Renewable energy has become more important than ever now since the world is starting to understand the importance of sustainability.
Thanks to numerous developments in renewable technologies in the past few years and even more so now with a 3-4% GDP, we are now in the phase where using renewable energy in our everyday lives has become much more viable.
Renewable energy sources
Renewable energy is produced through resources that replenish themselves continuously. Unlike fossil fuels (coal and gas) which could eventually be no longer available, renewable energy sources are unlimited and will never be depleted.
There are 5 kinds of renewable energy sources:
Solar: Solar energy is generated through harvesting sunlight.
Wind: Wind energy is generated by harvesting wind through turbines.
Hydroelectric: This energy is generated by using water stored in dams (or flowing in rivers) and then spinning it in turbines.
Geothermal: This is essentially thermal energy (heat) which is generated and stored in the earth.
Biomass: Biomass energy is produced from organic matter (plant or animal). This matter is heated, fermented, or burned to generate power in different forms.
What is a renewable energy certificate (REC)?
Also known as green energy certificate, an REC is proof that electricity (energy) has been generated from renewable energy resources.
It is a relatively new market-based instrument that enables individuals, businesses, and corporations to decrease the environmental impact of their energy use.
Consider this: when renewable energy is produced (by any of the resources listed above), two things are created. They are:
- The environmental benefits because the electricity was created without utilizing non-replenishable resources like gas or coal
A renewable energy certificate is a means to track these benefits in a quantified manner.
It is issued when one megawatt-hour of electricity is produced for the electric grid from a renewable energy source. Here are some of the attributes of an REC:
- Tracking system ID
- Certificate type
- Certificate Data
- Renewable facility location
- Renewable fuel type
- Project name
- Nameplate capacity of the project
- Project vintage (build date)
- Certificate unique identification number
- Certificate (generation) vintage
- Emissions rate of the renewable resource
- Eligibility for certification or RPS
- Utility to which project is interconnected
Depending on the market in which the REC is created, there may be other attributes associated with it.
How does a REC work?
When we receive electricity from the utility grids, we don’t really know how it was generated or where it originated from. But with a REC, electricity generated from renewable resources is accounted, tracked, and assigned ownership and use appropriately.
It should be noted that a REC that has been sold once cannot be bought again. All RECs are assigned unique numbers and they also include information regarding the renewable source they came from, where they were created, and the date of generation.
Every exchange of these certificates is tracked and recorded.
Legal Basis of RECs
RECs are supported by the regional electricity transmission authorities, different levels of governments, trade associations, and NGOs in the US. These are acceptable legal instruments through which the energy consumers can substantiate the claims of renewable energy generation.
If you want to know more about the legal basis, you can check out this paper published by the Center for Resource Solutions.
Electricity consumers use REC arbitrage to meet two objectives:
- Reduce the cost of their renewable electricity usage
- Prove that the electricity they are using has been generated through renewable energy sources.
REC Arbitrage is kind of a green power acquiring strategy that is used by consumers who:
- Buy renewable electricity directly from a renewable electricity project (like a power purchase agreement)
- Want to install self-financed renewable electricity projects.
Benefits of RECs
As we mentioned before, these green energy certificates prove that you are using renewable energy from the electric grid. In addition, they also give you substantial proof that you are using the energy without having to install renewable energy systems (like solar panels) at your home or place of business.
For business owners who have multiple offices, or those who lack the infrastructure to install solar panels, RECs offer them great flexibility. Thanks to these, you can reduce your carbon footprint on the planet.
Buying these certificates also supports the renewable energy market by increasing the demand, which in turn encourages increased supply and production of renewable energy.
This way, RECs not only help organizations meet their greenhouse gas emission objectives but they also boost the production of renewable energy.
Here are a few factors that can help you determine whether RECs will be a good option for you:
- Do you want to support the renewable energy market?
- Do you want to minimize your carbon footprint and environmental impact?
- Do you want to know where your electricity is coming from?
- Are you unable to install solar panels (or other renewable energy systems) at your home or place of business?
- Do you have environmental goals you are trying to reach?
If you answered “yes” to any of these questions, then RECs will be a fabulous fit for you.
Benefits to the environment
RECs have been gaining popularity because they encourage the production of energy generated without using any fossil fuels. Using renewable energy also dramatically reduces greenhouse gas emissions and several other hazardous pollutants that are damaging our planet.
In other words, electricity generated from renewable resources is cleaner and better for the environment as compared to electricity that is generated by burning coal or gas.
Who buys renewable energy certificates?
Broadly speaking, REC buyers fall into two categories: compliance and voluntary.
Compliance buyers: These REC buyers are electrical utility companies that have been mandated by law to generate a certain percentage of electricity from renewable sources. A few states have Renewable Portfolio Standards and regulations that specify the use of renewable energy.
Voluntary buyers: These REC purchasers are usually environmentally conscious individuals (homeowners) and organizations that are focused on decreasing their greenhouse gas emissions. Examples include corporations like Starbucks and Whole Foods.
Under these regulations, utilities have to prove that they are generating a set amount of electricity from renewable resources.
That’s where RECs come in. The utilities have to create the RECs themselves but if they fail to generate enough, they are required to buy them.