Pennsylvania’s Tier II Renewable Energy Credits (RECs): Energy Efficiency projects can generate significant revenue for building owners
Pennsylvania’s Alternative Energy Portfolio Standards (AEPS) require electricity suppliers to procure Renewable Energy Credits (RECs) from both Tier I and Tier II resources. While Tier I includes traditional renewables like solar, wind, and biomass, Tier II offers significant opportunities for facility owners, especially in energy efficiency (EE) and combined heat and power (CHP). With recent policy changes, Tier II RECs are increasingly valuable and provide new revenue streams for businesses.
Qualified Tier II Resources
The following resources are eligible for Pennsylvania’s Tier II Renewable Energy Credits (RECs) under the Alternative Energy Portfolio Standards (AEPS):
- Energy Efficiency and Demand-Side Management (DSM) Projects:
- These include initiatives such as upgrading to LED lighting, optimizing heating, ventilation, and air conditioning (HVAC) systems, and installing variable frequency drives (VFDs) to enhance energy efficiency and reduce demand.
- Combined Heat & Power (CHP) Installations:
- Facilities that implement CHP systems—which simultaneously generate electricity and useful thermal energy from a single fuel source—can qualify for Tier II RECs.
- Large-Scale Hydropower:
- Hydropower projects that are larger in scale and distinct from Tier I’s low-impact hydro are considered Tier II resources.
- Waste-to-Energy from Municipal Solid Waste:
- This category includes projects that convert municipal solid waste into usable energy, helping reduce landfill use and create renewable power.
- Waste Coal Generation:
- Energy generation from the reclamation and utilization of waste coal is recognized as a Tier II qualifying activity.
- By-products of Pulping and Wood Manufacturing:
- Examples include the use of black liquor, wood chips, bark, and sawdust generated during the pulping process and wood product manufacturing.
Policy Impact: Act 114 (2020)
Since Act 114, Tier II compliance must be met using only Pennsylvania-based Tier II credits. This in-state requirement reduced supply from regional markets and significantly increased REC values, creating stronger incentives for businesses to pursue qualifying projects.
Recent Tier II REC Prices (Weighted Averages)
Program Year | Average Price ($/REC) | Price Range ($/REC) |
2021–2022 | 10.86 | 0.01 – 32.70 |
2022–2023 | 19.69 | 0.01 – 40.00 |
2023–2024 | 26.47 | 0.01 – 40.00 |
2024–2025 | 26.92 | 0.01 – 41.00 |
Why Tier II Matters for Businesses
For facility owners and operators, Tier II RECs are one of the most actionable pathways to capture financial value from energy projects. Unlike Tier I, which often requires large-scale renewable development, Tier II credits can be generated through energy efficiency upgrades and CHP systems. This means that projects already planned for cost savings or sustainability can double as revenue-generating assets through REC sales.
Key Takeaways: Tier II REC Opportunities for Businesses
Tier II Renewable Energy Credits (RECs) present unique benefits for facility owners and operators looking to optimize their energy projects. The following points outline the most important aspects to consider:
- Qualifying Upgrades: Many common energy efficiency improvements can earn Tier II credits. These include upgrades such as replacing traditional lighting with LEDs, installing variable frequency drives (VFDs), optimizing HVAC systems, and implementing combined heat and power (CHP) solutions.
- Rising REC Values: The market value of Tier II RECs has increased substantially in recent years. For example, the average price rose to $26.92 in 2024–2025, compared to just $10.86 a few years earlier.
- Additional Revenue Stream: By generating Tier II credits, businesses can create a new source of income. This additional revenue helps improve the return on investment (ROI) and shortens the payback period for energy efficiency and sustainability projects.
- Importance of Measurement and Verification (M&V): To ensure successful REC issuance and maximize the financial benefits of energy projects, it is crucial to implement proper measurement and verification processes.
By aligning capital projects with Pennsylvania’s Tier II REC program, businesses can reduce operating costs, increase sustainability performance, and generate ongoing revenue through the state’s AEPS compliance market.
As a service provider, Emergent Energy works with building owners, third-party engineers, project development partners and the PUC to get projects approved, register the AECs in the applicable registry, and monetizes the credits.
To learn more about how Emergent Energy can help with PA Tier II project registration, and monetization please visit www.pasrecs.com or contact us at sales@emergentenergy.us