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CLEAN v SRECs: Finding the More Cost-Effective Solar Policy

| Written by John Farrell | No Comments | Updated on Oct 13, 2011 The content that follows was originally published on the Institute for Local Self-Reliance website at http://www.ilsr.org/clean-v-srecs-finding-more-cost-effective-solar-policy/

In choosing policies to finance solar power, U.S. states have chosen between two major options: solar renewable energy credits (SRECs) and CLEAN Contracts.

But few legislatures have been armed with data on the cost-effectiveness of these strategies.

The result is a mix of state and local policies with varying levels of efficacy. Neither program has a clear edge in installing more solar, and no one knows which states have acquired solar at lower cost.

Galvanized by the recent collapse in state SREC markets, this report examines the relative cost- effectiveness of these two solar financing policies. It reveals that the transparency, certainty, and low risk of CLEAN Contract Programs makes them more cost-effective than SRECs for financing solar power projects. In other words, CLEAN means more solar at less cost.

Solar Renewable Energy Credits = SRECs.
SRECs put a price on the supply of solar relative to state-mandated demand.
Clean Local Energy Accessible Now = CLEAN.
CLEAN Contracts provide a long-term contract for solar electricity based on the cost of producing solar power.

Findings

  • SREC markets are subject to significant volatility, creating a high risk atmosphere where developers require higher rates of return and increasing the ratepayer cost of solar by 10 to 30%. The recent collapse of five state SREC markets highlights this volatility.
  • CLEAN Contracts provide developers with transparency, certainty, and low-risk financing for solar projects, reducing developer cost of capital and required rates of return and decreasing the ratepayer cost of solar power. The ability of Germany’s CLEAN Contract Program to more accurately price New Jersey solar than the state’s own SREC market highlights this advantage.
  • A model of identical solar PV systems installed at $4.00 per Watt in New Jersey finds that CLEAN Contracts deliver solar at a lower levelized cost than an SREC policy due to the transparency, low transaction cost and low risk of a CLEAN Contract Program.

 

About John Farrell

John Farrell directs the Energy Self-Reliant States and Communities program at the Institute for Local Self-Reliance and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. More

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