Renewable Energy Certificate (United States)

Renewable Energy Certificates (RECs), also known as Green tags, Renewable Energy Credits, Renewable Electricity Certificates, or Tradable Renewable Certificates (TRCs), are tradable, non-tangible energy commodities in the United States that represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource (renewable electricity) and was fed into the shared system of power lines which transport energy. Solar renewable energy certificates (SRECs) are RECs that are specifically generated by solar energy.[1] Renewable Energy Certificates provide a mechanism for the purchase of renewable energy that is added to and pulled from the electrical grid.

These certificates can be sold and traded or bartered, and the owner of the REC can claim to have purchased renewable energy. According to the U.S. Department of Energy's Green Power Network,[2] RECs represent the environmental attributes of the power produced from renewable energy projects and are sold separately from commodity electricity. While traditional carbon emissions trading programs use penalties and incentives to achieve established emissions targets, RECs simply incentivize carbon-neutral renewable energy by providing a production subsidy to electricity generated from renewable sources.

A green energy provider (such as a wind farm) is credited with one REC for every 1,000 kWh or 1 MWh of electricity it produces (for reference, an average residential customer consumes about 800 kWh in a month). A certifying agency gives each REC a unique identification number to make sure it doesn't get double-counted. The green energy is then fed into the electrical grid (by mandate), and the accompanying REC can then be sold on the open market. "Retirement occurs when a Renewable Energy Certificate (REC) is used by the owner of the REC. Use of the REC may include, but is not limited to, (1) use of the REC by an end-use customer, marketer, generator, or utility to comply with a statutory or regulatory requirement, (2) a public claim associated with a purchase of RECs by an end-use customer, or (3) the sale of any component attributes of a REC for any purpose. Once a REC is retired, it may not be sold, donated, or transferred to any other party. No party other than the owner may make claims associated with retired RECs."[3]

Energy from any grid-tied source is bought and sold with contracts specifying the generator and purchaser. In the trade of renewable energy, RECs specify that a unit of renewable energy was generated. Because once electricity is placed on the electrical grid it mixes with electricity from multiple sources and becomes indistinguishable, RECs are used to track the ownership of environmental and social benefits of the renewable energy. The majority of RECs are sold separately from the electricity itself. In these cases, the electricity is sold as "null" energy without its environmental and social benefits, as if it were generated by non-renewable resources such as coal, nuclear or natural gas. When RECs are purchased in combination with non-renewable electricity this constitutes the legal purchase of renewable energy. This is how electrical grid connected renewable energy is traded in the U.S. Grid-connected renewable energy is used by electric utility companies in meeting their regulatory requirements and by individuals and businesses wishing to lessen their environmental impact. RECs allow for purchasers to support renewable energy generation and allows the economic forces of supply and demand to spur the further development of renewable energy generation.[4]


Background

There are two main markets for renewable energy certificates in the United States - compliance markets and voluntary markets.

Compliance markets are created by a policy that exists in 29 U.S. states, plus the District of Columbia and Puerto Rico, called Renewable Portfolio Standard. In these states, the electric companies are required to supply a certain percent of their electricity from renewable generators by a specified year. For example, in California the law is 33% renewable by 2020, whereas New York has a 24% requirement by 2013.[5] Electric utilities in these states demonstrate compliance with their requirements by purchasing RECs; in the California example, the electric companies would need to hold RECs equivalent to 33% of their electricity sales.[6]

Voluntary markets are ones in which customers choose to buy renewable power out of a desire to use renewable energy. Most corporate and household purchases of renewable energy are voluntary purchases. Renewable energy generators located in states that do not have a Renewable Portfolio Standard can sell their RECs to voluntary buyers, usually at a cheaper price than compliance market RECs.[7]

Marketers

RECs can be traded directly from buyer to seller, but third party marketers, brokers, or asset managers are commonly found in the marketplace. Renewable generation facilities will often sell their credits to these entities, who then resell them on the market at a later date.[8]

