using renewable electricity.

Like standard RECs, solar renewable energy certificates (SRECs) represent the “renewable” part of renewable electricity. However, SRECs only apply to electricity that comes from solar panels.

If you install solar panels on your roof, you will generate renewable electricity on-site. You will also generate one SREC for every megawatt-hour (MWh) of electricity. Like other RECs, your SRECs can be sold to utilities or other organizations that want to use renewable solar energy.

You may or may not own the rights to your SRECs. If you have installed your solar panels with a solar lease or power purchase agreement (PPA), the company that owns the system also owns the SRECs.

If you want to support renewable energy, you have many options, including buying RECs, subscribing to community solar or a green power program, or installing solar at your home or business.

The primary benefits of buying RECs, rather than installing solar, are that you can support renewable energy with relatively little out-of-pocket cost and don't have to worry about whether your property is suitable for a solar panel system. However, the ease and flexibility of purchasing RECs come with some downsides. While buying RECs means that you can claim to be using renewable energy, the direct impact of buying RECs is relatively small compared to building your own renewable energy system onsite.

The cost of installing solar doesn't have to be a barrier. Plenty of $0-down solar financing options are available, and the average EnergySage shopper breaks even on their solar investment in just seven years. If you live in a state with an SREC market, you can sell your SRECs to improve the economics of going solar even more.

If investing in a solar energy system isn't an option, RECs are just one alternative. Whether you install solar, buy RECs, or invest in other options, you'll positively impact the environment.

What happens to SRECs generated by solar panels?

Solar system owners can sell their SRECs to power companies for anywhere from a few dollars to hundreds of dollars each. Understanding why this happens requires understanding a policy known as the Renewable Portfolio Standard (RPS).

An RPS is a state policy that requires electric utilities to generate a certain percentage of their power from renewable resources. If utilities don't generate enough renewable energy themselves, they must purchase RECs. Many RPS policies also require that a certain percent of that renewable energy come from solar, called a "solar carve-out."

If you own the SRECs produced by your solar panels and live in a state with a solar carve-out policy, you may be able to sell them for a profit. Here's an example: A typical home may have a 5-kilowatt (kW) solar panel system. That system would produce approximately six to eight megawatt-hours (MWh) of electricity annually and six to eight associated SRECs. SRECs are worth different amounts depending on the state in which they are generated and sold, but they can range from less than $50 to more than $300 per SREC.

States have alternative compliance payments (ACP), which also affect prices. The ACP is the fine an electrical provider must pay per MWh if they don't meet their obligations under the RPS, and each state sets its own ACP. SRECs won't typically sell for more than the ACP because utilities can choose to pay the fine instead.

Depending on the cost of SRECs, a 5 kW solar panel system can make an extra $250-$1,500 per year, on top of savings from switching to solar. Of course, this is only true if you own the SRECs associated with the electricity you generate, which is something to ask about when you go solar. Additionally, some states don't have active SREC markets, and the value of SRECs varies from year to year.