Renewable Energy Certificates

Renewable Energy Certificates (RECs), also known as Green tags, Renewable Energy Credits, or Tradable Renewable Certificates (TRCs), are tradable environmental commodities in the United States which represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource.

These certificates can be sold and traded and the owner of the REC can claim to have purchased renewable energy. While traditional carbon emissions trading programs promote low-carbon technologies by increasing the cost of emitting carbon, RECs can incentivize carbon-neutral renewable energy by providing a production subsidy to electricity generated from renewable sources.

In states which have a REC program, a green energy provider (such as a wind farm) is credited with one REC for every 1,000 kWh or 1 MWh of electricity it produces (for reference, an average residential customer consumes about 800 kWh in a month). A certifying agency gives each REC a unique identification number to make sure it doesn't get double-counted. The green energy is then fed into the electrical grid (by mandate), and the accompanying REC can then be sold on the open market

Background

There are two main markets for renewable energy certificates in the United States - compliance markets and voluntary markets.

Compliance markets are created by a policy that exists in 25 U.S. states called Renewable Portfolio Standard. In these states, the electric companies are required to supply a certain percent of their electricity from renewable generators by a specified year. For example, in California the law is 20% renewable by 2010, whereas New York has a 24% requirement by 2013. A full listing of state renewable portfolio standards can be found here. Electric utilities in these states demonstrate compliance with their requirements by purchasing RECs - in the California example, the electric companies would need to hold RECs equivalent to 20% of their electricity sales.

Voluntary markets are ones where customers choose to buy renewable power, out of a desire to go green. Most corporate and household purchases of renewable energy are voluntary purchases. Renewable energy generators located in states that do not have a Renewable Portfolio Standard can sell their RECs to voluntary buyers, usually at a cheaper price than compliance market RECs.

Critics point out, however, the flaw in this system is that it does not require any proof of displaced polluting power. Since some renewable energy sources, most notably wind power, are intermittent and variable, their production does not displace an equivalent amount of other sources, diminishing the effective value of the RECs. As more wind generators are built across vast regions of a country, however, their intermittent energy production profile can be averaged out.

Prices of RECs

According to the Green Power Network, prices of RECs can fluctuate greatly (2006: from $5 to $90 per MWh, median about $20). Prices depend on many factors, such as the location of the facility producing the RECs, whether there is a tight supply/demand situation, whether the REC is used for RPS compliance, even the type of power created.

While the value of RECs fluctuate, most sellers are legally obligated to "deliver" RECs to their customers within a few months of their generation date. Other organizations will sell as many RECs as possible and then use the funds to guarantee a specific fixed price per MWh generated by a future wind farm, for example, making the building of the wind farm a financially viable prospect. The income provided by RECs, and a long-term stabilized market for tags can generate the additional incentive needed to build renewable energy plants. (See What are TRC's?) One of the few non-profit U.S. organizations that sell RECs, Bonneville Environmental Foundation was instrumental in starting the market for RECs with their Green Tag product. They use the profits from Green Tags to build community solar and wind projects and to fund watershed restoration. Another non-profit currently selling RECs is Conservation Services Group, which sells ClimateSAVE RECs generated from wind, solar, and hydropower.

REC Certification

RECs are known under functionally equivalent names such as Green Tags or Tradable Renewable Certificates (TRCs), depending on the market. The U.S. currently does not have a national registry of RECs issued. Several certification and accounting organizations attempt to ensure that RECs are correctly tracked and verified and are not double-counted. Increasingly RECs are being assigned unique ID numbers for each 1,000 kWh produced. RECs are certified by Green-e, Environmental Resources Trust's EcoPower Program, and The Climate Neutral Network. REC markets are increasingly overseen through regional tracking systems such as WREGIS, NEPOOL, GATS, ERCOT, M-RETS, and CRS

Technologies That Qualify for RECs

The following generation technologies qualify as producers of RECs

• Solar electric
• Wind
• Geothermal
• Low Impact Hydropower (small-run-of-the-river facilities, not ones that produce dams)
• Biomass
• Biodiesel
• Fuel cells (only if powered by hydrogen produced by one of the above approved generators)

RECs and Additionality

"Additionality" is the idea that an individual's purchase of a renewable energy certificate forces new renewable energy onto the electricity grid. Another test for additionality is whether or not the project is financially "business as usual". RECs have come under scrutiny in the past with questions of whether or not they provide additionality, or are merely a payment to a project that would have existed even in the absence of the REC sale.

When voluntary REC purchases are made from generators that are not in compliance markets - for example, in a state that does not have a Renewable Portfolio Standard - funds from the sale of RECs are provided to the generators, but don't necessarily cause any additional renewable power to be built. It is difficult to prove that purchases of these RECs provide additionality.

An alternative strategy combines REC compliance markets and voluntary markets. In these states that have a Renewable Portfolio Standard a voluntary purchase effectively increases the utilities' minimum renewable electricity percentage by purchasing RECs that the utilities would otherwise have purchased to meet their RPS. When this occurs utilities must find additional sources of renewable electricity. This site provides a useful flowchart for how voluntary purchases from compliance markets provide additionality.

A popular incentive for buying RECs is to make the claim that your energy use is carbon neutral and hence does not contribute to global warming. Looking at the situation from a macroscopic level, buying RECs finances some portion of the increased costs of green energy producers, to reduce the producer's increase in cost as compared to sources which pollute more. However, it could be argued that the green energy production facilities which are already built today might still continue functioning and producing energy at the same rate even if no one were to buy another REC. On a microscopic level, buying a few RECs has very little direct effect on the amount of CO2 produced at this very moment. As larger and larger numbers of RECs come into demand, however, renewable energy will become more and more cost effective per kWh in comparison to nonrenewable energy.

The EPA claims to have the highest percentage use of green power of any federal agency. It offsets the electricity use of 88% of its offices by purchasing a corresponding number of RECs. However, according to the EPA, the U.S. Air Force actually purchases the most RECs of any U.S. federal agency, buying some 899,143,000 kWh of green power annually. Many private corporations are also working to finance green energy and claim carbon neutrality as a result of their ongoing REC purchases.

To find the number of RECs you would need to personally claim the arguable label of carbon neutrality, you can use one of many carbon calculators available online (such as the one at An Inconvenient Truth). This can give you an estimate of how many tonnes of CO2 you produce per year, based on your travel habits and home energy use. However, it will vastly underestimate your total carbon footprint. Based on the total amount of CO2 produced by the entire country, each U.S. citizen emits 24 tonnes of CO2 per year (according to U.S. Department of State (2002) U.S. Climate Action Report 2002 Popn. Pg. 10 Paragraph 2, GHG emissions Pg. 28 Paragraph 1 (note paper uses Teragrams), cited by Carbon Planet). Your carbon footprint not only involves your electricity and gasoline use but also the greenhouse emissions associated with everything else you do and consume--things you eat, wear, furnish your house with, the roads on which you drive, the hospitals, the streetlights, etc.--everything that powers the engine of the U.S. economy.

Prices for certificates currently range from $5.50 to $12 per short ton ($6 to $13 per metric ton), depending on seller. With more "green" producers becoming financially savvy, REC brokers will see their position threatened as buyers start going directly to the source. This purchasing strategy will provide cheaper RECs allowing for a more diverse group of end-users.