Renewable energy certificates (RECs) are an important mechanism that companies use to invest in renewable energy. They are tradable market-based instruments that represent electricity generated from renewable sources. There are a number of verification systems globally that ensure credible RECs are being sold and claimed.
Main Points
- RECs are available for purchase in many different forms: unbundled and incorporated into utility green tariffs, green pricing programs, and power purchase agreements.
- Many companies of all sizes and industries purchase RECs because they present a simple method of investing in renewable energy.
- By investing in RECs, companies avoid any significant upfront investments, project risk, or operations and maintenance. Furthermore, REC-based procurement options can offer short term commitment.
First, Learn About RECs
Renewable Energy Certificates (RECs) are tradable market-based instruments used for tracking and verification of electricity from a renewable generator.
What are RECs?
Renewable Energy Certificates (RECs), also known as “green tags,” “green certificates,” and “renewable energy credits,” are tradable instruments which can be used to meet voluntary renewable energy targets as well as to meet compliance requirements for renewable energy policies. A REC is a certificate that indicates the generation of one megawatt hour (MWh) of electricity from an eligible source of renewable power. Each REC denotes the underlying generation source, location of generation, and year of generation (a.k.a. “vintage”). RECs are often considered to represent a claim to the environmental attributes associated with renewable energy generation.
Why do companies purchase RECs?
RECs are a flexible tool to help achieve clean energy goals and support the renewable energy market. They can be attractive to companies in regions where green pricing programs are not offered or are insufficient or where policy support for on-site projects is lacking. By purchasing RECs, businesses do not need to alter existing power contracts to obtain green power. Additionally, RECs are not limited by geographic boundaries or transmission constraints. For corporations with facilities in multiple states or energy grids, a consolidated REC procurement can be part of a strategy to meet overall clean energy goals.
Read Excerpt: The Bottom Line on Renewable Energy Certificates by WRI.
There are several established REC programs throughout the world.
See: Table 10 from Policies for Enabling Corporate Sourcing of Renewable Energy Internationally: A 21st Century Power Partnership Report by NREL, Center for Resource Solutions, WRI, and IRENA.
Next, Understand Unbundled RECs
Corporate buyers can buy “unbundled” RECs to claim credit for the renewable electricity being generated, no matter where the electricity actually flows. In this method, the corporate buyer continues to purchase electricity from the supplier, and additionally purchases RECs to claim investment in renewable energy generation.
See: Figure 2.2 from Corporate Sourcing of Renewables: Market and Industry Trends by IRENA.
This is a simple, short-term, low-risk procurement option. However, REC pricing can be more or less expensive than standard utility tariffs, and there are other disadvantages to this approach as well.
See: Table 9 from Policies for Enabling Corporate Sourcing of Renewable Energy Internationally: A 21st Century Power Partnership Report by NREL, Center for Resource Solutions, WRI, and IRENA.
For small and medium-sized enterprises who may not have the capacity to engage in more complex procurement strategies, unbundled RECs can be an effective way of sourcing renewable energy.
See: Box 1.1 on page 30 from Corporate Sourcing of Renewables: Market and Industry Trends by IRENA.
Now, Learn About Bundled RECs
It is also common for corporations to acquire “bundled” RECs, in which the REC is sold together with its associated energy.
Bundled RECs are commonly associated with third-party PPAs or other green procurement programs, such as utility green tariffs or utility green pricing.
In green pricing programs, corporate buyers procure RECs – but not necessarily the electricity itself – on a short term basis through an added fee on their utility bill. This implies that the renewable energy doesn’t necessarily have to be generated close to the buyer.
With a green tariff, corporate buyers procure REC-verified electricity from their utility through a special tariff or contract, typically associated with a new renewable energy project and committing for a longer term.
Read Excerpt: Pages 13-14 of Policies for Enabling Corporate Sourcing of Renewable Energy Internationally: A 21st Century Power Partnership Report by NREL, Center for Resource Solutions, WRI, and IRENA.
The key difference between the utility programs is that for a green tariff, the corporate buyer obtains electricity associated with a particular project or projects. On the other hand, with a green pricing product, the corporate buyer obtains RECs associated with the renewable electricity the utility provides, regardless of source.
See: Figures 2.5 and 2.6 from Corporate Sourcing of Renewables: Market and Industry Trends by IRENA.
Suggested Actions & Next Steps
- Learn more: See Section 3.3 to dive deeper into each REC option.
- Think it over: Think through REC-based procurement products. Do you know of any suppliers offering such programs? Have you heard of other companies claiming renewable energy investment through RECs? Is it a priority for your company to procure renewable energy sooner rather than later?
- Write it down: Based on your initial thoughts and impressions, make a pros and cons list for this procurement method.
- Reference: Philippines Procurement Guidebook, Renewable energy snapshot: Vietnam, Colombia Procurement Guidebook, Taiwan market briefing, REC overview in China, Japan market briefing, Australian market report and USA Procurement Guidebook.