Supply and Demand
SREC supply in a particular state is determined by the number of solar installations qualified to produce SRECs and actually selling SRECs in that state. As more solar systems are built, SREC supply will increase. SREC demand is determined by a state's RPS solar requirement, typically a requirement that a certain percentage of the energy supplied into a state originate from qualified solar energy resources. Load-Serving Entities or organizations that supply electricity into the state are required to meet these requirements. RPS solar requirements in many states are set to increase in the coming decade.
Typically, there is no assigned monetary value to an SREC. SREC prices are ultimately determined by market forces within the parameters set forth by the state. If there is a shortage in SREC supply, pricing will rise, resulting in an increase in the value of the incentive for solar systems and an intended acceleration in solar installations. As SREC supply catches up to SREC demand, pricing will likely decrease, resulting in an intended deceleration in solar installations. Over time, SREC markets are designed to find the equilibrium price that encourages enough installation to meet the growing demand set forth by the RPS. Generally speaking, SREC prices are a function of (1) a state's solar alternative compliance payment (SACP), (2) the supply and demand for SRECs within the relevant state, and (3) the term or length over which SRECs are sold.
Spot price for SRECs are generally higher than prices found in long-term contracts since the system owner is taking on market risk. If increases in supply outpace the growing demand, spot prices could fall. SRECs have traded as high as $400 in Maryland.
In addition to providing cash flow security and stability, long-term SREC contracts are often required by banks or other lending institutions unwilling to accept market and legislative risk associated with SREC markets. However, SREC contracts longer than 3 years can be difficult to secure in some SREC markets because in deregulated electricity markets, energy suppliers rarely have electricity supply contracts longer than three years. Some SREC aggregators have managed to negotiate 3-10 year agreements and are able to offer similar length contracts to their residential and commercial customers. In most cases, long-term contracts demand some sort of premium over market prices to compensate the off-taker for putting up the credit to guarantee the contract in the event that prices drop. This premium is also affected by the general lack of availability of credible off-takers in the market. In some markets, however, where short term supply has overtaken demand, long-term prices are competitive and can actually be better than spot prices