Texas developed the first comprehensive RECs system in the U.S., a web-based platform that provides for the issuance, registration, trade, and retirement of RECs. The Texas REC Program, which only tracks renewable energy certificates, started operating in July 2001.[9]

Prices

Prices depend on many factors, such as the vintage year the RECs were generated, location of the facility, whether there is a tight supply/demand situation, whether the REC is used for RPS compliance, even the type of power created. Solar renewable energy certificates or SRECs, for example, tend to be more valuable in the 16 states that have set aside a portion of the RPS specifically for solar energy.[10] This differentiation is intended to promote diversity in the renewable energy mix which in an undifferentiated, competitive REC market, favors the economics and scale achieved by wind farms.

In the United States, spot prices for SRECs generally decreased from 2010 to 2014. In New Jersey, the spot price for a 2010 SREC was $665.04 in July 2010 and about $160 in May 2014 for SRECs generated in different years. In Delaware, the spot price for a 2010 SREC was $255 in July 2010 and about $50 in May 2014 for SRECs generated in different years. [11][12][13][14] Rates for RECS purchased through Arcadia Power cost $0.01—0.015 per kWh.[15]

In Canada, 2008-09 BCHydro offers $3 /MWh for "green attributes", for long-term contracts, 20 plus years. Many Independent Power Producers (IPPs) believe that this is much less than "fair market value", but have no alternative.

While the value of RECs fluctuate, most sellers[16] are legally obligated to "deliver" RECs to their customers within a few months of their generation date. Other organizations will sell[17] as many RECs as possible and then use the funds to guarantee a specific fixed price per MWh generated by a future wind farm, for example, making the building of the wind farm a financially viable prospect. The income provided by RECs, and a long-term stabilized market for tags can generate the additional incentive needed to build renewable energy plants.[18]

Certification

RECs are known under functionally equivalent names, such as Green Tags or Tradable Renewable Certificates (TRCs), depending on the market. The U.S. currently does not have a national registry of RECs issued. The Center for Resource Solutions administers a voluntary program which ensures that RECs are properly accounted for and that no double counting takes place. Under the Green-e Energy program, participants are required to submit to an annual Verification Process Audit[19] of all eligible transactions to ensure the RECs meet the requirements for certification. The certification process requires 3rd party verification to be performed by an independent certified public accountant or a certified internal auditor. CRS maintains a list of auditors who meet the criteria to be listed on the program website.[20] Increasingly RECs are being assigned unique ID numbers and tracked through regional tracking systems/registries such as WREGIS, NEPOOL, GATS, ERCOT, NARR, MIRECS, NRTEC, NC-RETS and M-RETS.

Qualifying technologies

The following generation technologies qualify as producers of RECs:[21][22]

Additionality

"Additionality" in the context of greenhouse gas (GHG) regulations means that a purchased renewable energy certificate introduces new renewable energy onto the electricity grid beyond what would have happened without the project or "business as usual". The U.S. Environmental Protection Agency (EPA) favors performance based measures of additionality, such as the megawatt hour (MWh) equivalent per REC.

Whereas air and water pollution travels across state and national boundaries irrespective of its origin, the value of RECs and the emergence of RECs markets depend very much on the markets created state by state through legislative action to mandate a Renewable Portfolio Standard. Such a balkanized approach to establishing RECs markets and incentives state by state creates issues of equity as some states could legitimately claim that their neighboring states (and their electricity consumers) with voluntary RPS are operating as free riders of pollution prevention, paid for by states (and their electricity consumers) with mandatory RPS. We can learn from EPA's SOx and NOx cap and trade program regarding how the principle of additionality with a national standard provided a benchmark for measuring and validating the commodification of pollution prevention credits that lead to market-driven initiatives with proven results in improving regional and national air quality.

In states with a Renewable Portfolio Standard, a RECs purchase enables the utility company to meet its minimum renewable electricity percentage without having to install that renewable generating capacity itself, regardless of the source of generating renewable energy. By analogy, in the EPA cap and trade program, a "clean" utility in one state can sell its NOx credits to a "dirty" utility in another state that would otherwise have to install additional smokestack scrubbers.

