CleanTech Terms Explained: Renewable Energy Certificate (REC)
Renewable energy is a hot topic right now, and as more businesses and individuals look to reduce their carbon footprint, Renewable Energy Certificates (RECs) have become an important part of the CleanTech landscape. In this article, we'll take a closer look at RECs, how they work, and their role in promoting clean energy development.
Understanding Renewable Energy Certificates (RECs)
RECs are a type of tradable certificate that represents the environmental attributes of one megawatt-hour (MWh) of renewable energy generation. They are created when a renewable energy facility (such as a wind or solar farm) generates electricity, and can be sold separately from the physical electricity itself.
What are RECs?
In essence, when a renewable energy facility generates electricity, it produces two things: the physical electricity, and the environmental and social attributes associated with that electricity. These attributes include things like reduced greenhouse gas emissions, improved air quality, and reduced reliance on fossil fuels. RECs are a way to track and trade these attributes separately from the physical electricity.
For example, imagine a wind farm generates 100 MWh of electricity in a month. The owner of the wind farm can then create 100 RECs, each representing the environmental attributes of one MWh of renewable energy generation. These RECs can be sold separately from the physical electricity, allowing buyers to claim the environmental benefits associated with the renewable energy generation.
The Purpose of RECs in CleanTech
RECs play a key role in promoting clean energy development because they allow renewable energy project developers to access a new source of revenue. When a developer sells their RECs to a buyer, they receive additional income beyond the price paid for the physical electricity itself. This additional revenue stream can be used to help fund the development of new renewable energy projects, thereby accelerating the transition to a more sustainable energy system.
Furthermore, RECs provide a mechanism for individuals and organizations to support renewable energy development without having to install renewable energy systems themselves. By purchasing RECs, buyers can claim the environmental benefits associated with the renewable energy generation, even if they are not physically using the electricity.
How RECs Support Renewable Energy Development
By providing additional revenue to renewable energy project developers, RECs help to make clean energy projects more financially viable. This can help to overcome some of the traditional barriers to clean energy development, such as the higher upfront capital costs associated with renewable energy infrastructure. In turn, this can help to accelerate the deployment of new clean energy projects, which is essential if we are to meet our global climate targets.
Moreover, RECs can help to create a market for renewable energy, which can drive down the cost of clean energy over time. As more renewable energy projects are developed and more RECs are traded, the demand for renewable energy will increase, leading to economies of scale and lower costs.
Overall, RECs are an important tool in the transition to a more sustainable energy system. By allowing renewable energy project developers to access additional revenue and creating a market for renewable energy, RECs can help to accelerate the deployment of clean energy projects and reduce our reliance on fossil fuels.
The Process of Generating and Issuing RECs
RECs are generated and issued by renewable energy facilities, such as wind farms or solar installations. Let's take a closer look at how this process works.
Renewable Energy Generation
When a renewable energy facility generates electricity, it also creates the environmental and social attributes associated with that electricity. These attributes can then be tracked and certified by third-party organizations, which issue the RECs that represent the attributes.
REC Issuance and Tracking
Once the environmental and social attributes associated with the electricity have been verified and certified, the RECs can be issued by a recognized third-party certification program, such as Green-e or the International REC Standard. These programs ensure that the RECs are legitimate and represent the actual generation of renewable energy. The RECs are then tracked through a system known as the REC registry, which allows buyers to verify that the RECs they purchase are legitimate.
REC Verification and Retirement
When a buyer purchases a REC, they can retire it on their behalf. This retirement ensures that the environmental and social attributes associated with the electricity are not double-counted - in other words, the buyer is ensuring that they are the only entity that can claim the benefits associated with the renewable energy generation that the REC represents.
The Market for Renewable Energy Certificates
There are generally two types of markets for RECs: voluntary markets and compliance markets.
Voluntary REC Markets
Voluntary markets for RECs are driven by companies and individuals who wish to support renewable energy development voluntarily. These buyers are not required by law to purchase RECs, but choose to do so as part of their sustainability commitments. Voluntary markets can be an important source of revenue for renewable energy project developers, and have helped to drive significant growth in renewable energy deployment in recent years.
Compliance REC Markets
Compliance markets for RECs are driven by state and federal regulations that require certain entities (such as utilities) to purchase a certain amount of renewable energy each year. Compliance markets can be an important source of revenue for renewable energy project developers, but can also be subject to fluctuations depending on changing regulatory environments.
Pricing and Trading of RECs
The price of RECs can vary depending on a number of factors, including supply and demand in the market, the type of renewable energy project that generated the RECs, and the age of the RECs. RECs are typically sold in large quantities through specialized brokers or online marketplaces. The trading of RECs is an important part of the CleanTech industry, and can help to ensure that renewable energy project developers have access to the capital they need to continue developing new projects.
The Role of RECs in Corporate Sustainability
Increasingly, companies are using RECs to meet their sustainability goals. Let's take a closer look at how this works.
How Companies Use RECs to Meet Sustainability Goals
Many companies have set ambitious sustainability goals, such as becoming carbon-neutral or 100% powered by renewable energy. RECs can be a valuable tool in helping companies to achieve these goals, as they allow companies to claim the environmental and social benefits associated with the renewable energy generation they have purchased. By purchasing RECs, companies can demonstrate their commitment to sustainability, improve their environmental performance, and appeal to customers and investors who are increasingly concerned about the environmental impact of the companies they do business with.
Green Power Purchasing and RECs
In some cases, companies may choose to purchase physical green power in addition to RECs. Green power refers to electricity that is generated from renewable sources, such as wind or solar. By purchasing green power in addition to RECs, companies can demonstrate an even stronger commitment to sustainability and help to drive further growth in renewable energy deployment.
Reporting and Disclosure of REC Purchases
When companies purchase RECs, it's important that they accurately report and disclose these purchases. This helps to ensure transparency in sustainability reporting, and allows customers and investors to understand the environmental impact of the companies they do business with. Many sustainability standards and reporting frameworks require companies to report on their use of RECs, including the Global Reporting Initiative and the Carbon Disclosure Project.
Conclusion
RECs are an important tool in promoting clean energy development and supporting corporate sustainability goals. By allowing renewable energy project developers to access new sources of revenue, RECs help to overcome traditional barriers to clean energy deployment and accelerate the transition to a more sustainable energy system. With the continued growth of the CleanTech industry, RECs are likely to become an even more important part of our energy landscape in the years to come.