Part I of a series. Read Part II here, Part III here, and Part IIII here.
Renewable Energy Certificates (RECs) play a pivotal role in the modern energy market. When electricity is generated, the electrons become indistinguishable once they hit the grid and mix with other electrons, therefore making it difficult to determine their exact sources of generation. RECs help make it easier to distinguish which electrons are from renewable energy versus those that are not. But what exactly are they?
What is a REC?
RECs are a market-based, tradable tool that represents the environmental attributes of one megawatt-hour (MWh) of electricity generation from a renewable energy source.
RECs can alternatively be called “Renewable energy credits,” “green tags,” or “green energy credits,” but all hold the same meaning. Each REC indicates the source, location, and year of generation. RECs are required to meet regulatory standards set by state regulators and are recommended to follow federal guidelines. They can also be categorized as bundled or unbundled.
Bundled vs. Unbundled
Bundled RECs are sold together with the actual electricity generated from a renewable source, meaning the purchaser receives both the physical energy and the environmental attribute from the same source. This is most common when customers buy power directly from a renewable energy provider, like a wind or solar farm, through a green power purchase agreement.
Unbundled RECs are sold separately from the electricity itself. In the case of unbundled RECs, the renewable energy is sold into the grid without a specific buyer, and the REC, representing the renewable attribute, is sold independently. Consumers can purchase unbundled RECs to claim the environmental benefits of renewable energy. This flexibility allows broader participation in renewable energy markets, even for those who may not have access to physical renewable power sources.
The Process
When a renewable energy facility generates electricity, it registers with a regional tracking system and is issued a unique serial number, documenting each megawatt-hour (MWh) produced. RECs are then transferred into the electronic GATS account of the generator that generated the power. Once the REC(s) are in the generator’s account, they can do what they see fit with it, although most generators sell their REC(s) to interested parties.
There are ten regional tracking systems that oversee the issuance of RECs. These regional systems were established to document renewable energy production and support the achievement of state-specific renewable energy goals, typically structured through Renewable Portfolio Standards (RPS).
Disclosure Requirements
Many REC markets, especially those with a Renewable Portfolio Standard (RPS), are subject to regulatory oversight, which imposes additional layers of monitoring and auditing. This oversight helps to ensure that each REC is only counted once and is attributed correctly, either to meet regulatory requirements or to substantiate voluntary claims.
RECs play a vital role by sending market signals, fostering regional collaboration, and complementing supportive policies as part of a comprehensive approach towards transitioning to renewable energy sources.
REC disclosure requirements are obligations for the seller to disclose information about RECs when marketed or are a material component of a state or company’s climate goals. State REC disclosure requirements often include information on the amount of renewable energy generated, the source and nature of the energy, a description of the generating project, authentication, and the cost of the REC. Additionally, the Federal Trade Commission’s (FTC) Green Guides offer a baseline requirement to be truthful, not misleading, have evidence, and not be unfair when marketing RECs. The FTC Green Guides are also used as an industry standard when State REC disclosure requirements are absent.
State requirements for RECs vary by state. Some states place restrictions on which sources and markets can qualify for RECs. States also have different REC retirement limits, such as how long a REC can be held before it must be retired. There are also alternate certifications like Green-e that can be combined with RECs and can offer additional benefits.
Overall, RECs promote renewable energy adoption and offer a way for customers to support renewable energy production indirectly, fostering a transition to cleaner energy systems. RECs are the most reliable way to track and validate the amount of renewable energy being generated and consumed, helping consumers and businesses claim the environmental benefits of that specific RECs’ clean energy production.
REAL Resources
Looking for more information? Check out REAL’s resources for information on how to shop and a fact sheet summarizing RECs.
