Renewable Energy Certificates Explained
As the green advocacies around the world gather momentum and expect to see the real change, companies are left puzzled by how to include more renewable energy into their energy mix. The renewable energy market is limited as it is, so simply purchasing renewable energy is not always a viable option, especially as having a demand that is too high could drive the prices of renewable energy into the sky. For this reason, many energy agencies around the world have introduced “Energy Attribution Certificates” or “Renewable Energy Certificates,” as they came to be known in the US.
What is a Renewable Energy Certificates?
Renewable Energy Certificates, or Renewable Energy Credits, as they are also known, are simply certificates that show the origin of a certain amount of energy. They are issued by the specialized government and commercial agencies to all producers of clean energy. This includes both renewable energy credits issued to commercial green energy power plants (solar farms, wind turbine farms) and residential prosumers (usually residential solar owners).
How do Renewable Energy Certificates Work?
Renewable energy credits are issued for every MWh (1 MWh = 1,000 kWh) of renewable energy that is generated. They are awarded based on energy generation and can be sold and purchased in a RECs market. As every renewable energy credit stands for an MWh (megawatt hour) of energy generated, it is the equivalent of a substantial amount of energy. In comparison, a single US household uses 900 kWh of power a month.
As they can be freely purchased and sold and do not discriminate against any renewable energy source, RECs are a perfect way to reduce carbon emissions. While it is true that production still may use energy coming from fossil fuels, the right to the carbon emissions reduction belongs to the owner of the certificate. A significant market that has formed around renewable energy projects got yet another incentive to expand both in number and in size.
As more renewable energy sources are being utilized worldwide and the renewable energy market expands, it has become clear that renewable energy use simply cannot keep up with the demand, as the peak power demand keeps rising decade over decade. The best example is that of Singapore, which struggles to incorporate more renewable energy into its energy mix, but fails due to the rising power demand. This puts RECs in high demand as companies and corporations around the world become aware that greenwashing isn’t going to do it anymore.
Sure, RECs aren’t perfect, especially since they represent a form of ‘rights’ to renewable energy. However, going 100% renewable isn’t going to cut it for most companies. The reason behind this is that there is no guarantee where the exact energy you use may be coming from. So, even though you may be purchasing renewable energy credits, you may not be using them.
This is a smaller issue than it may appear, as by purchasing RECs, you simply support renewable resources and their deployment. If this does not cut it for you, you can always place solar panels or small wind turbines on your property. However, the geographical constraints limit these possibilities so that RECs come in place for eco-conscious buyers.
How are RECs Generated?
RECs or Renewable Energy Credits are generated each time 1 MW of renewable energy is generated and delivered to the grid. Once this happens, a single REC is formed and is now in the ownership of the generation facility. These environmentally-conscious organizations can then choose to keep or sell these renewable energy credits.
Renewable energy credits can be generated in:
- Solar power plants,
- Hydropower plants,
- Wind farms,
- Using geothermal energy,
- In biogas facilities, and
- Other sources.
To avoid double-counting, each REC has to be “retired” if the facility that has purchased it decides to use it toward its green quota. Once this is done, this REC standing for energy coming from renewable sources cannot be used again. In this case, you can claim the “renewable” status of each megawatt-hour MWh you’ve purchased. The current official recommendation is that each REC sold and bought be green e-certified, which is another level of protection against green electricity use and counting misconduct.
Who Issues RECs?
RECs are issued regionally, and currently, there are less than a dozen entities that can issue them. Green-e, a nonprofit organization, tracks and certifies these RECs and ensures that no duplicates are present, as they may compromise the whole system. Here are the agencies that can issue RECs:
- Michigan Renewable Energy Tracking System (MRECS),
- North American Renewables Registry (NAR),
- NEPOOL-GIS, and
- North Caroline Renewable Energy Tracking System (NC-RETS).
