Renewable Energy Certificates are also known as renewable energy credits, green certificates, green tags, and tradable renewable certificates. A Renewable Energy Certificate (REC) represents the legal property rights to the environmental, social, and other non-power qualities of renewable electricity generation.
How Do RECs work?
Grid-tied electricity generators produce two distinct products: “physical electricity” and RECs. These two product components can be sold together or separately, “bundled or unbundled.” Since electrons from all generation sources are indistinguishable, it is impossible to track the physical electrons from a point of generation to a specific point of use. RECs serve the role of tagging certain amounts of renewable generation, laying claim to the green and social attributes of renewable-based generation.
As renewable generators produce electricity, they create one REC for every 1,000 kilowatt-hours (or 1 megawatt-hour) of electricity placed on the grid. They can retain the RECs or sell them. If the physical electricity and the associated RECs are sold to separate buyers, the physical electricity is no longer considered renewable.
Green-e is the nation’s leading independent consumer protection program for the sale of renewable energy certificates. In 2013 Green-e Energy certified 33.5 million megawatt-hours (MWh), 1% of the total U.S. electricity mix. Over half of the installed wind capacity in the U.S. is participating in Green-e Energy certified transactions.
The Value of RECs
RECs provide value to both buyers and renewable project developers. For buyers, RECs are a means of procuring green power attributes from off-site locations at low cost. This allows organizations like Whole Foods, REI, and others to support renewable energy projects.
Green building professionals purchase RECs to qualify for the LEED Green Power Credit. And they do so at a fraction of the cost of developing and operating their own renewable energy projects.
For green power project developers, sales of RECs offset project costs. RECs enable individuals and organizations to channel funds to green power projects. Purchasers of RECs provide developers with a revenue stream that supplements the revenue they secure from the sale of the project’s electricity. This “additional revenue” improves renewable energy project economics.
Compliance and Voluntary Markets
There are two fundamental forms of REC markets, and their prices are vastly different. Voluntary markets provide corporations, universities, and others with means of buying RECs and to make the claim of being 100% green powered. Most corporate and household purchases of renewable energy are voluntary purchases. Rates for RECS purchased through Arcadia Power are about a penny to a penny and a half per kilowatt-hour, less than 10% of the cost of physical power.
Here’s a peek at REC products available for purchase in the voluntary market: U.S. Green Power RECs are sourced from renewable energy projects. U.S. Wind RECs are generated at wind farms. Regional Green Power RECs support renewable energy projects in specific regions of the United States and Canada. Catalyst Wind RECs are sourced from wind farms coming online in 2011 and 2012. Brighter Schools Solar RECs are produced by photovoltaic solar panels installed at U.S. schools.
Renewable energy generators located in states that do not have a Renewable Portfolio Standard can sell their RECs to voluntary buyers. These RECs have been very cheap. Over the past four years, prices for voluntary renewable energy certificates have decreased, now at about $1.20/MWh. The voluntary green power market totaled more than 62 million MWh in 2013, with about 5.4 million customers participating. The supply continues to be dominated by wind, though solar is increasing its share of utility green pricing programs.
The prices of RECs in “compliance markets” are much higher. Compliance markets – now in 29 states and the District of Columbia – are created by Renewable Portfolio Standards. Electric utilities in these states must demonstrate compliance with their requirements by securing and purchasing RECs. For instance, California utilities are required to achieve 33% of electricity sales using certified renewables by 2020.
Compliance market costs have resulted in REC prices that are generally in the $40 – 60 range. Solar RECs (SRECs) have been used in a number of states to incentivize solar and to spur a REC market. This led to dramatic prices, at one point up to $665/MWh in New Jersey and more than $500 in Massachusetts. Four years later that New Jersey SREC price fell to $160. In Delaware, the spot price for a 2010 SREC was $255 in July 2010 and about $50 in May 2014.
California’s Compliance Market
California requires utilities to adhere to its Renewable Portfolio Standard. To adhere to the State mandate, utilities are required to obtain RECs from specific sources, or “buckets.”
Bucket 1: State policymakers determined that the top RPS priority is to tap renewable energy resources within the state. In-state, bundled resources interconnected with a California Balancing Authority, are Bucket 1 resources. Bucket 1 RECs must constitute 65% of RPS-compliant RECs by the end 2016 (compliance period 2), and 75% thereafter in compliance period 3. (Some out of state projects may qualify for this bucket.)
Bucket 2 resources are “firmed or shaped transactions” that combine a renewable source like wind, with a traditional energy resource. This form of “renewable energy” is valuable from a grid standpoint, but less preferential from an environmental standpoint. It maximum share of RPS-eligible projects drops from 35% to 25% by 2020. Bucket 2 includes renewable energy generated outside California scheduled into a California balancing authority through a transmission arrangement.
Bucket 3 RECs is anything else, including TRECs, tradable renewable energy certificates like those in the voluntary market. This unbundled category of RECs can provide a maximum of 25%, then dropping to 15%, and ultimately 10% of the RPS-eligible generation by 2020.