Renewable Energy Certificates

Renewable Energy Certificates (RECs), also known as Green tags, Renewable Energy Credits, or Tradable Renewable Certificates (TRCs), are tradable, non-tangible energy commodities in the United States that represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource.

These certificates can be sold and traded or bartered, and the owner of the REC can claim to have purchased renewable energy. While traditional carbon emissions trading programs promote low-carbon technologies by increasing the cost of emitting carbon, RECs can incentivize carbon-neutral renewable energy by providing a production subsidy to electricity generated from renewable sources. It is important to understand that the energy associated with a REC is sold separately and is used by another party. The consumer of a REC receives only a certificate.

In states that have a REC program, a green energy provider (such as a wind farm) is credited with one REC for every 1,000 kWh or 1 MWh of electricity it produces (for reference, an average residential customer consumes about 800 kWh in a month). A certifying agency gives each REC a unique identification number to make sure it doesn't get double-counted. The green energy is then fed into the electrical grid (by mandate), and the accompanying REC can then be sold on the open market.

Background

There are two main markets for renewable energy certificates in the United States - compliance markets and voluntary markets.

Compliance markets are created by a policy that exists in 29 U.S. states, plus the District of Columbia, called Renewable Portfolio Standard. In these states, the electric companies are required to supply a certain percent of their electricity from renewable generators by a specified year. For example, in California the law is 33% renewable by 2020, whereas New York has a 24% requirement by 2013. Electric utilities in these states demonstrate compliance with their requirements by purchasing RECs; in the California example, the electric companies would need to hold RECs equivalent to 33% of their electricity sales.

Voluntary markets are ones in which customers choose to buy renewable power out of a desire to go green. Most corporate and household purchases of renewable energy are voluntary purchases. Renewable energy generators located in states that do not have a Renewable Portfolio Standard can sell their RECs to voluntary buyers, usually at a cheaper price than compliance market RECs.

Critics point out, however, the flaw in this system is that it does not require any proof of displaced polluting power. Since some renewable energy sources, most notably wind power, are intermittent and variable, their production does not displace an equivalent amount of other sources per kW of installed capacity. They do, however, displace, on a per-kWh-basis, electricity from combustion sources, thus reducing greenhouse gas emissions and byproducts: nitrogen, sulfur, and other oxides and minerals.

Prices

According to the Green Power Network, prices of RECs can fluctuate greatly (2006: from $5 to $90 per MWh, median about $20). Prices depend on many factors, such as the location of the facility producing the RECs, whether there is a tight supply/demand situation, whether the REC is used for RPS compliance, even the type of power created. Solar renewable energy certificates or SRECs, for example, tend to be much more valuable in Northeast markets. In Canada, 2008-09 BCHydro offers $3 /MWh for "green attributes", for long-term contracts, 20 plus years. Many Independent Power Producers believe that this is much less than "fair market value", but have no alternative.

While the value of RECs fluctuate, most sellers are legally obligated to "deliver" RECs to their customers within a few months of their generation date. Other organizations will sell as many RECs as possible and then use the funds to guarantee a specific fixed price per MWh generated by a future wind farm, for example, making the building of the wind farm a financially viable prospect. The income provided by RECs, and a long-term stabilized market for tags can generate the additional incentive needed to build renewable energy plants. One of the few non-profit U.S. organizations that sell RECs, Bonneville Environmental Foundation was instrumental in starting the market for RECs with their Green Tag product. They use the profits from Green Tags to build community solar and wind projects and to fund watershed restoration. Another non-profit currently selling RECs is Conservation Services Group, which sells ClimateSAVE RECs generated from wind, solar, and hydropower. The largest seller of RECs is a company called Sterling Planet, based in Atlanta, GA. Some of their clients include Intel, Pepisco, Harvard, Yale, Duke and over 100 utilities around the country

REC certification

RECs are known under functionally equivalent names such as Green Tags or Tradable Renewable Certificates (TRCs), depending on the market. The U.S. currently does not have a national registry of RECs issued. Several certification and accounting organizations attempt to ensure that RECs are correctly tracked and verified and are not double-counted. Increasingly RECs are being assigned unique ID numbers for each 1,000 kWh produced. RECs are certified by Green-e, and Environmental Resources Trust's EcoPower Program. REC markets are increasingly overseen through regional tracking systems such as WREGIS, NEPOOL, GATS, ERCOT, and M-RETS.

Qualifying technologies

The following generation technologies qualify as producers of RECs:

* Solar electric
* Wind
* Geothermal
* Low Impact Hydropower (small-run-of-the-river facilities, not ones that require large dams and reservoirs, or affecting river flows adversely.)
* Biomass, biofuels and landfill to gas
* Fuel cells (only if powered by hydrogen produced by one of the above approved generators, not from fossil fuels).

RECs and additionality

"Additionality" is the idea that an individual's purchase of a renewable energy certificate forces new renewable energy onto the electricity grid. Another test for additionality is whether or not the project is financially "business as usual". RECs have come under scrutiny in the past with questions of whether or not they provide additionality, or are merely a payment to a project that would have existed even in the absence of the REC sale.

When voluntary REC purchases are made from generators that are not in compliance markets - for example, in a state that does not have a Renewable Portfolio Standard - funds from the sale of RECs are provided to the generators, but don't necessarily cause any additional renewable power to be built. It is difficult to prove that purchases of these RECs provide additionality. But if the following strategy is adopted, additionality works.

An alternative strategy combines REC compliance markets and voluntary markets. In these states that have a Renewable Portfolio Standard, if the RECs are required to come from within the compliance market, a voluntary purchase effectively increases the utilities' minimum renewable electricity percentage by purchasing RECs that the utilities would otherwise have purchased to meet their RPS (if there is not a surplus of RECs. When this occurs utilities must find additional sources of renewable electricity. If the RECs can be purchased from outside the relevant compliance market, as is often the case, additionality is not guaranteed. This site provides a useful flowchart for how voluntary purchases from compliance markets provide additionality.

A popular incentive for buying RECs is to make the claim that your energy use is carbon neutral and hence does not contribute to global warming. However, "off-setting" results in the same amount of pollution (if you buy RECs to cover your usage of electricity and you live in, say, the Southeast United States, Utah, Nevada, Colorado, the Midwest, etc.) you may still be using electricity produced mostly from coal-fired power plants. Others argue that as power from renewable sources enters the market, prices will drop and production from sources that don't enjoy the additional income from RECs will be reduced. Also, as larger and larger numbers of RECs come into demand, renewable energy will become more and more cost effective per kWh in comparison to nonrenewable energy. It can be argued that purchasing RECs is similar to voting. In reality, one single vote has rarely made a difference in the outcome of thousands of elections according to the famous book, Freakonomics. But, if everyone thinks that and stops voting, the voter turnout will fall and the seemingly meaningless behavior of one individual, in aggregate becomes meaningful. RECs are similar. Some think that every single purchase of REC just like every vote cast, counts.

The United States Environmental Protection Agency claims to have the highest percentage use of green power of any federal agency. In 2007, it offset the electricity use of 100% of its offices. The Air Force is the largest purchaser in the US government in absolute terms, purchasing 899,142 MWH worth of RECs. Among colleges and universities, the University of Pennsylvania in Philadelphia is the largest purchaser of RECs, buying 192,727 MWH of RECs from wind power. The corporate leader is Intel, with 1,302,040 MWH purchased in 2007, and the largest purchaser among retailers is Whole Foods, which purchased 509,104 MWH, or enough RECs to offset 100% of its electricity needs.

From http://en.wikipedia.org/