Are Renewable Energy Certificates Worth It?

What are renewable energy certificates?

Renewable energy certificates (RECs) are a market-based instrument that certifies the bearer owns one megawatt-hour (MWh) of electricity generated from a renewable energy resource like wind, solar, geothermal, etc. (Source). RECs were created to track renewable energy generation and drive new investment in it.

RECs allow organizations that purchase renewable energy to retain and claim the environmental attributes or benefits of that generation even when the actual electricity is being distributed by the grid. So buying RECs helps offset conventional electricity use with renewable sources (Source).

There are two types of REC markets – voluntary and compliance. Voluntary markets allow organizations to purchase renewable energy certificates on a voluntary basis, knowing their purchase is encouraging more renewable energy on the grid. Compliance markets are driven by state renewable portfolio standards that legally require utilities to procure a certain percentage of their electricity from renewable sources (Source).

The Pros

Renewable Energy Certificates (RECs) provide an easy way for companies and individuals to support renewable energy sources like solar and wind ¹. When you purchase a REC, you are financially supporting the generation of renewable electricity. This helps drive further investment and growth in renewable energy. Even if you can’t install solar panels or purchase renewable energy from your utility, buying RECs allows you to reduce your carbon footprint.

RECs are also inexpensive and simple to purchase. They can be bought from various retailers and brokers, with prices starting around $1 per MWh. This makes offsetting your electricity use affordable. You don’t need to sign a long-term contract or make any major commitments. In just a few minutes online you can buy RECs to match your home or business energy usage.

In addition, purchasing RECs provides an extra revenue stream for renewable energy projects. This helps improve the economics of building new solar and wind farms. RECs allow renewable energy developers to recoup more value for the clean electricity they generate.

The cons

While renewable energy certificates (RECs) help support renewable energy financially, they do not directly reduce emissions from fossil fuel energy sources. This is because RECs are sold separately from the underlying electricity generated (“Renewable Energy Credits (RECs): All 6 Pros and 4 Cons …”). So the renewable energy is still added to the grid, but the environmental benefit is sold off via the REC. This concept of “additionality” has become controversial.

Many argue that buying RECs does not lead to additional renewable energy generation beyond what is already mandated by law (“Problematic corporate purchases of clean energy credits …”). There are also concerns that some RECs may count renewable energy that would have been generated anyway. So the environmental benefit is questionable.

Some view buying RECs as a form of “greenwashing” that allows companies to claim sustainability without actually changing energy usage. This can be misleading to consumers who may think the company is directly using renewable energy when it is not (“What Are The Pros And Cons of RECs?”). Care should be taken when evaluating the claims and additionality of RECs.

Additionality

Additionality refers to whether purchasing renewable energy certificates (RECs) leads to additional renewable energy generation beyond what would have happened without the REC market. There is an ongoing debate around whether RECs truly drive new renewable energy development.

Some argue that the REC market incentivizes the development of new renewable energy projects by providing a revenue stream for project developers. According to research from Resource Solutions, “RECs provide the financing and revenue certainty to catalyze renewable energy development” (Resource Solutions). When a company purchases RECs, it helps fund new renewable energy projects that may not have been built otherwise.

However, critics claim that many REC purchases, especially unbundled RECs, do not actually lead to additional renewable energy generation. As explained by S&P Global, “When a company buys an unbundled REC — one that is acquired without also acquiring its underlying energy — it creates little or no additionality because it does not lead directly to investment in new renewable energy projects” (S&P Global). Unbundled RECs are often cheap and plentiful, resulting in low impact.

There are valid points on both sides of this debate. Ultimately, the additionality impact of RECs depends on factors like whether they are bundled or unbundled, the type of renewable energy project, and market dynamics. Care must be taken to ensure REC purchases truly add new renewable energy to the grid.

Types of certificates

There are a few main types of renewable energy certificates (RECs) to be aware of (EPA):

• Green-e certified RECs – These RECs meet environmental and consumer protection standards set by Green-e Energy, an independent certification program. Green-e sets criteria like the renewable energy source, vintage of RECs, and auditing requirements.
• LEED RECs – These RECs can be used to meet renewable energy requirements for LEED building certification. They must follow Green-e Energy standards.
• Utility RECs – Some utilities have their own REC certification programs with criteria that may differ from independent certifiers.
• Voluntary vs. compliance RECs – Voluntary RECs are bought and sold on the open market. Compliance RECs are generated and used to meet state renewable portfolio standards.

