Also known as a solar renewable energy credit, a type of renewable energy certificate that was established to encourage the production and consumption of solar energy. One SREC is created for each megawatt hour or 1,000 kilowatt hours of electricity generated from a solar energy project. Many states have implemented a renewable portfolio standard (RPS) that requires utilities and other electricity suppliers to source a portion of their energy needs from renewable energy sources. Some states also have a specific percentage of utilities' energy needs that must be obtained from solar energy. This is referred to as a solar carve-out. Depending on the state, different types of solar projects can qualify for the SRECs. For example, in some states only photovoltaic solar installations qualify while others also allow solar thermal technologies (including solar water heating and space heating and cooling systems) to qualify.

Failure to source the required amount results in the payment of an alternative compliance payment (ACP). SRECs were developed to enable utilities and other suppliers to comply with the solar carve-out provisions and not make ACPs. These entities can buy SRECs from homeowners or businesses that have qualifying solar installations. The sale of these SRECs generates income for these homeowners and businesses that can use the revenues to finance their solar installations.

The SREC market and the amount of SRECs that are available for purchase by electricity suppliers depends on several factors, including:

Some SREC markets impose geographic limits on the source of SRECs or solar projects that can be used to satisfy a load provider's obligations.

For more information on SRECs and solar energy more generally, see Practice Note, Understanding Renewable Energy: Solar.