Are Renewable Energy Credits Legit?
What are Renewable Energy Credits (RECs)?
Renewable Energy Credits (RECs) are tradable certificates that represent the environmental attributes of 1 megawatt-hour (MWh) of renewable electricity generation (California Public Utilities Commission, 2008). RECs can be sold separately from the underlying physical electricity associated with renewable generation. This allows the environmental attributes of renewable energy generation to be sold separately from the physical electricity.
When renewable electricity is generated, 1 REC is issued for every MWh produced. The REC embodies the renewable attributes that give renewable energy added value compared to conventional energy sources. This includes displacing fossil fuel-based generation and reducing greenhouse gas emissions. RECs incentivize and substantiate renewable energy use (California Public Utilities Commission, 2008).
RECs are different from green power programs in which customers pay a premium on their electricity bill to receive renewable energy. With RECs, customers buy certificates that offset non-renewable electricity use. RECs enable organizations to claim they are powered by renewable energy without necessarily changing energy suppliers. RECs also help meet regulatory requirements for renewable energy procurement.
The Pros of Using RECs
One of the main benefits of RECs is that they support and incentivize renewable energy production. When a company or individual buys RECs, they provide funding and revenue for renewable energy projects like wind farms or solar installations. This helps drive further investment and expansion of renewable energy capacity [1].
Secondly, purchasing RECs can directly reduce the environmental impact of energy use. Even if a company or household is still using electricity from the traditional grid which contains fossil fuel sources, buying RECs offsets those emissions and enables renewable energy generation equal to their usage [2]. This provides a simple way for organizations to mitigate their carbon footprint.
Lastly, RECs offer an accessible tool for meeting sustainability goals. Big companies often set targets to reduce emissions or use more renewable energy. RECs give them a cost-effective method to claim the environmental attributes of renewable power and make measurable progress on decarbonization efforts [1].
The Cons of Using RECs
While RECs can help support renewable energy development, there are some downsides to be aware of:
RECs don’t always lead to new renewable energy projects being built. Some argue that RECs merely reshuffle who can claim the environmental benefits of existing renewable energy generation [1]. Unless a company enters into a long-term power purchase agreement, buying RECs may not incentivize the development of new renewable energy capacity.
It can be hard to trace the environmental benefits of RECs. Since RECs are tradable and sold separately from the underlying electricity, it can be difficult to track the actual environmental impact they provide. There is potential for double counting if the environmental attributes are claimed by both the REC purchaser and the renewable facility owner [2].
Some view RECs as a form of greenwashing. Critics argue that RECs allow companies to give the appearance of using renewable energy without making meaningful changes. There are concerns that overly relying on RECs may hinder corporations from transitioning their operations to directly source renewable energy [3].
In summary, while RECs play an important role in renewable energy finance, their environmental benefits are not always clear cut. Care should be taken in how they are utilized and claimed.
[1] https://www.theverge.com/2022/6/9/23160508/corporate-renewable-energy-misleading-rec-power-purchase-climate
[2] https://www.spglobal.com/esg/insights/problematic-corporate-purchases-of-clean-energy-credits-threaten-net-zero-goals
[3] https://www.nature.com/articles/s41558-022-01379-5
How to Choose High-Quality RECs
When purchasing RECs, it’s important to choose high-quality options that truly support renewable energy production. Here are some tips for selecting reputable RECs:
Look for Green-e certification. Green-e is the leading independent certification program for RECs in North America. Green-e certified RECs must meet environmental and consumer protection standards, so this label indicates RECs that follow best practices. See https://www.green-e.org/ for more details.
Understand vintage and location. The REC vintage refers to when the renewable energy was generated, while the location refers to where. Opt for RECs with a recent vintage from the past 1-2 years, and try to match the location to your own region if possible.
Support extra environmental benefits. Some RECs direct funds to additional eco-friendly projects, like installing solar panels in low-income neighborhoods. Prioritizing these RECs amplifies your sustainability impact.
Checking for trustworthy certifications, like Green-e, and understanding factors like vintage and location will help ensure your REC purchase promotes renewable energy production as intended. Seeking RECs with extra environmental benefits also allows you to make an even greater sustainability impact.
Using RECs for Carbon Offsetting
RECs are sometimes used as an alternative to traditional carbon offsets. Both aim to mitigate greenhouse gas emissions, but work in different ways (EPA).
Carbon offsets represent avoided or reduced emissions from specific projects like renewable energy or forest conservation. Each offset is equal to one metric ton of emissions reduced or avoided. Offsets help companies calculate their net emissions after deducting the offsets.
RECs represent the environmental attributes of renewable energy generation. One REC is created for each megawatt hour (MWh) of renewable electricity generated. Buying and retiring RECs helps drive demand for renewable energy.
The carbon benefit of RECs depends on the emissions intensity of the electricity grid they displace. Buying and retiring RECs for renewable energy on a dirty grid avoids more emissions than doing so on a cleaner grid (Carbonbetter).
For RECs to provide real carbon benefit, they must be additional. This means the renewable energy project would not have existed without the REC revenue. Non-additional RECs don’t lead to increased renewable generation (Offsetguide).
Overall, high-quality RECs can provide carbon benefits similar to offsets. But buyers must choose RECs wisely to ensure they are driving new renewable energy and real emissions reductions.
