All RECs are Not Created Equal

A renewable energy credit (REC) represents the environmental attributes of one megawatt hour of electricity generated with a renewable resource. This is true of all RECs. Beyond that, however, are a number of variables that can affect the value of RECs to the end-use consumer.

At Renewable Choice Energy we talk daily with a wide variety of customers, from individuals to Fortune 500 companies, and their motivations for purchasing RECs and the goals they hope to achieve are equally varied. In addition, there are a number of markets within the United States with unique supply/demand balances that impact the price of RECs. Having a clear goal and understanding the different market forces can ensure that you maximize the value of your REC purchase.

Here are a few factors to consider when purchasing RECs:

1. Location – Is there a specific state or region of the country where you would like the RECs to be generated? Does this correspond to your operational footprint or the location of your customer base?

1. Technology – Is there a particular technology you would like to support? Or would you like to support a diverse portfolio of technologies? For Green-e® Energy certified REC products, eligible technologies include wind, solar, geothermal, solar photovoltaic, low-impact hydroelectric, and biomass.

1. Vintage – Do you have a requirement as to when the RECs can be generated? Green-e® Energy states that in order for RECs to be eligible in a given calendar year they must be generated in that calendar year, the last six months of the prior year, or the first three months of the preceding year. For example, for a purchase made in 2011, the RECs must be generated between July 1, 2010 and March 31, 2012. This is the common guidance for voluntary purchases, but do you have your own, different requirements?

1. Term – How many years worth of RECs do you want to purchase? One year? Two? Ten? Shorter terms allow you to evaluate the current state of the market when making your purchase, while longer terms allow you to hedge your risk in terms of market fluctuations.

These factors can impact the pricing of RECs by increasing or limiting your options and thus the supply available. Of these, location can have the greatest impact due to the overlap with state and regional compliance markets. Currently there are 29 states and the District of Columbia that have Renewable Portfolio Standards (RPS’s), which are legislative mandates for utilities in those states to generate or purchase renewable energy, with legal and financial penalties if they fail to do so. An RPS can increase demand for renewable energy and RECs in a given area, thereby limiting supply and increasing competition among compliance buyers (utilities) and voluntary purchasers (you).

Ultimately, navigating these different factors and deciding which are the most important comes down to your motivation – What are you trying to accomplish with your purchase? Are you reporting your emissions to an organization such as the Carbon Disclosure Project and trying to reduce your Scope 2 number? Are you trying to connect with your customer base? Do you have a Corporate Social Responsibility plan mandated by your shareholders? Are you trying to engage your employees? Or do you have other motivations?

While purchasing RECs can be a simple process, it can quickly get complicated when requirements become more specific. It is important to understand exactly what you hope to accomplish, your goals, the type(s) of REC(s) that will best help you to do this, and how it will impact your bottom line.

Need help navigating and setting a course for purchasing RECs? Contact Renewable Choice and we’d be happy to help answer any questions you may have.

Kevin Maddaford is Resource Development Manager for Renewable Choice.