Renewable Energy Certificates: Definition, Benefits, and Risks of Renewable Energy Credits

mid a strong governmental push for renewable energy uptake, both homeowners and businesses are provided with incentives and support mechanisms designed to help accelerate the transition from fossil fuels. One of these mechanisms is renewable energy certificates, also called renewable energy credits or RECs, which allow contribution to green energy development without actually installing solar panels or wind turbines. Today, we take a quick look at how they work and what they mean for the renewable power market.

What are renewable energy credits (RECs)?

RECs are tradeable renewable certificates in digital form that prove the sustainable origin of the electricity produced and represent the property rights to it. One REC corresponds to the generation of one megawatt-hour (MWh) of renewable electricity. For example, if a solar installation produces 10 MWh of renewable energy, its owner gets 10 RECs that can be either sold or kept. When someone purchases these RECs, the renewable value of the energy is transferred to the buyer.

Who buys RECs, and why?

Large businesses purchase RECs in a bid to win sympathy from investors and clients, as today the commitment to renewable energy is essential for ensuring a positive company image. Buying RECs helps them offset their carbon footprint and meet renewable energy targets without actually investing in renewable generation facilities.

Additionally, RECs are used by companies to comply with renewable portfolio standards (RPS) - state policies requiring a certain percentage of energy to come from renewable sources. Today more than half of US states have adopted RPS requirements further stimulating the RECs market.

Individuals can also buy RECs if they would like to reduce their carbon footprint and support renewable energy production but can’t install a residential power generation system for some reason.

What SRECs and how they differ from RECs

Solar renewable energy certificates, or SRECs, are the most common type of green energy credits. As some states have introduced programs focused specifically on solar power, SRECs became a convenient tool for tracking solar energy uptake. For example, in some states, renewable portfolio standards have solar carve-outs that require utilities to prove that a certain percentage of electricity sold to customers has come from solar. Today SRECs are the most expensive REC type – they can cost anywhere from $5 to $500 depending on the region.

How are RECs sold and bought?

Anyone who generates surplus energy can enter the REC market. Renewable energy credits are often sold and purchased through special online platforms and aggregators on long-term contracts. Many sellers trade their RECs to third-party agents and brokers who bundle them into packages and resell them to utility companies.

If you want to buy RECs, you can do it directly from a utility that offers renewable energy or you can contact a third-party manager who sells green credits on behalf of power companies. REC prices are largely driven by supply-demand dynamics and can vary greatly depending on the state.

Bundled and unbundled RECs

You can buy bundled and unbundled RECs. Bundled REC means it is sold together with the renewable energy from the local grid, while unbundled REC is sold separately from the underlying power. Bundled RECs use electricity from local suppliers, which makes it more expensive but helps support renewable energy generation in the regions where it is less developed.

REC energy sold under unbundled contracts, on the other hand, usually comes from oversupplied markets and is therefore cheaper. Both REC types are actively traded, and yet bundled RECs are slightly more popular accounting for almost 60% of contracts.

A photovoltaic solar panel converts sunlight into electricity through the photovoltaic effect, providing a sustainable and renewable energy source for various applications.

The controversy around RECs

Renewable energy credits have long been a subject of heated debate. As a lot of companies seek to achieve ambitious environmental goals, many of them choose to simply buy more credits for renewable energy and report increasing environmental performance instead making real change in the energy mix. Some enterprises even claim to be 100% sustainable even though they get all their electricity from fossil fuels.

According to new research published in Nature Climate Change scientific journal, several studies have shown that RECs do not necessarily lead to additional renewable energy production, and corporate emissions reduction achieved through RECs is unlikely to reflect the actual situation with fossil fuel-fired power generation.

Solar cells are typically made of silicon, a semiconductor material that converts sunlight into electricity. They consist of multiple layers including a p-n junction.