Research & Insights
Compliance REC and SREC markets: a desk framework for origination, carry and risk
Renewable energy certificates are the settlement currency of state renewable portfolio standards. This note lays out how the PJM and NEPOOL compliance markets work, where public price evidence exists, how to screen a banking or forward-carry position, and why the first dollars in this market should come from matched-flow origination rather than principal risk.
DC SREC, April 2026$370Public spot proxy per DCPSC; 2025 average $407
DC compliance fee$460Ceiling context for the 2025 compliance year
Risk-adjusted break-even$561Exit price a one-year hold must clear after financing, liquidity and eligibility haircuts
Observed forwardn/aNo executable broker curve captured; no trade call is made
Exhibit 1: Certificate lifecycle, generation to retirement
One certificate per MWh of eligible generationA REC separates the environmental attribute of a megawatt-hour from the physical electricity. The attribute is created in a tracking registry (PJM-GATS in the Mid-Atlantic, NEPOOL GIS in New England), carries serial attributes that establish which state programs it can satisfy, and is either sold to a load-serving entity for compliance, held for future compliance value where rules allow, or retired to support a claim. Every step is a point where deliverability can fail, which is why eligibility sits at the top of the risk framework.
Generation creates one certificate per MWh
01
Generate
Eligible generation creates one REC/SREC per MWh in a registry.
02
Register
Serial attributes identify project, fuel, vintage, location and eligibility.
03
Transfer
Certificates move between account holders through registry transfer workflows.
04
Bank / sell
If rules allow, certificates may be held for future compliance value or sold to buyers.
05
Retire
Retirement removes the certificate from circulation and supports compliance or claims.
Source: US EPA, Renewable Energy Certificates; PJM EIS, GATS Fact Sheet; NEPOOL GIS, Operating Rules effective July 1, 2025; M-RETS Operating Procedures.
Exhibit 2: Market map, PJM-linked SREC products as the first lane
Priority reflects registry clarity, public price evidence and tractabilityThe District of Columbia and Maryland solar carve-outs are the most tractable products: both settle in PJM-GATS, both have a published penalty schedule, and DC publishes an annual price summary. New Jersey and Connecticut are structurally important but rule-dense. Massachusetts is held on a watchlist until official DOER source material can be verified. M-RETS and WREGIS are operational comparators, not trading lanes.
Filter
| Market | Registry | Compliance driver | Penalty / ceiling | Listed contract | Priority |
|---|---|---|---|---|---|
| District of Columbia SRECSolar REC compliance | PJM-GATS | DC solar carve-out; suppliers can satisfy obligations with qualifying SRECs or fee alternative. | $460 compliance fee threshold cited by DCPSC 2026 summary for 2025 context. | Nodal lists environmental contracts; ICE rulebook checks required before order entry. | High |
| Maryland SRECTier 1 solar carve-out SREC | PJM-GATS | Maryland Tier 1 solar carve-out increasing toward 14.5% by 2030. | Solar ACP: $45/MWh in 2026, $35 in 2027, $32.50 in 2028, $25 in 2029, $22.50 in 2030+. | ICE MDX: physical delivery, 10 MWh representing 10 SRECs. | High |
| Maryland Tier 1 RECTier 1 compliance REC | PJM-GATS | Maryland broader Tier 1 RPS reaches 50% by 2030. | Tier 1 ACP excluding carve-outs: $24.75/MWh in 2026, $24.50 in 2027, $22.50 in 2028-2029, $22.35 in 2030+. | ICE MDE: physical delivery, 100 MWh representing 100 Tier 1 RECs. | Medium-high |
| New Jersey SREC / Class I RECLegacy SREC, Class I REC, SREC-II context | PJM-GATS | NJ Class I RPS and successor solar incentive architecture. | Not captured from official source set; cost-cap order governs ratepayer cost controls. | ICE NPS for NJ SREC and NJN for Class I REC; physical delivery via PJM-GATS. | High diligence / medium immediate trading |
