Renewable Energy Certificates (RECs) are a critical tool for corporations aiming to reduce their Scope 2 Greenhouse Gas (GHG) emissions. These certificates allow companies to match their electricity consumption with renewable energy generation (one REC represents one megawatt-hour (MWh) of clean energy).
While RECs are not a substitute for direct energy reduction or other decarbonization efforts like energy efficiency projects and equipment upgrades, they play a valuable role in a comprehensive sustainability strategy by sending market signals for demand. In this article, we will explore how RECs work, their value, and the benefits or drawbacks associated with their use.
What is a Renewable Energy Certificate (REC)?
Energy Attribute Certificates (EACs) represent the environmental benefits of renewable energy generation. RECs are a specific type of EAC used in the United States and other countries, while other forms include international RECs (i-RECs), Guarantees of Origin (GOs), and Renewable Energy Guarantees of Origin (REGOs). According to the Environmental Protection Agency (EPA), “A renewable energy certificate is a market-based instrument that represents the property rights to the environmental, social, and other non-power attributes of renewable electricity generation. RECs are issued when one MWh of electricity is generated and delivered to the electricity grid from a renewable energy resource.”
How are RECs Created and Tracked?
RECs document the production of a MWh of renewable energy from sources like solar, wind, geothermal, biomass, and hydropower. Each certificate contains data about the renewable energy project, including the type of project, generation date, facility information, and a tracking number. This certificate, while representing the renewable attribute of the energy, is separate from the physical electricity generated. Ownership of the REC signifies the rights to the environmental attributes of the renewable electricity generation.
In the U.S., multiple certificate tracking systems ensure that RECs are accounted for and not double-counted. A REC can only be held by one organization at a time. These tracking systems, or registries, are responsible for registering the renewable generation and issuing RECs to generators, confirming that 1 MWh of renewable electricity was delivered to the grid. Once an organization uses a REC, it is retired and taken out of circulation. The party whose name has the REC retired ultimately gets the “credit” for that renewable energy claim.
You can find a map of the U.S.-based REC tracking systems here (image source):
How Do You Buy RECs?
There are several pathways to procure RECs, depending on the volume needed, long-term goals, risk tolerance around power and attribute commodity pricing and market volatility, and budget:
- Spot Purchase of Unbundled RECs: A one-time purchase of RECs with varying volume and delivery terms, typically through a marketplace, broker, or intermediary.
- Power Purchase Agreement (PPA): A fixed price for physical delivery of power over a designated period, usually over ten years. These agreements can include bundled RECs.
- Virtual PPA (vPPA or Financial PPA): A fixed price for the RECs from a renewable project over a fixed period, generally over ten years, without the physical delivery of power.
- Unbundled Forward REC Purchase: Buying RECs at a fixed price in a forward off-take agreement over varying timelines.
- Green Tariff/Sleeved PPA: Facilitated through your utility, which enters into a long-term contract with a third-party green power generator and contracts with the off-taker to purchase the RECs and electricity.
Why Should Your Organization Buy RECs and How Can They Help Meet Sustainability Goals?
RECs are a tool to meet sustainability goals such as reducing or zeroing out Scope 2 emissions, 100% Renewable Energy claims, and advanced proving of 24/7 Carbon-Free Energy (CFE). They signal demand for bringing more new clean energy to the grid, supporting additionality, and investing in cleaning up dirtier grids. RECs can also promote environmental justice by investing in renewable projects in communities with less access to clean energy.
What Claims Can You Make When Using RECs?
While RECs and carbon offsets both contribute to decarbonization, they serve different purposes. Carbon offsets represent one metric ton of carbon dioxide reduced, avoided, or removed and apply to any portion of an entity’s carbon footprint. In contrast, RECs represent 1 MWh of clean energy and are used for market-based Scope 2 emissions accounting. Organizations can claim to use renewable electricity from low or zero-emission sources when they retire RECs, even if the physical power delivered to the site was not green.
What Are the Advantages of Investing in RECs?
Investing in RECs brings more clean energy to the grid, potentially displacing coal and other fossil fuels in dirtier grids. They are part of a holistic sustainability approach, complementing direct decarbonization, carbon offsets, insetting, and on-site renewable generation. While energy efficiency projects and other capital investments require long-term planning and budgeting, RECs offer an interim solution.
Additional Considerations
The granularity of RECs, as well as regional differences in voluntary versus compliance RECs and renewable portfolio standards (RPS), require careful consideration. Understanding regulatory requirements and green claims laws is crucial before investing in RECs to make accurate claims such as carbon neutrality or 100% renewable energy. Not all RECs are created equal; investing in projects that are additional or have emissionality benefits can lead to greater positive impact.
Leveraging RECs is not the only way to take action, and it’s vital to have personnel within your organization who truly understand the procurement process and know how to source these instruments responsibly and ethically. While RECs are a tool for investing in decarbonization, they should not be the only lever pulled on the road to net-zero.
Getting Started
At Cleartrace, we view decarbonization as a journey, not a destination. Energy supplies and prices fluctuate, power plants retire and new ones are built, and the overall grid mix changes. We understand that your energy procurement strategy is complex and evolving to meet your decarbonization goals and your financial goals. Whether your company starts with spot purchases of unbundled RECs or strategically pursues PPAs to bring additional supply to the grid, understanding these concepts helps prioritize the power you’re sourcing, and where, when, and how you do it to reach your goals.
When you’re ready to take action on your decarbonization goals and track progress transparently, connect with a Cleartrace expert. Book your Cleartrace demo today.