RECs in Voluntary vs. Compliance Markets
There are two main markets for renewable energy certificates (RECs) – voluntary and compliance. The key differences between voluntary and compliance REC markets are:
Voluntary RECs are purchased by companies, organizations or individuals who want to support renewable energy and make sustainability claims. Prices are set by supply and demand dynamics. According to the EPA, in 2021, voluntary REC prices ranged from $0.8 to $2 per MWh.
Compliance RECs are purchased by load serving entities and utilities to meet state Renewable Portfolio Standard (RPS) requirements. RPS policies require that a certain percentage of electricity sold come from renewable sources. Compliance REC prices are typically higher than voluntary RECs. Companies must acquire enough RECs to meet their state’s RPS obligation each year.
In both markets, when a REC is sold to a voluntary or compliance buyer, it must be “retired” to prevent double counting. The retirement permanently removes the REC from circulation. Only retired RECs can be used to make renewable energy usage claims.
According to LevelTen Energy, compliance RECs are only eligible for compliance within a specific PJM state or ISO-NE load zone. Voluntary RECs can be traded across North America. This trading flexibility makes voluntary REC markets larger than compliance markets.
Future Outlook for RECs
The future for RECs looks promising, with growing demand, rising prices, and supportive policies on the horizon.
According to Deloitte’s 2024 renewable energy industry outlook, demand for RECs is expected to grow significantly in the coming years as more companies set renewable energy and carbon reduction goals. Market analysts predict the voluntary REC market size could double from $13 billion in 2021 to over $26 billion by 2030, driven largely by the technology and Fortune 500 sectors as they scale up green power purchasing.
Prices for RECs are also likely to increase due to growing demand. A 2022 analysis by Bjørn in Nature Reviews found that rising corporate use of unbundled RECs could drive up prices and make renewable energy investments more profitable. S&P Global anticipates solar REC prices will slowly rise through 2030. However, policy changes like solar carve-outs can impact pricing trends.
Several policy developments may shape the future REC market. Extended federal tax credits could incentivize more renewable energy projects that generate RECs. Proposed accounting standards would better track unbundled REC usage and prevent double-counting emissions reductions. And REC regulation may expand to more states, opening new compliance markets. Overall, RECs are poised for strong growth but not without challenges around monitoring claims and preventing fraud.
Examples of Major REC Users
Many large corporations are buying renewable energy credits (RECs) to meet sustainability goals and reduce their carbon footprints. According to research from Choose Energy, the top corporate buyers of renewable energy in 2021 were Amazon, Google, Verizon, McDonald’s, and Facebook (source). These companies have made major investments in renewable energy and purchase large volumes of RECs annually.
Some companies like Starbucks, Johnson & Johnson, and FedEx have formed green power partnerships directly with wind and solar power generators to purchase renewable energy (source). Others like Amazon, Apple, and Google sign power purchase agreements to buy electricity from new renewable energy projects. These partnerships provide funding for building new clean energy capacity.
The market for voluntary REC purchasing has grown substantially over the past decade. However, some experts warn that relying too heavily on RECs while still using fossil fuel-based energy can be problematic. There are concerns that some companies use RECs for greenwashing without making real reductions in emissions (source).
Buying Tips for Consumers
When looking to purchase renewable energy credits as a consumer, it’s important to be an informed buyer:
Find reputable sellers like utilities, REC marketers, and renewable power marketers that provide transparent information about the RECs. Be wary of extremely cheap RECs, as they may not fund new renewable energy.
Read the fine print to understand exactly what you’re buying. Make sure the RECs are certified and tracked to avoid double counting. Understand whether you’re getting bundled or unbundled RECs. Review the source of generation and vintage of the RECs.
Compare costs from multiple suppliers. While pricing varies, unbundled solar RECs average around $1 per MWh and unbundled wind RECs average around $0.50 per MWh.
The Bottom Line on RECs
In summary, purchasing RECs can offer several benefits. But there are also some limitations to be aware of as well. Here’s a high-level overview:
Benefits
RECs can provide an easy and cost-effective way to support renewable energy. Each REC directly enables a MWh of renewable electricity generation, adding more clean power to the grid (1). This makes RECs a flexible tool for carbon offsetting. Organizations can buy RECs at scale to immediately reduce their carbon footprints.
RECs also help make renewable energy projects more profitable. This stimulates further development and growth of renewables. In voluntary REC markets especially, the additional revenue from REC sales incentivizes building more wind, solar, etc. So supporting RECs expands renewable energy capacity.
Limitations
The main criticism of RECs is that they are difficult to track and verify in some cases. Low-quality RECs may not result in real additional renewable energy. There are also challenges in preventing double counting of RECs in some markets (2).
Additionally, RECs alone don’t directly reduce a facility’s on-site emissions from grid power. So RECs should complement, not replace other decarbonization strategies for maximum impact.
Best Practices
Focus on buying high-quality, verified RECs like Green-e certified. Opt for local or regional RECs that directly support renewable growth in areas that impact your facilities. Retire RECs upon purchase and get proof of retirement. Buy RECs regularly and long-term to provide ongoing revenue for new projects.
Alternatives
Other options beyond RECs include installing on-site renewable energy, signing power purchase agreements for dedicated renewables, investing directly in community solar projects, and advocating for cleaner grid power.
(1) https://impactful.ninja/recs-pros-and-cons/
(2) https://www.spglobal.com/esg/insights/problematic-corporate-purchases-of-clean-energy-credits-threaten-net-zero-goals
