Renewable Energy Certificates
In the United States, Renewable Energy Certificates (RECs) were first introduced in Texas in 2001. RECs were developed for compliance markets as states passed renewable portfolio standards (RPS), regulations that require an increased electricity generation from renewable energy sources. Today, they ‘re widely accepted and supported as a market-based instrument to document, account for and track renewable electricity from major renewable energy generation sources to the consumer.
Renewable energy systems produce RECs with the electricity they generate. One REC represents one megawatt-hour (MWh) or 1,000 kWh of electricity from an eligible renewable source, no matter where in the country it is generated. Renewable Energy Certificates are sometimes also referred to as Renewable Energy Credits, Renewable Electricity Certificates, Green tags, or Tradable Renewable Certificates.
Renewable Energy Certificates are a legal instrument through which generation and use claims of renewable energy are substantiated in the renewable energy market. They substantially represent the property rights of “green” or renewable electricity and their attached environmental, social and other non-power attributes.
Renewable Energy Sources
According to the U.S. Energy Information Administration, renewable energy sources contributed about 17% of the total U.S. electricity generation in 2017. The biggest source for renewable electricity was hydropower, delivering about 44% of renewable electric power. It was followed by wind energy, which generated about 37% of renewable electric power. The rest was generated in this order by solar photovoltaic, the various forms of biomass, geothermal and renewable sources such as solar thermal or tidal generation.
In the U.S., only certain renewable energy sources are eligible for the generation of Renewable Energy Certificates: solar photovoltaic, wind power, geothermal, low impact hydropower, biomass, biofuels and landfill to gas systems, fuel cells (if powered by hydrogen produced with renewable energy) and, in some states only, combined heat and power plants.
While sources such as hydropower which requires large dams and reservoirs, are renewable, they‘re not “green” in a way of being beneficiary to the environment because they are affecting river flows and the environment adversely. Therefore, only “small-run-of-the-river” facilities are eligible for generating RECs.
Some states also rank RECs generated in their areas into different levels called tiers, based on their generation source and their environmental impact. Tier 1 RECs are attributed to the cleanest renewable sources whereas biomass and hydropower fall into the lower tiers.
How do RECs Work?
When renewable electricity is added to the grid the electrons are indistinguishable from electrons generated by any other source of electricity. Electricity follows the path of least resistance and the power delivered to you will most likely be from a local or close by electricity generator. That means the electricity you’re using will be generated by whatever fuel source this is, even when you’re purchasing “green power”.
To ensure that the electricity you’re purchasing is offset by a renewable source, you can purchase Renewable Energy Certificates in the amount of the electricity you’re consuming. (In case you’re purchasing a “green power” option from a retail electric supplier, the supplier will purchase the RECs for electricity you’re buying from them). The average U.S. household is consuming about 867 kWh a month. To offset the corresponding amount of electricity you would have to purchase 0.87 RECs.
Pricing in the voluntary market operates on a supply and demand balance, which varies by many factors based on resource type, geography or length of commitment. Mandatory markets are also driven by regulatory targets and penalties if such targets are not met or other limitations. This generally results in higher prices, which also vary significantly from state to state. Currently, the price of one REC is about $5 for small-scale purchases by voluntary buyers.
Renewable Energy Certificate Tracking
Renewable Energy Certificates can be sold together with the generated electricity or unbundled and sold separately from the electricity. To ensure that RECs are not double-counted, they’re assigned unique serial numbers and they’re tracked through 10 regional tracking systems throughout the United States and Canada.
As no national market or registry exists in the United States to centrally track RECs, the regional tracking systems facilitate the creation, management, and the retirement of all RECs.
The biggest tracking system is the Western Renewable Energy Generation Information System (WREGIS). It covers the entire western United States as well as the Canadian provinces of British Columbia and Alberta.
The voluntary Green-e program ensures that RECs meet the requirements for certification using an independent third party for verification. It makes sure that RECs are tracked from their generation by a renewable resource to their retirement once they’re being used, even across different tracking systems.
Besides the serial number or tracking ID and certificate data, RECs include several other data attributes. This includes the fuel type, generating facility location, project name and nameplate capacity, vintage of the certificate and year the renewable generation came online and emissions rate of the renewable resource.
Reasons to Purchase Renewable Energy Certificates
In compliance markets (Renewable Portfolio Standard) electric utilities are required to supply a certain amount of their electricity from renewable energy sources. Electric utilities can either generate the required amount of electricity using renewable sources or they can purchase RECs to meet RPS requirements. In some cases, they’re doing a combination of both. Another large customer with mandated requirements is the Federal Government. Compliance markets exist in 29 states, the District of Columbia and Puerto Rico.
In voluntary markets customers make a personal choice to purchase renewable electricity to meet sustainability or other self-imposed renewable targets like marketing claims for big IT corporations. For non-commercial customers, purchasing RECs helps to reduce pollution and your carbon footprint, it helps mitigate climate change and it supports the renewable energy market and local economies.
An important part of supporting green energy is the decision where to purchase the RECs. The revenue generated by the sale covers extra cost for generating renewable energy and it encourages the development of additional renewable energy projects in that area.
As more consumers are switching to renewable resources to meet their electricity demands, more renewable generators are entering the market. When demand grows, and RECs are becoming more expensive, more renewable energy projects can be funded with the revenue.
As the generating cost for renewable resources goes down, the cost for fossil fuels is rising. In some areas, renewable energy is already cheaper than fossil fuels. Check out our guide on deregulated energy.