| Connecticut Class I RECClass I compliance REC | NEPOOL GIS | CT Class I annual RPS percentage for electric suppliers. | ACP not captured in reviewed source set. | ICE CTT: physical delivery, 100 MWh representing 100 RECs. | Medium-high |
| Massachusetts Class I / SREC IINEPOOL Class I / solar carve-out legacy products | NEPOOL GIS | Massachusetts RPS and solar carve-out products. | Blocked; do not assume. | ICE MCL and MS2 appear in rulebook. | Watchlist |
| M-RETS comparatorCompliance / voluntary REC registry comparator | M-RETS | State and voluntary programs using M-RETS certificates. | Not applicable as a registry-only comparator. | ICE rulebook includes M-RETS CRS-listed wind REC products. | Secondary |
| WREGIS comparatorWestern REC tracking / compliance comparator | WREGIS | Western state and voluntary REC tracking. | Not applicable as a registry-only comparator. | No desk-priority contract captured. | Secondary |
Source: PJM EIS; NEPOOL GIS; ICE Futures U.S. Rulebook, Subchapter 18D (Physical Environmental Futures); Nodal Exchange; Maryland PSC 2025 RPS Report; DC PSC RPS Report; NJ BPU ADI Three-Year Review Order (2026); CT PURA. Massachusetts official sources not captured at time of writing.
Exhibit 3: Public price and ceiling evidence
Bounds, not executable quotesDistrict of Columbia SREC, $/SREC
Maryland alternative compliance payment schedule, $/MWh
DC is the only market in the reviewed set with a public transaction-level signal: the Commission's 2026 summary cites a 2025 average of $407 and an April 2026 level near $370, against a $460 compliance fee. That is a spot proxy, not a bid or an offer. Maryland publishes no price series, but the declining solar ACP (from $45/MWh in 2026 to $22.50 by 2030) fixes a hard ceiling on what any Maryland SREC can be worth in a given compliance year, which makes vintage timing the central variable in any Maryland carry screen.
Source: DC PSC, Renewable Energy Portfolio Standard Report (2026 summary); Maryland PSC, 2025 Renewable Energy Portfolio Standard Report. ACP values are compliance penalties and are not tradable prices.
Exhibit 4: Demand and supply indicators
Percentage requirements; retail load not captured| Market | Requirement | Note |
|---|---|---|
| District of ColumbiaSolar carve-out | 4.30% | Current requirement; 293.3 MW estimated required capacity vs 373.7 MW reported |
| MarylandSolar carve-out | 14.5% by 2030 | Rising schedule; use the current compliance-year percentage for sizing |
| MarylandTier 1 RPS | 50% by 2030 | Broad Tier 1 obligation; lower ceiling than the solar carve-out |
| ConnecticutClass I RPS | 25% (2026) → 29% (2030) | 26% in 2027; NEPOOL GIS settlement |
Demand is a percentage of retail load, and retail load is not in the public source set, so this note shows requirement schedules rather than total obligation. On the supply side DC reports 373.7 MW of certified capacity against an estimated 293.3 MW requirement, an 80 MW surplus. Prices nonetheless stayed near the fee. The reading is that DC scarcity is transitioning rather than absent, and that the surplus should be treated as a downside signal for any position that depends on the fee holding as a floor.
Source: DC PSC; Maryland PSC; CT PURA, Renewable Portfolio Standards Overview and RPS Instructions.
Exhibit 5: Forward-carry and banking NPV screen, DC SREC
One-year hold versus sale today at $370Spot proxy$370
Financing8%
Liquidity haircut25%
Eligibility probability95%
The clean carry forward, spot grossed up for one year of financing, is $400. Once the hold is haircut for liquidity and for the probability the certificate fails eligibility at delivery, the exit price required to break even rises to $561, above the $460 fee. On these inputs a bank-and-hold only clears a sale today in the upside case, and then by $9. The base case loses $126 per certificate in present-value terms.
The conclusion is not that carry never works; it is that in a market with a published ceiling and no observed forward curve, holding inventory is a financing and eligibility bet dressed as a price view. The screen should be rerun the moment an executable forward is available.
