Renewable Energy Certificates (RECs), commonly referred to as “Green Tags,” can help states meet their Renewable Portfolio Standards (RPS) and other renewable energy mandates. As state RPS requirements call for utilities to procure specific percentages of the energy they provide from renewable sources, Renewable Energy Certificates gain traction as a convenient opportunity. This post will provide a brief introduction to RECs are and how they can be used.
Renewable Energy Certificates (RECs)
A Renewable Energy Certificate, also known as an REC, is the legal ownership of the “clean” qualities of 1 MWh of electricity that’s generated from renewable energy sources.
When electricity is generated by a qualified renewable source like solar, something really cool happens. Two commodities are generated: the electricity itself and the clean qualities of that electricity.
Electrons are the same whether they’re produced by photovoltaics or fossil fuels, so the electrons from the renewable source can be sold just like any other electricity. The rights to the properties associated with this generation, however, can sometimes be traded independently. This is where Renewable Energy Certificates come into play.
One REC is equal to 1 MWh, or 1000kWh of the clean characteristics of electricity that’s produced by the renewable source. In the case of Solar Renewable Energy Certificates, or SRECs, this would be the “solar” attribute of the electricity generated by a solar. A clean energy provider receives one REC for each MWh that their facility produces, which they can then sell.
After purchasing an REC, these clean characteristics can be legally claimed by the purchasing party. RECs basically allow the customer to acquire the environmental benefits of renewable energy in measurable quantities.
Though the ownership of these certificates is tracked by renewable energy tracking systems such as M-RETS (Midwest Renewable Energy Tracking System) and/or WREGIS (Western Renewable Energy Generation Information System), the qualities associated with RECs are intangible so they don’t have to be restricted by geographical location in the same way as the actual electricity. The clean qualities of the REC will sometimes have to be bundled with the actual electricity, but in theory they don’t necessarily need to be. The extent to which RECs transcend these physical limits does depend on legislation, but we’ll see how REC markets play out with legislation in the coming years.
In renewable energy certificate markets, facilities are used to keep track of the certificates. Every MWh that is generated is given an identification number so it cannot be used twice or by more than one party. After a certificate is claimed by its rightful owner, is considered to be “retired” and cannot be used again.
Markets for RECs
There are two kinds of markets for trading RECs: compliance and voluntary. Compliance markets exist so that utilities can meet their renewable portfolio standard (RPS) minimums that are set forth by state legislation.
A state’s Renewable Portfolio Standards require that a certain percentage of electricity supplied by utility companies and electricity providers should come from renewable sources.
To meet the legally required amount of renewable energy at the state level, utilities and energy suppliers will purchase RECs via spot markets, auctions, and contracts. These energy providers may then claim the rights to the environmental attributes of the clean electricity with RECs. There are currently a little more than a half dozen viable compliance markets.
In a voluntary market, individuals and companies choose, on their own accord, to purchase clean electricity to offset their consumption of fossil fuel-based electricity. In this sense, businesses could have the opportunity to “offset” this consumption while showing their commitment to the progress of green energy in our society. Voluntary markets don’t really exist right now because their value is so low.
The United States, which accounts for about 5% of the world’s population, uses around 25% of the fossil fuel-based energy consumed on this planet.
RECs support the generation of electricity from clean energy sources, thus reducing the need for fossil fuel-based generation to meet consumer demand. Though participants may not necessarily be using the generated electricity directly, they indirectly to minimize the need for fossil-fuel generation.
RECs promotes renewable energy as a viable, competitive alternative to fossil fuel-based energy.
Original Article on Go Green Solar
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