By Jim Crockett, PE

Renewable Energy Certificates
A Conundrum

How do you know whether the electricity you use is sustainable?

Your company needs to meet renewable energy targets and reduce Scope 2 emissions. To achieve this goal, you’ve decided to buy sustainably generated power. You sign a contract with a solar provider to buy electricity from them at an agreeable price. You feel happy, knowing you’ve helped make the world a better place.

Then you wonder: how do you know that their electricity is powering your building? You are still connected to the same grid as everyone else. How will the “green” electrons that you’ve purchased find your building? Bottom line, your building receives the same mix of clean and “dirty (fossil-fuel)”-sourced electrons as your non-energy-conscious neighbors. But, thanks to you, this mix is improving, because you have paid the solar provider to put more clean power on the grid.

energy-efficiency-engineer

Jim Crockett, PE

But if you can’t verify that you are getting the electricity created by your solar provider, how do you know that they generated any power in the first place? Or if they generated it, what assurance do you have that they haven’t also sold the same power to someone else? How is renewable power generation tracked? Who is keeping score?

Welcome to the world of Renewable Energy Certificates (RECs).

What Is a REC?

“A renewable energy certificate – REC (pronounced: rěk) is a tradeable, market-based instrument that represents the legal property rights to theGreen Energy “renewable-ness”—or non-power (i.e., environmental) attributes—of renewable electricity generation. One REC is created for every megawatt hour (MWh) of electricity generated and delivered to the grid from a renewable energy resource. Electricity cannot be considered renewable without a REC to substantiate its renewable-ness.”[1]

To read more about REC as a market-based tracking system, click here.

Your solar provider is awarded one REC for every megawatt hour of electricity they generate. By purchasing this REC, you lay claim on one megawatt hour of sustainable power. If you use 10 megawatt hours of power in a month (10,000 kWh), and wish to substantiate it as sustainable, you must purchase and retire (use) 10 RECs.

Who Issues RECs?

There are roughly 10 administrative bodies in North America, each with a specific geographic territory, authorized to issue, track, and administer RECs.[2] Those wishing to participate in the REC market must create an account with the appropriate body. There are some administrative fees, but they are quite low.

Renewable Energy Certificate Tracking Systems in North America[3]

Who Can Buy RECs?

Anyone can buy them. Any companies, nonprofit, or individuals who are concerned about their carbon footprint can purchase RECs to ensure that their electricity is coming from renewable energy.

Where to Buy RECs?

When it comes to RECs, states are divided into either compliance or voluntary markets. In more than 29 states and Washington D.C. and Puerto Rico, states mandate electrical companies to generate a certain percentage of their electricity from renewable sources according to the Renewable Portfolio Standard (RPS). If they do not meet this requirement, utility companies must purchase RECs to make up the difference. In states with voluntary markets (states include Louisiana, Georgia, Kentucky, Florida, Wyoming, Idaho, and Dakotas), the demand to purchase REC is relatively low. This causes the price of RECs in voluntary states to be relatively lower than in compliance states.

This compliance and voluntary markets should factor in when you purchase RECs as you can buy RECs from anywhere in the U.S. For instance, a company in Vermont can purchase RECs generated in Wyoming. Companies would save some money by purchasing RECs generated from states with voluntary market. Buying RECs from the voluntary market states where fossil fuels are more common helps support the renewable energy market of those states.

How to Buy RECs?

Many utility providers in the U.S. (more than 850 of them) offer Green Power Programs or Green Tariffs Programs to their clients so that they can purchase RECs and secure renewable energy. Utility companies charge around 1.5 cents premium for every kilowatt hour of purchase.

You also have the option to purchase RECs directly from outside suppliers, such as Green-e, an organization that was established by a non-profit organization, Center for Resource Solutions (CRS). Purchasing RECs from Green-e ensures RECs you purchase are not double counted and originate from new energy projects, which directly contributes to the expansion of the renewable energy market.

How to Sell RECs?

Anyone can sell RECs. If you decided to monetize your RECs, you can advertise credits on the Generation Attribute Tracking System (GATS) Bulletin Board for free. You can also check their Bulletin Board Purchase Requests to see if your RECs meet the specific purchase requests. The other options are working with a broker to find a buyer or subscribing to a private auction or exchange platform, which may have applicable fees and conditions.[4]

Green Energy

Why Would a Company Buy RECs?

There are a few potential reasons:

  1. A company may wish to claim in its brochures and literature to be carbon-neutral, or net-zero, and could substantiate this claim by purchasing and retiring a sufficient number of RECs.
  2. A company may purchase RECs to meet the “renewable portfolio standards” mandated by their government. Washington DC, for example, requires local companies to have a certain percentage of sustainable power.[5]
  3. A growing number of large, international corporations are voluntarily signing up for Science Based Targets,[6] which requires them to reduce their carbon footprint. Many of them purchase RECs to help achieve their sustainability goals.
What Is the Purpose (Goal) of RECs?

RECs create a market for clean power. If demand for clean power outpaces the supply, the price for RECs can be expected to rise. Higher REC prices make it more financially attractive for renewable power suppliers to increase their capacity.

What Is the Outlook for RECs?
Potential Risk

As with any market-based instrument, the future price of RECs depends on many elements, including human nature, public sentiment, and myriad other unpredictable market forces. However, given the ever-growing number of multinational companies making public commitments, such as Science-Based Targets or RE100 goal, and the tremendous impact this could have on the economy (read more on this here), the price of RECs for the foreseeable future will quite possibly be turbulent. In some markets, the price of RECs has tripled or quadrupled in the past year alone. Buyers must remember that RECs are created with an expiration date of five years, and they expire if not used within those five years. At least one energy consulting firm nearly put itself out of business a few years ago with a speculative REC purchase, when the certificates reached the 5-year expiration date. Proceed with prudence. Considering the unpredictable nature of RECs market, we recommend more reliable and persistent first step towards de-carbonization, such as improving energy efficiency.

Potential Benefits

RECs are a market instrument – like a stock option – and anyone can buy, sell, or trade them. If a company wishes to claim to be sustainable for the next few years, they can buy RECs now, in advance, and retire them over time. This can be a good strategy – especially if the price of RECs is expected to rise.

Some other benefits include:

  • Reducing your carbon footprint, contributing less to pollution and climate change
  • Supporting the renewable energy market
  • Being able to choose exactly where you buy renewable energy from—locally or anywhere else in the U.S.
  • Promoting your company’s commitment to renewable energy
  • Using renewable electricity without installing costly facilities such as solar panels
  • Building stronger relationships with community and encouraging dialogue about renewable energy[8]

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[1] https://www.epa.gov/sites/default/files/2018-03/documents/gpp_guide_recs_offsets.pdf

[2] https://www.sustainability.gov/pdfs/federal_rec_guide.pdf

[3] Image from Office of Federal Sustainability Council on Environmental Quality, “Federal Renewable Energy Certificate Guide,“ June 16, 2016, p.7, https://www.sustainability.gov/pdfs/federal_rec_guide.pdf

[4] PJM EIS, “How Do I Sell RECs?” https://www.pjm-eis.com/getting-started/how-do-I-sell-recs.aspx

[5] Washington DC has RPS requirements. https://www.pjm-eis.com/program-information/district-of-columbia

[6] https://sciencebasedtargets.org/

[7] https://portal.ct.gov/PURA/RPS/Renewable-Portfolio-Standards-Overview

[8] https://www.energysage.com/other-clean-options/renewable-energy-credits-recs/benefits-renewable-energy-certificates/