NPV of one-year hold versus selling now, $/SREC
| Scenario | Price shock | Financing | Liquidity haircut | Eligibility | Future value | PV | NPV vs sell | Desk action |
|---|---|---|---|---|---|---|---|---|
| Downside | -35% | 12% | 50% | 90% | $240 | $97 | -$273 | Stop principal accumulation; switch to agency/matched-flow only. |
| Base | +0% | 8% | 25% | 95% | $370 | $244 | -$126 | Back-to-back procurement plus small approved inventory. |
| Upside | +25% | 7% | 10% | 98% | $460 | $379 | +$9 | Expand origination only with locked exits. |
Interactive
Run your own carry screen
Move the inputs; the break-even and NPV update in real time. Presets load the three scenarios above.
Clean carry forward$400Sale price grossed up for financing
Risk-adjusted break-even$561Exit price needed after haircuts
PV of the hold$244Expected exit, haircut, discounted
NPV versus selling now-$126Sell now / do not hold
-$3000+$300
NPV across expected exit prices, $/SREC
Source: Odette Capital analysis; DC PSC spot proxy plus explicit scenario assumptions. Admin fee per certificate set to zero; registry fee schedule not captured. Illustrative screen, not a trade recommendation.
Exhibit 6: Option overlay, Black-76 price-cap replay on voluntary REC marks
299 sixty-day cycles, 2022-03-30 to 2025-03-24A second workstream tested whether a desk could sell price-cap protection to REC buyers. A 60-day call struck at 110% of the forward was priced with Black-76 on a 60-day realized-volatility lookback, floored at 25% and marked up 10 points, then statically delta-hedged at inception (bought at the quoted ask, unwound at the quoted bid). The customer premium was set at fair value plus a $0.30 commercial floor covering operating cost, credit reserve and a minimum contribution. Rules were fixed before the replay and not tuned to the result.
Average fair value$0.204
Average customer premium$0.504
Average P&L after bid-ask$0.135
Positive cycles76.9%
Average P&L per cycle by commercial floor, $/REC
Distribution of P&L per cycle at the $0.30 floor
| Product | Cycles | Avg P&L | Positive rate | Worst cycle | Best cycle |
|---|---|---|---|---|---|
| CRS National Solar REC | 78 | $0.113 | 69% | -$0.420 | $0.449 |
| CRS National Wind REC | 99 | $0.142 | 80% | -$0.490 | $0.470 |
| CRS TX Solar REC | 23 | $0.131 | 83% | -$0.265 | $0.412 |
| CRS Texas Wind REC | 99 | $0.147 | 79% | -$0.486 | $0.447 |
The result is a product economics finding, not a trading edge: at a $0.30 floor the replay is positive in 77% of cycles with an average of $0.135 per REC, and the sensitivity table shows the outcome is driven almost entirely by the floor a customer is willing to pay. At $0.10 the book loses money. Whether any buyer will pay $0.50 for a 60-day cap on a $3.80 REC is a commercial question the historical data cannot answer, and the static hedge leaves gamma, jump, basis, eligibility and counterparty risk unhedged.
Interactive
Build a 60-day price-cap quote
Black-76 call on a REC forward. Quote volatility is the greater of the 25% floor and realized volatility plus a 10-point premium; the customer premium adds the commercial floor.
Strike$4.180Forward × strike ratio
Quote volatility48.3%max(25%, realized + 10pts)
Black-76 fair value$0.204Per REC
Initial delta hedge0.35e-rT N(d1) at inception
Customer premium$0.50413.3% of forward
C = e-rT[F N(d1) − K N(d2)] · d1 = [ln(F/K) + ½σ²T] / σ√T · d2 = d1 − σ√T · r = 4%
Desk P&L at expiry before hedge, $/REC
Source: Odette Capital analysis of historical CRS national and Texas solar and wind REC broker marks, January 2022 to March 2025, supplied for research. Quoted marks, not verified executable fills. Fixed-rule historical replay; not a forecast or a realized trading record.
