Renewable Energy Credits (RECS): A Review of the Basics and Questions to Ask Before Utilizing RECs as a Way to Meet Renewable Energy Goals
By Hillary Dobos and Emily Artale
The Basics
A grid-tied renewable electricity generator, such as a solar array, produces two distinct products: 1) electricity and 2) a package of environmental benefits resulting from not generating the same electricity and emissions from a conventional natural gas or coal-fired power plant. This package of environmental benefits is known as Renewable Energy Credits (also known as RECs, Renewable Energy Certificates or greentags). A REC represents the collective environmental benefits, such as avoided carbon dioxide and mercury, as a result of generating one MWh or 1000 kWh of renewable energy. RECs are then sold, traded, or bartered on a market or through bilateral transaction.
There are two distinct markets for RECs: compliance and voluntary.
Compliance Market
The compliance market is made up almost entirely of energy companies that are mandated through a Renewable Portfolio Standard to own or purchase a certain percentage of renewable energy. Many utilities rely on RECs to help achieve these renewable energy percentages. Compliance RECs are usually more expensive and required to be purchased from within a specific region. For example, Xcel Energy is mandated through the State of Colorado’s Renewable Energy Standard to generate or cause to be generated at least 30 percent of its electric sales from “eligible energy resources”, one of which is renewable energy sources.[1] One way that Xcel Energy meets its mandate is by purchasing RECs from solar arrays that are interconnected into Xcel Energy’s grid. When RECs are purchased from the solar array, the owner or subscriber of that array can no longer claim the environmental benefits of the system.
Voluntary Market
The voluntary market is made up of individuals, households, and organizations that chose to buy RECs as a way to reduce their environmental footprint and help fund renewable energy development. RECs allow organizations to claim that the electric power they are using comes from renewable sources and apply the renewable attributes to any facility. Additional benefits include hedging against future electricity price increases and numerous public relations benefits such as brand differentiation, generating customer loyalty and employee pride, and leading by example.
In general, voluntary RECs are cheaper than compliance RECs. Between 2010 and mid-2013, wholesale REC sales in voluntary markets have generally traded at less than $1/MWh (J. Heeter and T. Nichols, NREL Report, 2013) In general, the cost of RECs can depend on many factors such as type of renewable energy (e.g. solar RECs are generally much more expensive than wind), the vintage (year in which REC was generated), where the REC was generated, the volume purchased, and if the RECs are 3rd party certified (e.g. Green-e Energy). Low prices often make the purchase of RECs a very cost effective option for supporting renewable energy.
RECs can be purchased through utilities, REC marketers, and other third party entities who may sell RECs alone or bundled with electricity. For a current list of companies offering voluntary RECs click here.
What You Can Do
There are several questions that you can ask to better inform yourself before purchasing RECs
Clearly understand your motivation for purchasing RECs and make sure it aligns with your sustainability and energy goals.
Consider all of your options for procuring renewable energy such as community solar or entering into a power purchase agreement before committing to the purchase of RECs.
There are many ways to purchase RECs (wholesale, long-term contracts, through your local utility). It is worthwhile to consider a few of the options to find the best fit.
Make sure your RECs are third party certified (i.e. Green-e Certified) to guarantee that they are not double-counted (only one buyer can claim the RECs) and meet national standards for resource content and environmental impact. You can also buy RECs that have been issued by a regional certificate tracking system.
If supporting local renewable energy generation is important to you, make sure to ask where the RECs were generated.
Ask what vintage your RECs are (the date when the RECs were created), as well as the renewable generators vintage (the year the renewable generator was built). Older RECs might be cheaper but it is harder to make the argument that your purchase is leading to the creation of new renewable energy if the RECs were created in past years.
Discuss the role of additionality with your REC vendor. Additionality means that the purchase of RECs introduces new renewable energy into the electricity grid beyond what would have happened in a “business as usual” scenario. In other words, your purchase of RECs is not simply subsidizing renewable energy that has already been added to the grid but instead helping an electricity supplier generate electricity from a renewable energy source that would otherwise be too costly.
Consider long-term purchase agreements. Many companies are entering long-term REC purchase contracts (10-20 years). These contracts help stimulate renewable energy production by providing predictable cash flow to a developer and usually provide cheaper RECs due to the bulk purchase.
If your company or organization owns a renewable energy system, research the utility connection agreement to see if you have retained your RECs. If so, then you can claim the environmental benefits. If you have sold your RECs, your organization cannot make certain environmental claims such as “we are reducing our greenhouse gas emissions” or “we are using or generating a certain percentage of renewable energy to offset electricity use.”
We are available to help you wade through the complicated world of RECs, carbon offsets, and financing renewable energy purchases. For more information please contact us at hillary@merrillgroupllc.com or emily.artale@lotussustainability.com.
[1]“2014 Renewable Energy Standard Plan”. Public Service Company of Colorado. July 2013. http://www.xcelenergy.com/staticfiles/xe/Regulatory/Regulatory%20PDFs/CO-RES-Plan-2014-Vol-1.pdf
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AUTHORS
Emily Artale, PE, CEM, LEED AP is Principal and Owner at Lotus Engineering and Sustainability, LLC, www.lotussustainability.com. She has been working in the industry for nearly a decade and she has a background in energy management, sustainability planning, and water quality. Emily helps teams develop action-oriented solutions that will improve efficiency and integrate sustainability into current processes. She received her undergraduate and graduate degrees in environmental engineering from the University of Colorado at Boulder. She is a Colorado native and spends most of her time outdoors with her family.
Hillary Dobos is Principal and Owner of Merrill Group, LLC, www.merrillgroupllc.com. Hillary brings both expertise and creative thinking to working with clients which she draws from her experience as a consultant advising public and private clients throughout the United States, as well as the one tasked with embedding sustainability throughout a 25,000+ person organization (Colorado State Government). Hillary earned her B.A. in Art History and Economics from Bowdoin College in Maine and her MBA from the University of Colorado-Boulder. Hillary was born and raised in Denver, Colorado, where she currently enjoys life with her husband, son, and moderately trained canine, Mr. Smiles.
Disclaimer: The information presented above is based on the opinions and experience of the authors. The authors are not liable for any errors or omissions in this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.