Tesla Buying SRECs Up-Front

[TheTalkingMule]

I'd be interested in hearing people's stories of purchasing through Tesla and monetizing the SRECs up front. Seeing that's now being done fairly regularly? Personally I think it's a great service and am excited to see installers have the ability to monetize the tax credit as well. Hearing that might be a possibility down the line.

I've been advising people to NOT sell their SRECs up front if they can avoid it. Not because Tesla is being shady, but because in certain situations I think the limit to monetization is dramatically under-compensating customers. My assumption is this is entirely the 3rd party entity demanding too much back end for the "risk" they're taking on.

Just threw a Washington DC address in to see how pricing looked. Since their SRECs are currently priced at a whopping $425(!) each, the sale of them all outright up front seems to net the buyer of a 16kW array over $15,000. That's half the price tag! Seems like a great deal to just get $15k off a purchase, but the math says otherwise. You'd be looking at probably a couple credits a month on an array of that size. And at $425/MWh of production, that's over $10k in year one alone.



Does anyone have inside info on this? Or am I doing the math wrong? This is a very very rare instance(being DC is so small), but I found it a bit odd.

 

[bkp_duke]

@#$%

$13k is dirt cheap for a 16kw system. Credits or not.

 

[wjgjr]

Your math works as an initial estimate and it seems like Tesla is only offering at most about 50% value for SRECs. In my case (in MD) I should generate ~8 SRECs annually, currently selling for $76. Tesla offered under $400 as a credit. There are a several items to consider in the calculation, however:

1. Value of future SRECs should be discounted for inflation.
2. Selling your SREC usually costs money. SRECTrade is what I am using (currently in the sign-up process) and they charge a 7% fee ($2.50 minimum.)
3. In MD and DC (and I'm guessing other states - haven't looked) the maximum value drops over time. In MD, by 2022, the price will certainly drop below $76, where DC the next guaranteed drop isn't until 2024. But the point is the amount you can assume you will collect from SRECs should reflect the likelihood prices fall.
4. Solar production (and thus SREC production) will also decline over time as the system ages.

With all of that, it is also potentially a bit cumbersome to register and manage the process. So I can see where some would prefer just not to have to deal with the hassle and uncertainty, plus the possibility that for some people budget constraints require minimizing up-front costs. I felt it was worth it to keep the SRECs, and I think for most it will be from a strict financial calculation, but I can see reasons some would choose to take the buyout. However, I suspect many just don't realize it is an option or the value of them.

 

[willow_hiller]

• Value of future SRECs should be discounted for inflation.

• Selling your SREC usually costs money. SRECTrade is what I am using (currently in the sign-up process) and they charge a 7% fee ($2.50 minimum.)

• In MD and DC (and I'm guessing other states - haven't looked) the maximum value drops over time. In MD, by 2022, the price will certainly drop below $76, where DC the next guaranteed drop isn't until 2024. But the point is the amount you can assume you will collect from SRECs should reflect the likelihood prices fall.

• Solar production (and thus SREC production) will also decline over time as the system ages.

I put together a spreadsheet to try and account for all of the factors you listed above. Tesla was offering me $170 per system kW (although it should ostensibly be based on projected annual kWh), for a total of $2080 up front. Even with some worst-case scenario assumptions, selling the time-discounted, fee-inducing SRECs surpasses Tesla's offer within 3 years:

Unless you're really strapped for cash, or don't know what an SREC is, I don't know why someone in Maryland would take the buyout offer.

 

[wjgjr]

@#$%

$13k is dirt cheap for a 16kw system. Credits or not.

For what it's worth, I think it may even be cheaper as Tesla is reducing the ITC by their payment for the SREC credits. Since selling them yourself does not impact the ITC, I do not see any logical reason why selling them upfront would - it is not a rebate or credit on the system but an agreement to sell a future revenue stream. So assuming a full ITC claim, I believe the actual cost would be just under $10k.

But what is even more amazing for DC (and this is a rare time I wish I was on that side of the border for money/tax purposes) is that in the above example, the solar portion (excluding PW) is $21.5k. After the ITC, it is about $15.9k. If you keep the SRECs yourself and generate 16 per year (which is probably conservative for a 16kW system) and sell them at $395 after commission, you should break even in around 2.5 years not even accounting for savings on your electric bill. Throw in the PWs and you still can break even in under 5 years just on the SREC credit sales. This does assume the market doesn't crash, and I admit to not knowing enough about the DC SREC market to know if there is a risk of oversupply - it does seem like there could be given how valuable SRECs are right now.

I should note that while SREC payments should not affect the ITC, they are potentially income, so my understanding is that you may need to pay tax on those, which does probably push out the actual break-even times.