Exhibit 7: Opportunity set, ranked by proximity to revenue
Service margin before principal risk01
Matched-flow compliance procurement desk
Service / origination marginDC SREC, MD SREC, NJ Class I/SREC, CT Class ISource credits from generators and deliver to compliance buyers or corporates with minimal open inventory.
- Status
- Actionable first workstream
- Capital
- Low to moderate if back-to-back; higher if warehousing inventory.
- Arbitrage test
- Not arbitrage; margin depends on origination and service spread.
02
DC SREC origination and inventory screen
Relative value / originationDC SREC via PJM-GATSDC has the clearest public high-value price signal and fee-threshold context, making origination worth immediate diligence.
- Status
- High-priority screen
- Capital
- Moderate if warehousing; low if agency or back-to-back.
- Arbitrage test
- Not riskless arbitrage; deliverability, timing, bid/ask and exit price are incomplete.
03
Maryland SREC banking and vintage spread screen
Relative value / carryMaryland SRECFive-year REC life and declining ACP schedule make vintage timing and carry economics modelable.
- Status
- Model-ready but price-data incomplete
- Capital
- Moderate for hold-to-compliance inventory.
- Arbitrage test
- Not arbitrage without executable bid/ask and confirmed delivery.
04
PJM cross-eligibility spread trading
Relative value / basisNJ, MD, PA/DC/PJM-qualified productsA generator with multi-state eligibility can create credits with different state scarcity values.
- Status
- Second-stage diligence
- Capital
- Moderate to high if holding optional inventory.
- Arbitrage test
- Only true arbitrage if the same certificate is deliverable into both legs with locked pricing.
05
NEPOOL dual-qualified REC optionality
Relative value with optionalityCT Class I, MA watchlist, NEPOOL dual-qualified productsDual-qualified Class I products may embed delivery optionality across state programs.
- Status
- Watchlist because MA official source access is blocked
- Capital
- Moderate if warehousing dual-qualified inventory.
- Arbitrage test
- Not arbitrage until both state pathways and pricing are defensible.
06
Voluntary REC aggregation and claims-safe service
Client service marginM-RETS, WREGIS and claims-oriented REC productsOffer buyers source-backed procurement and retirement documentation where claims discipline matters.
- Status
- Secondary adjacency
- Capital
- Low if agency model; moderate if buying inventory.
- Arbitrage test
- Not arbitrage; service and documentation economics.
Source: Odette Capital. "Arbitrage" is reserved for positions where the same certificate is deliverable into both legs with locked pricing; everything else is classified as origination, service or basis.
Exhibit 8: Risk framework and initial limits
Eligibility first, then liquidity, regulation, basis and operations| Risk | Failure mode | Control | Initial limit |
|---|---|---|---|
| Eligibility / vintage | Credit cannot satisfy target state or compliance vintage. | Pre-trade serial review, state eligibility matrix and registry confirmation. | No unhedged principal position until delivery checklist is complete. |
| Liquidity / bid-ask | Quoted spread is not executable or exit market is thin. | Executable broker marks, liquidity haircuts and inventory limits by market/vintage. | Use 25% base haircut and 50% downside haircut until live bid/ask depth is available. |
| Regulatory tail | RPS, ACP, banking or eligibility rule resets value. | Weekly docket/rule monitor; reduce unhedged positions around rule dates. | No concentrated exposure around pending rulemaking without approval. |
| Basis risk | Related state products do not converge because rules differ. | Classify cross-market trades as basis unless identical deliverability is confirmed. | No 'arbitrage' label unless deliverability, timing and costs are documented. |
| Counterparty / JV | Unclear authority, P&L attribution, settlement or capital responsibility. | JV charter, approval matrix, settlement checklist and exception log. | Separate agency, back-to-back and principal-risk approvals. |
| Registry operations | Transfer, retirement or account-permission error damages deliverability. | Four-eye release, permission matrix and reconciliation log. | Daily position reconciliation while inventory is open. |
Source: Odette Capital.
