What are Renewable Energy Certificates (RECs) and how do they work?

The illustration below shows a brief overview of the transaction for the purchase of Renewable Energy Certificates.

When an individual, business or organization becomes interested in buying clean power the first, and most obvious, solution would be to purchase the green power directly. This involves either finding someone producing clean power who sells that power to the same ‘grid’ that your electric service is carried on and arranging to purchase that power from them; or producing the green power on site. These solutions are known as a receiving ‘delivered products’.

However, in most areas it is very hard to find cost-effective ‘delivered products.’ The result is electric consumers having great difficulty purchasing delivered green power solutions. This is particularly the case in urban communities as renewable energy is typically generated in vast open areas away from populous locations.

Producing green power at your location for your direct use would be the most environmentally friendly solution for any consumer. Unfortunately, the realities of this undertaking usually pose tremendous problems for most considering this method. The initial investment of capital, the requisite long-term cost of maintenance for the equipment, and the inability to assure any reliable and measurable production of electric supply can be a deterrent to those in need of dependable flows of power. Even when these projects are operational, most on site generation for businesses and organizations produce less than five percent of their total consumption. Additionally, local zoning requirements and the aesthetics of the consumer’s location are additional causes for concern.

In many U.S. markets, clean energy costs far more to produce than energy produced by burning fossil fuels. However, to remain in operation the clean energy producers have to sell their energy to the local grid for the same price received by the dirty power producers, taking a financial loss. Clean energy operators in the past had two choices: they could either refuse to sell electricity to the grid at anything below their operating costs (and end up with most consumers choosing to buy the cheaper fossil fuel power) or they can sell their electricity at a loss. Both of these scenarios have stunted the growth of clean energy for decades.

There are two solutions that have been implemented to open the market to renewable technologies. The first is a regulatory solution - states mandate that a certain percentage of the electricity sold within their jurisdiction must come from renewable sources called a ‘renewable portfolio.’

The second, if you haven’t guessed it by now, is RECs. This is a collaborative solution to the problem designed by scientist, environmentalist, regulators and the clean energy industry. RECs are certificates issued by clean power producers that can be certified by independent auditing bodies such as the Center for Resource Solution’s in their Green-e program, among many others, and sold through brokers to end users.

RECs represent units of power such as kilowatt hours or megawatt hours. They are priced like any commodity, but usually based on the difference between the traditional electric supply market reimbursement rate and the green energy production cost. Recently commodity trading forces have begun to appreciate the value of these instruments, driving up cost, and enticing additional renewable supplies to be produced.

By purchasing a REC you are allowing clean power producers to enter the competitive marketplace without operating at a loss. Regulations require that the green power produced shall enter the grid first and then ‘dirty power’ will be produced to make up the balance of power that is required for the grid. For every green kilowatt or megawatt that you purchase that much less dirty power is produced. Your purchase has a direct 1:1 correlation to reducing pollution emitted into the atmosphere.

So, by purchasing RECs to cover your energy consumption, you are allowing clean energy to enter the market at a competitive price. You are purchasing all legal rights to the benefits clean energy creates - namely the pollution avoided (carbon dioxide, nitrogen oxides, sulfur dioxide, mercury, and particulate matter) and the economic benefit to rural communities that are often the home to these technologies. You have the right to declare that your power is green power.

Why Should I 'Go Green'?