Solar Renewable Energy Credits

Through the sale of Solar Renewable Energy Credits (SRECs), a solar array will produce income.

New Jersey is a leader in terms of solar power installation capacity and its success is mainly due to the introduction of a Solar Alternative Compliance Penalty (SACP), a fine applied to utility companies that fail to adhere to a predetermined green energy production quota.

Companies failing to meet the set quote may either:

1. buy land and build solar or wind farms
2. pay the SACP
3. buy your credit in the form of SRECs

Since land is expensive and the SAPC is a hefty fine (currently about $675 per megawatt-hour), utilities most often choose option “c.”

The value of an SREC — which is equal to a megawatt-hour of solar produced electricity — is always going to be less than the SACP, but will clearly be influenced by supply and demand.

Current Average SREC Price
$600

Future SREC Value Assumption
20.00% discount to SACP*

As the value of SRECs are influenced by market supply and demand it is impossible to predict the future value of Solar RECs, however a 20.00% discount to the SACP schedule should be conservative. Analysis also includes an annual degradation rate of 0.75% per year of the system output.

The SACP schedule beyond 2016 has not yet been announced. The NJ Clean energy program is expected to publish the extended schedule sometime in March, 2011. In the meantime, however, Civitas has assumed that the future SACP schedule will start to fall at a rate of $50 per year, as opposed to current rate of approximately $17 a year for the next 5 years. The assumption is to provide a more conservative valuation for SRECs in the future during this period of uncertainty and prove that the cash-flows are still very manageable from a debt repayment perspective.

Note: Civitas Energy will provide updates as soon as the schedule is published, however, we urge you to consider moving forward with the preliminary stages of the project in spite of this information not being available. The rationale is that significant Federal incentives are anticipated to be pulled following December 31, 2011, without which the financial landscape of solar changes dramatically.