Renewable energy credits (or certificates) have become an essential component of corporate sustainability programs. We hardly get through a week of data and market analysis without an inquiry from a client about the strategy and utility of renewable energy credits (RECs).
We thought it would make sense to begin by defining exactly what a REC is, and how RECs and REC markets operate.
What are RECs?
A Renewable Energy Certificate (REC) represents the environmental benefit of one megawatt-hour (MWh) of renewable electricity generated and delivered to the grid. When you can’t generate your own renewable energy, you can purchase RECs as a credit to promote growth in the renewable energy marketplace, among other objectives. Depending on the regulatory regime, buyers may require RECs from specific geographical locations (e.g., New York’s Tier 4 RECs tied to renewable generation in New York City).
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What you need to know about RECs and REC purchasing
How RECs Work:
In simple terms, 1 REC = 1 MWh of environmental benefit from a renewable generator. Developers or renewable generation owners can either keep the REC (and retire it) or sell it back to the market (to another purchaser, anywhere in the country). If you are installing solar panels on your roof, and are paying a developer to do that, ask them what they plan to do with the RECs. RECs can have meaningful value to building owners and in the marketplace these days.
Unbundled RECs vs. Bundled RECs
Unbundled RECs
- Sold and marketed separately from the buyer’s energy source.
- Popular form: Voluntary RECs, where you purchase a REC in an effort to be a good corporate citizen. Typically, you can purchase a voluntary REC from anywhere in the country.
- Customers purchase compliance RECs in order to meet a commitment that is typically determined by a regulatory body. If a customer is trying to achieve a specific goal (like acquiring LEED points, for example), these would be considered compliance RECs as well.
Bundled RECs
Include both renewable attributes and the associated energy in a sale to a customer.
Examples: Onsite renewable generation and/or power purchase agreements (PPAs).
Considerations: Additionality (impact beyond business-as-usual) and geography inform your REC purchase.
Why Buy RECs?
- Regulatory Compliance: RECs help meet regulatory requirements or Renewable Portfolio Standards.
- ESG Goals: They contribute to Environmental, Social, and Governance (ESG) goals, including reducing greenhouse gas emissions.
- Brand Image: Purchasing RECs promotes your company’s environmental consciousness.
How to Buy RECs?
- Set goals for your organization. Be clear about what you are trying to accomplish by making a REC purchase.
- Run a clear, transparent process that requires REC providers to satisfy your goals and price their products transparently. There can be significant price and quality differences between suppliers. Just a few weeks ago, we ran a transparent process for a client; pricing differed markedly as did the quality of the RECs that providers intended to sell. A clear process saved our client money and resulted in the purchase of high quality RECs (recent vintage, strong additionality, etc.).
- Make sure your REC provider truly engages with you about your outreach and marketing goals.
Remember that RECs play a crucial role in supporting renewable energy growth and sustainability. Whether bundled or unbundled, they contribute to a cleaner energy future! 🌿🔌
For more information, you can explore the EPA’s Unbundle Electricity and Renewable Energy Certificates page1.
Bottom line for energy buyers and financial decision makers: We often talk about the benefits of competition, data and analysis for energy purchasers. The same is true for REC purchases. Data, analytics and a sound business process can help you to ensure that your REC purchases accomplish your desired goal.
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