What's so great about RECs?

The Value of Renewable Energy Credits (RECs)

If human society is ever going to reach a point where it is truly sustainable on this planet, we are going to need to employ every method available to us.  We need to reduce what we use, re-purpose our waste and ensure that what we do use has the smallest possible impact.  In the realm of energy (clearly one of our biggest impacts on the planet) conservation, efficiency and renewable energy really go hand-in-hand. 

We are constantly working with our clients to help them measure and reduce their impact, choose renewable energy sources and offset the carbon footprint they have left. 

Yet despite the importance and value of creating and investing in efficiencies, alone they will never be enough.  With a growing and industrializing global population, even if we become 40% more efficient we are still losing ground if we continue to use coal, oil and gas for that remaining 60% of our energy needs. We need a way to be carbon-neutral with our power sources, our transportation and our industry.

 
The easiest and most commercially-viable change we can make today is to use renewable energy.  If individuals, corporations and governments really want to get serious about sustainability, they have to consider switching to green power as one of the very first steps.  Not “once we finish reducing as much as we can” (because honestly, when are we ever going to reach that point?) but right now. 

There are two ways to switch over to renewable energy: the first is to build your own power plant on-site at your home or business (put up solar panels, a wind turbine, etc.) and the second is to purchase grid-sourced green power.  For many companies and institutions it may not be practical to create their own energy- there may be a lack of natural resources or upfront capital or they may wish to focus on their core competencies (which often do not include energy generation).  Luckily for these entities there is a way to choose green power straight from the power grid- renewable energy credits. 

Renewable energy credits, or RECs, are the way that we track and trade green power in North America.  They are proof that 1 MWh of green power was generated, and embody the environmental attributes of that clean energy including carbon dioxide reduction.  RECs are endorsed and purchased by the US EPA, Air Force, Fortune 500 companies, major universities and NGOs.

When a renewable facility, such as a wind farm, produces one megawatt-hour (MWh) of electricity and adds it to the power grid, they also generate one corresponding REC (one-for-one).  Once the electricity is on the power grid, there is no way to accurately track where it ends up; it mixes with the electricity generated from burning coal, nuclear and all other sources.  We can think of the national power grid as one big pool of energy.  Unless you are fully off-grid, there is no way to tell where the electrons running through your computer right now actually originated.  However, if you have ownership of RECs corresponding to the amount of power you take off the pool, you know that at least that much power was generated at a renewable facility and added back to the power grid somewhere.

 
All renewable energy tracking is based on RECs in both the compliance and voluntary markets.  Thirty US states and the District of Columbia have established Renewable Portfolio Standards (RPS) or Renewable Electricity standards (RES).  These standards essentially mandate that utilities in those states have a certain percentage green power in their power mix (say, 20% by 2020).  The way that these utilities prove that they have this green power in the mix is through ownership of the associated RECs.  The voluntary market works the exact same way.  If you hear a company is “wind powered” or “buying green power” it means they are buying enough RECs to match their electricity usage.  There is a common myth that you can “buy green power” from a utility company and that is somehow different from buying RECs.  When you buy green power from a utility it means you are buying your delivered power and a REC, bundled together.  The electrons from the wind farm aren’t all going to your building either way; you are just ensuring that your usage is replaced in the pool with clean energy.  RECs are the only way to track and trade grid-sourced green power. 

So why would a voluntary buyer want to buy green power (RECs)? 
There are a myriad of reasons, as we have seen over the past 6 years, as every year voluntary buyers actually purchase more renewable energy than the utilities that are mandated to buy by an RPS.  Buying RECs is obviously the easiest way to claim that you are green powered or using renewable energy – claims that can be a valuable component of an organization’s environmental strategy and communications.  Since the REC also embodies the environmental benefits of producing clean energy, the buyer can also reduce their greenhouse gas emissions through REC purchases.  REC buyers can be companies or individuals that want to be good corporate citizens or universities responding to overwhelming student support for clean energy.  They can be government agencies looking to support domestic industry and LEED certified green buildings. 

The value of the REC system goes beyond value to the buyer.  For the renewable energy developers, RECs provide an additional income stream that can help make a project viable or more competitive with conventional fossil fuel generators.  It allows them to capture the added value in producing energy in a sustainable way.   Further, the robust voluntary REC market demonstrates broad support and demand for renewable energy.  On the support side, corporate advertising dollars can help spread the word and garner public support.  On the demand side, increased green power demand helps drive up REC prices, providing further incentive for new development.  It is all of our jobs to help increase that demand, whether it is choosing green power for our own first-person energy use or demanding that the places we shop, the products we buy and the politicians we elect are also committed to using renewable energy. Together, we can make a difference in the way we produce our energy and the quality of our lives today, and tomorrow.

John is Director of Environmental Commodities for Renewable Choice.