 

[bkp_duke]

For what it's worth, I think it may even be cheaper as Tesla is reducing the ITC by their payment for the SREC credits. Since selling them yourself does not impact the ITC, I do not see any logical reason why selling them upfront would - it is not a rebate or credit on the system but an agreement to sell a future revenue stream. So assuming a full ITC claim, I believe the actual cost would be just under $10k.

But what is even more amazing for DC (and this is a rare time I wish I was on that side of the border for money/tax purposes) is that in the above example, the solar portion (excluding PW) is $21.5k. After the ITC, it is about $15.9k. If you keep the SRECs yourself and generate 16 per year (which is probably conservative for a 16kW system) and sell them at $395 after commission, you should break even in around 2.5 years not even accounting for savings on your electric bill. Throw in the PWs and you still can break even in under 5 years just on the SREC credit sales. This does assume the market doesn't crash, and I admit to not knowing enough about the DC SREC market to know if there is a risk of oversupply - it does seem like there could be given how valuable SRECs are right now.

That's an incredible payback period. Us SoCal residents really take it on the chin by comparison. Granted, this was 3 years ago, but the SunPower system in my sig cost about 1.7X as much, before any federal tax credits, and is 25% smaller.

My consolation prize, I guess, is that my 4 powerwalls were $8k out of pocket after CA SGIP rebate and Federal ITC.

 

[wwhitney]

I should note that while SREC payments should not affect the ITC, they are potentially income, so my understanding is that you may need to pay tax on those, which does probably push out the actual break-even times.

Right, it's one or the other, either the SREC is income, or the SREC reduces the ITC. No double dipping.

Cheers, Wayne

 

[wjgjr]

That's an incredible payback period. Us SoCal residents really take it on the chin by comparison. Granted, this was 3 years ago, but the SunPower system in my sig cost about 1.7X as much, before any federal tax credits, and is 25% smaller.

My consolation prize, I guess, is that my 4 powerwalls were $8k out of pocket after CA SGIP rebate and Federal ITC.

Yeah - every state seems to have a different approach with some positives and some negatives. I am in the area of $7k for 2 PWs due to a good MD battery incentive (30%, but maxed at $5k - so it only helps with the first two PWs) but SRECs are not as good here.

For DC, I am honestly surprised a company with enough capital hasn't looked into finding good DC houses for solar and offering arrangements for free solar panels if they get the SRECs.

 

[wjgjr]

Right, it's one or the other, either the SREC is income, or the SREC reduces the ITC. No double dipping.

Cheers, Wayne

All the tax rules and different incentives are, I think, part of what makes figuring out the true price of solar so complicated and puts people off. Particularly applicable to this thread, I think ease and convenience are an answer to why people take the upfront payment - it is just one fewer things to deal with. I would still tend to think SREC payments (up front or over time) should be treated as income since they are only a byproduct of the solar project. But, I am not an accountant, and in the end, the difference is probably fairly small for most people.

As an example of all the tax complications, MD provides up to a $1k incentive for solar and $5k for battery storage. The $1k is a "grant" and the state issues you both a check and a 1099. So the grant does not reduce the ITC basis, but you pay federal income tax on it. However, the $5k is a state tax credit. As such, you do not get a 1099 and you do not need to pay federal tax on it, but it then would reduce the ITC basis (apparently with a potentially interesting caveat for somebody who can itemize and is limited on their state taxes they can deduct.)

 

[TheTalkingMule]

For DC, I am honestly surprised a company with enough capital hasn't looked into finding good DC houses for solar and offering arrangements for free solar panels if they get the SRECs.

* I'm working on it

DC is a wonderful case study for US residential solar. The race for market share in this tiny area created a mad rush of sales effort, far larger and more expensive than the $.75/Watt we see in most bad US markets.

Basically, most of the cost hole created by these massive SRECs was filled by sales cost as commissions ballooned from installers seeking traction in a juicy market. Ridiculous.

 

[Oskirrii]

Tesla is trying to gain my consent to install my 10.63kW design. Saying they need me to fill out the consent to give them SREC ownership in perpetuity, and will not change my "consent" form to the "no" option. Doesn't feel like consent if there is no choice.. Solar contract and install contract both signed and neither mentioned SRECs. Feeling not great about my install (now in its 8th month) at the moment.

 

[pmgriphone]

Tesla is trying to gain my consent to install my 10.63kW design. Saying they need me to fill out the consent to give them SREC ownership in perpetuity, and will not change my "consent" form to the "no" option. Doesn't feel like consent if there is no choice.. Solar contract and install contract both signed and neither mentioned SRECs. Feeling not great about my install (now in its 8th month) at the moment.

Same here. No mention of SRECs in the original agreement, then they snug it in in an exhibit after two blank pages without properly disclosing that to me so I remained unaware of it. Only found out just recently and am now trying to get my rights to the SRECs back. Tesla is playing hard ball however and is refusing to respond to me any further. Has anyone else had to deal with this? How do I get my right to the SRECs back?