The Lifecycle Of Renewable Energy Certificates

by Nicola Temple on May 7, 2012

Renewable Energy Certificates (RECs) are also known as green tags, renewable energy credits, renewable electricity certificates or tradable renewable certificates. Regardless of what they’re called, the bottom line is that they can be relatively confusing.

I’ve read a great deal about RECs lately and perhaps it’s the way my brain thinks…but I find RECs to be a rather esoteric concept.  I’m not sure whether it’s my biology background, or my linear way of thinking, but I often find things easier to understand when I can see the whole lifecycle, from beginning to end.

So, here’s a look at the life of a REC, from beginning to end; hopefully answering a few questions along the way.

If you’re still confused, then I would suggest having a look at the US Environmental Protection Agency’s (EPA) information pamphlet on RECs.

In the beginning…

renewable energy certificates

Renewable energy certificates are issued for every megawatt-hour of renewable electricity generated, such as through wind power. CC image courtesy of ACA Svenska Cellulosa Aktiebolaget on Flickr.

With every megawatt-hour (MWh) of electricity generated from a renewable energy source a new REC is generated. Energy sources that qualify include solar, wind, geothermal, low-impact hydropower, biomass, biofuels and landfill gas, and fuel cells (so long as the hydrogen isn’t produced from fossil fuels).

In the simplest terms, a REC is essentially the bragging rights to renewable energy production, including things like the greenhouse gas emissions associated with the renewable energy production (if any). The EPA defines a REC as ‘the property rights to the environmental, social, and other non-power qualities of renewable electricity generation’.

The REC contains, if you will, the vital statistics regarding how that MWh of electricity was generated, including: when it was generated (i.e. DOB), the type of renewable resource used to generate it (i.e. the parents), the age of the generator (i.e. the age of the parents), where it was generated, and any greenhouse gas emissions associated with the renewable energy production. The REC is certified by a third party and assigned a unique certificate number and then usually entered into a state database that helps keep track of ownership.

The REC leaves home…

While the electrons produced through renewable energy generation (e.g. wind turbine) head off to join all the other electrons in the utility grid, the REC is destined for its own unique path.

The company that generated the electricity will sell the RECs, usually to energy distributors or brokers. The money they receive for the REC will then be invested in expanding their business, improving technologies, education, and basically whatever it takes to generate MORE electricity using renewable energy sources. This helps to ‘clean up’ the grid, meaning more electrons put into the grid come from clean energy production such as solar and wind.

The REC now sits, waiting for a buyer, fluctuating in price within the REC market, awaiting a purchaser.

The REC settles down…

The final purchaser of a REC could be a business, a large institution or an individual. For instance, it could be a university that is trying to achieve some internal sustainability targets and will count the RECs toward their carbon emissions reduction. The REC purchaser could also be a utility company in a US state with a Renewable Portfolio Standard, such as New York or California, and use the RECs to demonstrate their compliance with state requirements for renewable energy production.

A final example might be an individual who simply wants to invest in renewable energy because they believe it is the right thing to do for the planet. The wonderful thing about a REC is that this person doesn’t need to live anywhere near where the REC was generated. They might even live somewhere devoid of green power generation, but a REC still allows them to invest in the technology.  Or perhaps they’re a boarder in a house and don’t have control over who the utility service provider is, a REC still allows them to invest in green energy production.

The REC retires…

Once the claims have been made against a REC it must be retired. So, if we continue with the examples above, the university will make a claim about per cent carbon emissions reduction in its annual report and the utility company will report to the state government on its RECs to show compliance with state policy, and any RECs associated with those claims will be taken out of circulation.

The individual, on the other hand, isn’t likely to make any environmental claims on the REC, however, they can ask that the certificate be retired to ensure that no future claims can be made on that certificate. It prevents duplicating claims and it promotes the generation of more RECs.

The far-reaching effects of a REC…

When it comes down to it a REC falls into the realm of stocks and bonds and other intangible things that are traded, sold, and bought, but fail to actually BE anything other than paperwork. (Can you tell I keep my money in a sock drawer?)

However, a REC does at the very least represent a measure of renewable energy produced – a rather significant thing in a changing climate and declining fossil fuels.

The purchase of RECs is an investment in renewable energy, which comes with some significant advantages:

  • A reduced dependency on foreign oil, and fossil fuels in general
  • An investment in US jobs associated with renewable energy production
  • A reduction in air pollution
  • Fewer greenhouse gas emissions

For businesses, RECs offer an opportunity to meet their own sustainability targets and add to their eco branding.

For individuals, RECs are an opportunity to show civic leadership and use a bottom-up approach to change how electricity is produced without waiting for change to happen as a result of policy or government mandates.

The ZeroCarbonAlliance provides a good explanation of renewable energy certificates in this video. Have a watch and hopefully you’ll have a better understanding of what they are and how they work.

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