Exhibit 9: Source ledger
Public official sources checked July 9, 2026| ID | Publisher / document | Evidence used | Caveat |
|---|---|---|---|
| S2 | US EPARenewable Energy Certificates (RECs) | REC definition, legal role, MWh unit, attributes, claims function. | General REC framework; state eligibility still controls compliance value. |
| S3 | US EPAGuidance in Making Claims | REC ownership or exclusive rights are required for renewable electricity use claims. | Claims guidance, not a trading rulebook. |
| S4 | DSIRE / NC Clean Energy Technology CenterDatabase of State Incentives for Renewables and Efficiency | State RPS orientation and source discovery. | Used for source discovery; regulator/registry sources control final rule facts. |
| S5 | PJM EISGATS Fact Sheet | PJM-GATS certificate creation, attribute tracking, ownership transfer and retirement framing. | Detailed operating procedures still required before live settlement. |
| S6 | NEPOOL GISGIS Operating Rules Effective July 1, 2025 | NEPOOL certificate creation, transfer, account and retirement mechanics. | State RPS qualification still controls deliverability. |
| S7 | WECCWestern Renewable Energy Generation Information System | WREGIS is a web-based REC tracking system in the West and publishes account/generator materials. | Comparator lane; not primary trading lane for this desk. |
| S8 | M-RETSM-RETS Operating Procedures | M-RETS accounts, certificates, retirement, transfer and program procedures. | Comparator lane; state program eligibility still controls compliance value. |
| S9 | Nodal ExchangeEnvironmental Products | Listed environmental futures/options product universe and exchange-traded context. | Product availability does not prove product-level liquidity. |
| S10 | Nodal ExchangeH1 2026 Environmental Futures and Options Performance | Environmental futures/options aggregate volume and REC futures/options open interest. | Aggregate liquidity only; not a substitute for broker bid/ask by product. |
| S11 | ICE Futures U.S.Subchapter 18D - Physical Environmental Futures Contracts | Physical REC/SREC contract descriptions, contract sizes, registries and delivery framing. | Rulebook specs do not provide live prices. |
| S12 | Maryland PSC2025 Renewable Energy Portfolio Standard Report | Maryland RPS, Tier 1 and solar carve-out targets, ACP schedule and REC lifespan. | Use current compliance-year data before live trade execution. |
| S13 | District of Columbia PSCRenewable Energy Portfolio Standard Report | DC solar carve-out context, public SREC price signals, compliance threshold and capacity comparison. | Public signals are not executable broker quotes. |
| S14 | New Jersey BPUADI Three-Year Review / Cost Cap Order | NJ Class I/SREC-II program context, cost-cap review and Class I requirement adjustment. | No executable REC/SREC curve captured. |
| S15 | Connecticut PURARenewable Portfolio Standards Overview | CT RPS structure, Class I requirements, REC definition and compliance mechanics. | ACP and live pricing not captured in this source set. |
| S16 | Connecticut PURARPS Instructions | Compliance filing and banking/settlement instructions for CT RPS workstream. | Detailed compliance treatment must be checked for the relevant vintage. |
| S17 | Massachusetts DOERMassachusetts RPS / SREC source access | Massachusetts lane remains watchlist because official source access was blocked during research. | Do not recommend MA-specific trades until current DOER source is captured. |
Important information. This material is published by Odette Capital LLC for informational purposes only and does not constitute investment advice, a recommendation, an offer or a solicitation to buy or sell any security, commodity or environmental attribute. Figures described as public are drawn from regulator, registry and exchange sources as of the dates shown; no broker bid, offer or forward curve was used, and no trading conclusion should be drawn from a screen that lacks one. Scenario and replay results are illustrative model outputs, not forecasts or records of realized performance. Odette Capital LLC is not a registered broker-dealer or investment adviser. State eligibility rules, alternative compliance payments and banking provisions change; verify the current rule for the relevant compliance year before acting.