What the heck is a REC?

You may have been hearing a lot lately about RECs — or Renewable Energy Certificates. But what are they, and should we be for them or against them?

Last Tuesday, those of us who attended the monthly meeting of the Local Clean Energy Alliance had a chance to learn more about RECs from Alex Pennock, manager of the Green-e Energy program at the Center for Resource Solutions.

According to the EPA, a REC “represents the property rights to the environmental, social, and other nonpower qualities of renewable electricity generation. A REC, and its associated attributes and benefits, can be sold separately from the underlying physical electricity associated with a renewable-based generation source.”

As Alex put it, RECs serve as a tracking and accounting mechanism that identifies the electricity they’re associated with as being from a renewable source. A REC is equivalent to 1 megawatt hour. And RECs must be tied to the grid — so you can’t get a REC if you power an off-grid home with solar.

How do we know that RECs are counted fairly? That’s where the Green-e Energy program comes in. They not only certify RECs, ensuring that they come from renewable sources, but also track them after they’re certified. They check that:
  • RECs are generated in or near the year they are sold.
  • RECs meet location requirements, which vary by region. (In general, they must be on the same grid system, which in some areas can be quite large.)
  • RECs aren’t double-sold or double-counted. For example, if you sell RECs for the renewable power you generate, you can’t then claim to be using renewable energy — instead, the buyer of your REC gets to make that claim. Similarly, RECs can’t be double-counted to meet requirements of two separate programs, such as to meet a state’s renewable portfolio standard in addition to the requirements of an individual program. And if you put solar on your roof, your utility company can’t count that as a REC.

So are RECs a good thing or not? That depends. They can be controversial because of concerns that they don’t provide “additionality” — that is, they don’t add renewable energy to the mix. And of course, that’s true if they’re from projects that would have happened regardless of whether they could sell RECs.

However, some projects may rely on RECs to help fund them, or to provide returns to investors — one example is University Park Solar in Maryland, where revenues from RECs help maintain the facility in addition to providing a return on investments that’s attractive enough to investors.

It’s also true that some states and government agencies use RECs to meet their renewable energy requirements, instead of producing more renewable energy. They can simply purchase RECs and say they’ve produced a certain amount of renewable energy. Given that these entities might not otherwise meet their requirements, it can be argued that at least their purchasing RECs can encourage other projects to happen.

Of course, this situation makes the REC market volatile. State renewable energy requirements can be great for sellers of RECs — till the state meets its requirements, at which time the price of RECs plummets. Beyond such compliance market issues, the price of RECs depends on the usual vicissitudes of supply and demand.

And whether RECs are good or bad depends on one’s perspective. For someone trying to fund a renewable energy project, they can provide an important part of that funding. As anyone who’s tried to start such a project knows, financing is often the biggest hurdle. However, if we had better ways to finance — even subsidize — renewable energy, perhaps RECs wouldn’t be necessary. Till we do, and while RECs still have some financial value, they’ll remain a fact of life. The best way to address concerns about them may be to find other ways to promote renewable energy.

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