The United States Environmental Protection Agency claims to have the highest percentage use of green power of any federal agency. In 2007, it offset the electricity use of 100% of its offices. The Air Force is the largest purchaser in the US government in absolute terms, purchasing 899,142 MWh worth of RECs. Among colleges and universities, the University of Pennsylvania in Philadelphia is the largest purchaser of RECs, buying 192,727 MWh of RECs from wind power. The corporate leader is Intel, with 1,302,040 MWh purchased in 2007, and the largest purchaser among retailers is Whole Foods, which purchased 509,104 MWH, or enough RECs to offset 100% of its electricity needs.

Note, that research shows that RECs purchased and retired voluntarily in the United States (i.e., not for compliance with a Renewable Portfolio Standard) do not lead to any significant additional renewable energy investment or generation.[23][24]

See also

References

  1. ↑ EPA, US. "Green Power Partnership". www3.epa.gov. Retrieved 2015-12-30.
  2. ↑ "Renewable Energy Certificates (RECs)". Green Power Network, United States Department of Energy. 2010-06-22. Retrieved 2010-09-11.
  3. ↑ http://www.green-e.org/learn_dictionary.shtml
  4. ↑ http://www3.epa.gov/greenpower/gpmarket/rec.htm
  5. ↑ For a full listing of state renewable portfolio standards, see: http://www.dsireusa.org
  6. ↑ "Compliance Markets | evomarkets". www.evomarkets.com. Retrieved 2015-12-30.
  7. ↑ "Voluntary Markets | evomarkets". www.evomarkets.com. Retrieved 2015-12-30.
  8. ↑ Renewable Energy Certificates (RECs): REC Marketers
  9. ↑ Wingate, Meredith; Lehman, Matthew (December 2003). "THE CURRENT STATUS OF RENEWABLE ENERGY CERTIFICATE TRACKING SYSTEMS IN NORTH AMERICA" (PDF). The Center for Resource Solutions. p. 6. Retrieved 28 June 2015.
  10. ↑ DSIRE Solar Set-Asides in Renewable Portfolio Standards
  11. ↑ "SREC Markets". SRECTrade. Retrieved 2014-05-26.
  12. ↑ "SREC Markets | Delaware". SRECTrade. Retrieved 2014-05-26.
  13. ↑ "SREC Markets | New Jersey". SRECTrade. Retrieved 2014-05-26.
  14. ↑ Forand, Rebecca (October 23, 2011). "Solar panel investors upset as SREC values drop". NJ.com. New Jersey On-Line LLC. Retrieved 2014-05-26.
  15. ↑ "Green Power Markets". U.S. Department of Energy.
  16. ↑ "Green Power or Renewable Energy: How It Works". Ecoelectrons.com. Retrieved 2010-12-19.
  17. ↑ "Carbon Offsets for an Inconvenient Truth". Nativeenergy.com. Retrieved 2010-12-19.
  18. ↑ What are TRC's?
  19. ↑ "Programs » Green-e Energy » Verification". Green-e. Retrieved 2010-12-19.
  20. ↑ "Green-e Auditors". Green-e.org. Retrieved 2010-12-19.
  21. ↑ "Programs » Renewable Energy » Obligations Code of Conduct". Green-e. Retrieved 2010-12-19.
  22. ↑ M.J. Beck RPS Edge
  23. ↑ Gillenwater, Michael; Lu, Xi; Fischlein, Miriam (2014-03-01). "Additionality of wind energy investments in the U.S. voluntary green power market". Renewable Energy. 63: 452–457. doi:10.1016/j.renene.2013.10.003.
  24. ↑ Gillenwater, Michael (2013-12-01). "Probabilistic decision model of wind power investment and influence of green power market". Energy Policy. 63: 1111–1125. doi:10.1016/j.enpol.2013.09.049.
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