Two Types of RECs
There are two types of RECs that you can buy. These include “bundled RECs” and “unbundled RECs.” The distinction between the two lies in how they are sold: together with the energy that has been generated or not. Let’s take a look at a more detailed explanation in the next paragraph.
Bundled RECs come together with the renewable energy that they have been issued upon. Bundled RECs are the best way to actually reduce some carbon production and are usually sold during the planning and construction phase of the renewable energy generating facility and are a great way to show that the project is economically viable and will generate money for investors.
Unbundled RECs are sold separately from the energy they stand for. By purchasing the unbundled RECs, you simply offer support for renewable energy generators and support further utilization of that renewable energy resource. Some critics may dislike this option, especially since the energy actually consumed does not come from a truly renewable resource. Yet another stumbling rock for unbundled renewable energy credits is that they merely represent a shift in ownership rather than a radical change or switching the energy source from coal to, let’s say solar panels.
Benefits of RECs
As renewable energy credits are universal and easily purchased and sold, they offer many benefits. RECs bring the most benefits to carbon-heavy industries, as well as those that do not have space or other technical prerequisites to install their own renewable capacities. Among others, renewable energy certificates-RECs offer more benefits:
- Helping mitigate climate change,
- Helping reach carbon neutrality,
- Helping reach your environmental goals,
- Making your product more competitive in the market (especially internationally, as the EU plans to impose carbon-import tax),
- Helping support the renewable source utilization through renewable credits and finance more renewable capacity installation.
RECs vs SRECs
Some people may be confused by the two kinds of RECs there are RECs and SRECs. A REC stands for a Renewable Energy Credit, while an SREC stands for a Solar Renewable Energy Credit. A single letter makes a big difference here, as the energy delivered to power lines has a different source. Nevertheless, both can help you reach your requirements for renewable energy and reduce greenhouse gas emissions.
As with any other type of RECs, you can both generate and sell these credits. A typical residential solar array can produce around 6 RECs per year. Each stands for 1 MWh of solar power and can easily be sold – often at a price way higher than the average REC price – up to $300, depending on the season and the state.
Renewable Energy Credits and their prices are influenced by the general market conditions. In essence, supply and demand play an important role in REC price formation. On the other hand, REC prices are also determined by the following factors:
- The degree of positive impact on the environment where they are produced,
- The type of RECs in question (there are compliance market RECs and voluntary market RECs), and
- The Renewable Portfolio goals of each state.
The degree of the positive impact that each REC has on the environment is fairly simple to envisage. Imagine two scenarios: opening a renewable energy power plant in a very polluted state and opening one in a fairly clean state. In the first case, the RECs issued to the new renewable energy project will cost more than in the latter case because the renewable electricity generated will have a higher positive impact. In the latter scenario, the REC will cost less because it is produced in an already predominantly clean portion of the grid.
The type of RECs in question also plays a significant role in REC price formation. Namely, as there are compliance market RECs and voluntary market RECs, there are two pricing models, where the latter is the cheaper one. In the former case, with compliance market RECs, their price is higher as these RECs come with strings attached: they are usually mandated by the government and are meant to help reach certain criteria.
On the other hand, the voluntary market RECs come with fewer strings attached and less of a legal burden. For this reason, their price is usually lower. They are a perfect solution for all the companies and other legal entities who want to have carbon offsets as a part of their company culture.
The last factor that determines the price of RECs is where they are produced/sold. This price is in direct correlation to the Renewable Energy Portfolio Standards of each state. The more strict the goals about renewable resources and their deployment, as well as going 100% carbon-free, the higher the price of RECs.
For example, Washington D.C. has a relatively clean grid. This should bring the price of Renewable Energy Credits down. However, their very ambitious goal of going 100% green by 2032 (some ten years earlier than other states) has pushed the price of RECs skyward. For this reason, it is always necessary to ask around and check reliable resources, as the price of Renewable Energy Credits changes on a daily basis.
