When It Comes to Rebates, SRECs Make Long-Term Sense

One of the most important factors in moving the United States over from conventional to solar energy is making it financially enticing for the average user, as well as for producers. Currently, this enticement comes in the form of rebates, most notably sustainable renewable energy credits (SRECs) and feed-in tariffs (FiTs).

Of course, all business decisions come with pros and cons; choosing which rebate to go after is no different. Each type of rebate has benefits and detractors. Understanding your own companies’ needs will help determine which rebate is a better choice for you and, ultimately, more sustainable in the long term.

A renewable energy credit is accrued when one megawatt-hour (MWh) of electricity has been generated with a renewable resource, such as solar power. Once the energy generated by the renewable resource has been fed into the grid, the certificate can be purchased by energy consumers (such as corporations).

The renewable energy credit helps to create incentive for using green energy because it offsets the costs for producing the energy. However, on the down side, some label this system “ineffective” since it’s based largely on quotas and offers no long-term economic guarantee.

The FiT system offers long-term contracts (up to 25 years) and financial incentive to renewable electricity producers. Anyone who is producing renewable energy, whether a homeowner or a business, is offered the premium rate for the electricity they produce. The most cost effective types of renewable electricity production are valued over others. The feed-in-tariff system doesn’t deal with quotas or minor goals.

These two systems, in their effort to spur the adoption of sustainable solar energy initiatives, both help to reduce costs and pave the way for additional market interest.

Some industry followers look to feed-in tariffs as the preferred method for stimulating solar adoption because it has consistently offered financially enticing motivations to both investors and producers, thereby promoting consistent market growth. Detractors take, obviously, an opposing stance – challenging the view that feed-in tariffs are better for the industry long-term. They say FiTs are more expensive for everyone involved — since the price paid for any renewable energy in the feed-in tariff system is full value. Worldwide, the feed-in tariff system is far more common than the renewable energy credit system; 63 countries around the world use the feed-in tariff system.

In the U.S., however, the renewable energy credit system is favored. And, perhaps, that’s with good reason. In the U.S., it is widely believed that the SREC program is far more capable of creating a healthier and more sustainable solar market.

The SREC system is based upon incentives; those who produce more energy are able to benefit far more than those who don’t. Seems fair, right? On the other hand, the FiT plan is subscription-based and, at the end of the day, subject to government decisions, politics and available funding.

Without a doubt, the SREC concept of “reap what you sow” is quite American. Add to that another red, white and blue favorite – the law of supply and demand. It’s true that the SREC system is based on free market trade and that increased supply of energy credits produced will satisfy demand – at least temporarily — and push down the value of SRECs.

However, for that to truly be an issue, that would mean that widespread adoption of solar development is actually happening. In the event a solar market experiences such exponential growth in solar development causing SREC supply to outpace demand (and forcing the value of SRECs down), that might just be a problem worth having.

Article by Bari Faye Siegel, a technology writer and marketing consultant at Noveda Technologies, an innovative leader in real-time, web-based energy and water monitoring.