A simple Guide to Why They Exist and How They Work
Introduction
Renewable Energy Credits, or RECs, play a critical role in the transition to clean energy. Whether you're a homeowner with solar panels, a business aiming for sustainability, or simply curious about the renewable energy market, understanding RECs is essential. In this post, we'll explain what RECs are, why they exist, how they are generated, and how they are traded or sold.
What Are Renewable Energy Credits (RECs)?
A Renewable Energy Credit (REC) represents proof that 1 megawatt-hour (MWh) of electricity was generated from a renewable energy resource and delivered to the power grid or used on site. Think of it as the environmental attribute of the renewable energy - separated from the physical electricity itself.
RECs are used to track and claim the renewable origin of electricity in a standardized way, helping ensure that renewable energy isn't "double counted."
Why Do RECs Exist?
RECs were created to incentivize the development of renewable energy and to help companies and governments meet clean energy targets.
There are two main drivers behind RECs:
- Regulatory Compliance (Compliance market): Many states have Renewable Portfolio Standards (RPS) that require utilities to supply a certain percentage of electricity from renewable sources. RECs serve as proof that they've met those targets. These compliance market RECs are typically purchased by energy generators that operate carbon emitting power plants that will need these RECs to meet the RPS Standards for their respective state.
- Voluntary Sustainability Goals (Voluntary Markets): Businesses, institutions, and individuals can buy RECs to offset their electricity usage and demonstrate their commitment to sustainability - even if they can't generate or directly consume renewable power. These Voluntary market RECs are typically purchased by commercial (government or private) entities that utilize these RECs to offset their purchased electric (Scope 2) emissions.
How are RECs Generated?
RECs are created when a certified renewable energy facility - like a solar, wind or hydroelectric plant - generates electricity and delivers it to the grid. Here is a simplified breakdown:
- A renewable energy generator produces 1 MWh of electricity.
- That generator is tracked and certified by a registry (such as PJM-GATS or WREGIS).
- One REC is issued for each MWh generated.
- The REC can then be sold, traded, or retired. When the REC is sold, the buyer will have the ability to resell, trade or retire the REC. When a REC is retired, the entity holding the REC will be claiming the carbon offset provided by the REC's retirement.
This means the financial value of RECs supports renewable energy projects by giving them an additional revenue stream beyond selling the electricity generated through the energy generating asset.
How are RECs Bought and Sold?
RECs are traded on both compliance and voluntary markets:
- Compliance Markets
- Utilities or energy suppliers are mandated by law to meet renewable energy quotas.
- They buy RECs from eligible generators or brokers.
- Prices vary by state and program - SRECs (Solar Renewable Energy Certificates) in states like New Jersey or Massachusetts can be especially valuable.
- Corporations, universities, and individual buy RECs to reduce their carbon footprint.
- These transactions are often done through sustainability consultants or online REC marketplaces.
- RECs are bundled (with electricity) or unbundled (sold Separately).
Once a REC is purchased and retired. the buyer can claim the environmental benefits - it can no longer be sold or traded again.
Why Do RECs Matter?
RECs help:
- Drive investment in clean energy infrastructure.
- Enable carbon accounting for sustainability and ESG reporting.
- Support grid decarbonization by creating demand for renewable generation.
They give both producers and consumers a way to participate in the clean energy economy, regardless of physical location or access to renewable energy.
Final Thoughts
Renewable Energy Credits are key building blocks in the fight against climate change. They allow the environmental benefits of renewable electricity to be tracked, traded, and claimed - providing a flexible, market-based mechanism for supporting clean power.
Whether you're selling RECs from your rooftop solar panels or buying them to meet sustainability goals, understanding how RECs work empowers you to make more impactful energy choices.
To learn more about how we can help with the management of your Renewable Energy or Energy Efficiency REC generating asset, please reach out to us at sales@emergentenegy.us.