RECS vs Carbon Offsets
RECs and carbon offsets are two terms that are wrongly used interchangeably. RECs stands for Renewable Energy Credits and are measured in MWh – megawatt-hours. On the other hand, carbon offsets are a single name for projects and activities that have a positive environmental impact and are measured in tCO2 – tons of Carbon Dioxide. Alternatively, you can see them measured in tCO2e – tons of CO2 equivalent. Whatever the solution you go for, you should know that both of them have a positive environmental impact.
RECs help your company as they stimulate renewable generation. This type of electricity generation needs not to be used by you, but by using your money, more investments can be made. In reality, you never know where, in your grid, your electricity is coming from. For this reason, to meet clean energy goals, many companies purchase Renewable Energy Credits from their utility company or another source.
Carbon Offsets, on the other hand, are activities that are supposed to lock in some of the CO2 your company produces during its operation. Offsets can come in many different forms, planting trees and investing in natural habitat or soil restoration being some of them. While heavily criticized because of their international (= hard to verify) nature, offsets still help the planet.
Who Buys RECs?
RECs can be purchased by anybody. However, if you already have solar panels installed, you do not need to worry about your environmental impact and buying RECs. Quite on the contrary, you can sell your RECs to your retail electricity provider. Most of them will purchase RECs and sell them as needed. There are two kinds of companies that want to purchase RECs: those that do so on a voluntary and on a compliance basis.
Companies that purchase their RECs on a voluntary basis want to reduce their greenhouse gas emission and ensure their energy is coming from a renewable source. As any renewable energy resource can be used to produce RECs, any REC will do. A good example of this practice is Starbucks. Google, on the other hand, has its own production facilities.
Some companies, on the other hand, have to buy RECs to ensure compliance with the local, state, and federal regulations. These companies usually include utility companies and retail energy providers. They have to provide renewable credits as proof that a certain percentage of their power comes from a renewable source or ore of them. Unlike environmentally-conscious organizations, these companies are driven by regulation.
Are SRECs going away?
SRECs were imagined as certificates that were supposed to help transition to renewable energy. Solar Renewable Energy Credits were issued to those going solar, one SREC for every MW of solar renewable electricity produced. However, as the market is expanding and more people are going solar, the renewable energy certificate is no longer needed. Some states, such as Massachusetts, have introduced a much lower, lowest-incentive-wins program called Solar Massachusetts Renewable Target program (SMART for short).
What states have recs?
RECs or Renewable Energy Certificates are available in 7 US states and the District of Columbia. The US states that offer renewable energy credits and marketplaces for them to be traded include the District of Columbia, Delaware, Illinois, Maryland, Massachusetts, New Jersey, Ohio, and Pennsylvania. The price of each renewable energy certificate differs from one state to another, ranging from $150 to $500 (in Washington D.C.)
Does Texas have renewable portfolio standards?
Yes, Texas has a Renewable Portfolio Standard. In July 2005, the State of Texas passed SB20. This bill outlines the renewable energy goals for this state and concrete steps to be undertaken on the way to a carbon-neutral economy. The Texas Renewable Portfolio Standard says that 100% of electricity generated in the state of Texas will be with zero carbon emissions by the year 2050.
Who benefits from REC purchasing?
Everybody benefits from REC purchasing. On the one hand, the solar system owner who produces renewable energy benefits from Renewable Energy Certificate (REC) purchasing because the money the RECs are sold for is an additional revenue stream and can reduce the payoff period for solar panels or wind generators. On the other hand, the company purchasing RECs benefits as well, as its carbon emissions are offset by renewable energy production in another place.
Greenhouse gas emissions are responsible for a lot of the climate change that we face today. To help offset a part of carbon emitted into the atmosphere every year, every solar and wind farm, as well as other green resource solutions, are issued renewable energy credits that they can sell onward. This helps run more green electricity through the power lines and ensures that any company or individual can help reduce their climate impact.