What are renewable energy certificates (RECs)?
Also known as green tags or renewable energy credits, Renewable Energy Certificates (RECs) are tradable environmental attributes representing each megawatt hour (MWh) of electricity generated from renewable sources.
RECs are a legal instrument serving as proof that a certain percentage of electricity was produced via renewable energy generation using sources like:
- Wind
- Solar
- Hydroelectric
- Biomass
- Geothermal
So, what is a REC’s purpose? Essentially, they track and verify the production and consumption of renewable electricity. By assigning a unique identifier to each megawatt hour of renewable energy generated, RECs provide transparency and accountability, ensuring energy producers receive proper recognition for their contribution to the electricity grid, while energy consumers can reliably demonstrate their support for clean energy initiatives.
Who issues renewable energy certificates?
Renewable energy certificates are supported by several different types of organizations, including:
- State and federal government agencies
- Regional electricity transmission authorities
- Nongovernmental organizations
- Trade associations
There are about 10 regionally-based electronic REC tracking systems in the United States. However, Green-e is the primary organization responsible for certifying RECs to ensure they are properly accounted for and that none are double-counted or sold multiple times by green energy producers. To guarantee that renewable energy claims cited in sustainability reports can be adequately substantiated, it’s recommended that corporations only use Green-e-certified RECs.
How do renewable energy certificates work?
As we’ve established, a REC represents that one megawatt hour of renewable energy production has been fed into the power grid. However, once generated, it’s impossible to distinguish whether energy within the grid derives from fossil fuels or a renewable source. So, when companies buy RECs, they’re not buying the power itself, simply the attributes that classify it as green energy, helping them to demonstrate progression toward their environmental goals.
The REC market plays a crucial role in further advancing renewable energy development by enabling the trade and verification of green attributes. Renewable Energy Certificates provide a mechanism for power companies to receive financial compensation for the clean energy generated, which incentivizes further investment in renewable energy projects. Additionally, the retirement of RECs helps drive demand even more.
Buying recs as a business
Businesses that want to establish a reputation as supporters of the renewable energy market often find it challenging without purchasing renewable certificates from energy retailers. For example, it might be impractical—or even impossible—to install enough solar panels on the roof of a business building to achieve 100% renewable certification. However, by buying solar renewable energy certificates, companies can pay for and take credit for energy added to the grid from other buildings, achieving the same outcome.
Additionally, many US states require Renewable Energy Certificates for businesses to meet renewable portfolio standards. Such standards typically mandate that a certain percentage of electricity generated and sold derives from renewable sources. However, because the specifics of each renewable portfolio standard varies between states, there’s a growing voluntary market for REC arbitrage where certificates can be traded for profit.
Buying recs as a consumer
Just as it’s possible to sell RECs to corporations, it’s also possible for individual consumers and households to make REC purchases. The purchase of REC-certified attributes enables customers to match the MWh of energy they consume without relying solely on renewable power to heat and cool their homes and power appliances.
In Texas, many electricity providers offer partial or fully renewable electricity plans. When you enroll in one of those plans, the provider purchases RECs on your behalf to cover the corresponding amount of electricity that you use at home.
How are renewable energy certificates retired?
Once the REC owner—whether a business, entity, or individual—has used the corresponding amount of MWh energy, any purchased electricity attributes are considered retired and can no longer be bought or sold. It’s essential to note that certified renewable energy purchases must be retired for buyers to claim to have used the associated MWh of renewable energy. Thus, the demand for green energy remains strong, facilitating the continued demand for resource solutions that reduce greenhouse gas emissions.
Renewable energy certificates: pros and cons
Although there are more benefits than negatives when it comes to renewable energy certificates, criticism must also be weighed carefully. Here’s a complete list of considerations.
Pros of RECs
- Cost-effectiveness – RECs provide an effective way for businesses and individuals to support renewable energy without investing in costly infrastructure.
- Environmental benefits – By supporting a cleaner energy mix, RECs incentivize investment, driving innovation and growth across the sector.
- Boosts energy efficiency – RECs encourage energy efficiency by rewarding production from renewable power sources, which reduces reliance on fossil fuels.
- Promotes decentralization – RECs facilitate the integration of distributed renewable energy sources into the grid, enhancing the resilience of the energy supply.
- Flexibility – Consumers have the flexibility to choose how and when to support renewable energy by purchasing and retiring RECs in line with their energy needs and goals.
Cons of RECs
- Additionality issues – Many projects benefiting from the REC revenue stream would have been built regardless of REC sales, potentially making the certificates inconsequential.
- Market oversaturation – The trading space for RECs may become oversaturated, leading to lower market prices and reduced financial incentives for producers of renewable resources.
- There’s no renewable energy guarantee – While RECs allow purchasers to offset their carbon emissions, they do not require a reduction in fossil fuel energy production.
- Availability – The intermittent nature of renewable energy sources like wind and solar can limit the consistent availability of new RECs.
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