Unbundled vs. bundled RECs refer to whether the renewable attribute is sold separately from the underlying electricity generation (LevelTenEnergy).

Pricing of Renewable Energy Certificates

The pricing of renewable energy certificates (RECs) can vary significantly based on a number of factors. In general, REC prices are driven by the forces of supply and demand.

On the supply side, the number of renewable energy projects coming online and producing RECs influences availability. In markets with high renewable energy generation, REC supply may outstrip demand, driving prices down. Markets with less renewable capacity tend to have higher REC prices.

Demand for RECs primarily comes from state renewable portfolio standards, voluntary purchasers like corporations and individuals, and renewable energy project developers. Higher overall demand leads to higher prices.

The type of renewable energy also impacts pricing. Solar RECs tend to be more expensive than wind RECs in many markets, due to higher generation costs. The vintage of the REC also matters, with newer vintages typically selling at a premium price.

Ultimately, REC prices can range wildly from under $1 per MWh in some markets to over $50 per MWh in others. Tracking REC prices across North America provides helpful benchmarking.

Who buys RECs?

RECs are purchased by a variety of entities including individuals, businesses, and utilities. Some of the main motivations for buying RECs include:

Individuals:

• Offset personal energy usage and reduce environmental impact
• Support the renewable energy industry
• Make an ethical choice to promote sustainability

Businesses:

• Meet sustainability or emissions reduction goals
• Appeal to eco-conscious consumers
• Improve brand image as a “green” company

Utilities:

• Comply with renewable portfolio standards (RPS)
• Offer green power options to customers
• Diversify energy supply with low-carbon sources

The voluntary market for RECs provides an opportunity for organizations and individuals to support renewable energy economically. The additional income for project developers from REC sales also helps promote further investment in green power generation.

Credibility

Citing the proper sources bolsters the credibility of Renewable Energy Certificates.

For instance, the World Resources Institute clearly outlines, “The best way to ensure the credibility of RECs is to purchase those certified by an independent third party. The most common certification programs are Green-e Energy in the United States and EcoLogo in Canada” (https://www.wri.org/research/bottom-line-renewable-energy-certificates).

To ensure RECs come from legitimate renewable energy sources, look for independent certification standards like Green-e Energy or EcoLogo. These organizations verify the RECs originate from eligible renewable facilities through audits and attestations. Without proper certification, there is a risk of double-counting or purchasing RECs that don’t actually support new renewable generation.

Alternatives

While RECs are one way to support renewable energy, there are other options as well. Installing solar panels on your home or business is a more direct way to utilize renewable energy. The upfront costs can be high, but solar installations can pay for themselves over time through energy bill savings. Community solar programs allow you to buy a portion of a shared solar installation and receive credits on your electricity bill. This can be more affordable than installing panels directly on your building.

Many utility companies also offer green power programs where you can opt to have a percentage of your electricity come from renewable sources. The cost premiums for these programs are usually lower than buying RECs separately. However, you aren’t necessarily directly causing new renewable energy to be added to the grid. Overall, the best renewable energy solution depends on your goals, budget, and location.

Conclusion

Renewable energy certificates certainly have benefits but also some drawbacks. On the pro side, purchasing RECs can help drive demand for renewable energy production through creating a market for these credits. The additional revenue for renewable generators can incentivize further investment into green energy projects. However, the environmental benefits of RECs have been questioned, especially regarding additionality and whether the renewable energy would have been produced regardless. There are also concerns around the credibility and authenticity of some RECs.

For many residential consumers, RECs may be an easy way to reduce the environmental impact of their energy use, especially if their local utility does not offer a 100% renewable option. However, RECs likely provide more tangible climate benefits when purchased by large organizations, governments and corporations that can buy RECs at scale. This large demand can better incentivize new renewable capacity. Individuals may be better off advocating for policy change and utility-scale renewable adoption in their communities, rather than relying solely on REC purchases for sustainability.

In summary, RECs can play a role in accelerating the transition to renewable energy when purchased wisely. But they should complement, not replace, broader efforts to make meaningful impact on sustainability.