This content was presented during a recent company meeting as a part of a technical presentation by Micale Ward, ETC Group’s Energy Engineer. The blog introduces Renewable Energy Certificates (RECs) as a market-based tracking system that enables renewable energy projects more affordable and competitive than the traditional fossil fuel resources.
When renewable energy, in the form of electricity, enters the grid, where does it go? The popularization of renewable resources has required regulatory agencies to beg this question. With government incentives and tax breaks available for qualifying projects, a tracking system had to be established to substantiate and legitimize renewable resource energy use and carbon reduction claims. Additional incentives are required to ensure that energy generated from capital intensive renewable energy projects remain competitive with the traditional fossil fuel-based plants.
Renewable Energy Certificates, also known as RECs, are a market–based instrument that represent rights to the environmental, social, and other non-power attributes of electricity generation (EPA 2020). A REC represents 1 MWh of electricity generated from a renewable resource. Information such as project name, project vintage, tracking system ID, renewable facility location, and renewable fuel type are associated with every REC. This market-based tracking system plays an important role in making renewable energy projects more affordable and competitive with traditional fossil fuel resources.
The key characteristic that allows REC owners to leverage the market in financial support of their renewable project is that all RECs represent the same amount of energy, however, market prices for RECs representing different renewable fuel sources do not have the same exchange rates. For example, if the electricity needs for a private party is 100 MWh, and they finance a 10 MWh solar project that captures 10% of their energy needs, they gain the rights to 10 RECs. They decide to sell the 10 solar RECs (10 MWh) for $50 each totaling $500 and buy 100 wind RECs (100 MWh) for $2 each totaling $200. The party profits $300 and now owns the rights to claim the 100 MWh consumption, 100% of their electricity needs from renewable energy resources from the transaction.
Renewable Energy Certificates (RECs) are a powerful tool for both tracking and substantiating carbon reduction claims, but also providing a financial incentive for new renewable energy projects. RECs can be bought by anyone, which allows companies or residents to reap the benefits and incentives of moving toward being carbon neutral without the capital investment. The outdated mindset that carbon neutrality and becoming a renewable energy generation project are coupled can now be replaced with the uncoupled version thanks to RECs.