Everything You Need to Know About Renewable Energy Credits (RECs)

For corporate reduction of greenhouse gas emissions, the time to start making progress is now. But if you’re spearheading a massive reduction effort—spanning multiple regions, countries, or even continents—where do you begin to create an impact?

Companies that wish to reduce their carbon footprint often start by offsetting their electricity consumption with Renewable Energy Credits (RECs). These credits may come from a marketplace, virtual power purchase agreements (essentially buying bulk RECs from a specific project over a period of time), or green tariff programs through a utility. They may be sold “bundled” (i.e., with the associated energy) or “unbundled” (separate from the associated energy). 

Companies building a more sophisticated strategy may also add, or wholly focus on, direct procurement through power purchase agreements (i.e., buying both energy and RECs associated with that energy’s production). RECs may also unlock the ability to support expanded clean energy sources in the future.   

In this article, we’ll focus on how RECs work, the value they provide, and possible benefits or drawbacks associated with REC usage, depending on where and how they are procured.

What is a Renewable Energy Credit (REC)?

A Renewable Energy Credit, or REC, is an industry-wide standard unit of measurement that gives the owner of the REC specific property rights to the non-energy attributes of renewable electricity that is generated. RECs are considered energy commodities, and as such, they can be sold, purchased, or traded.  

The Environment Protection Agency (EPA) defines RECs as follows:

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 megawatt-hour (MWh) of electricity is generated and delivered to the electricity grid from a renewable energy resource.

How Do RECs Work?

To understand RECs, you must first know that only certain types of energy are eligible for RECs; energy categories must be renewable in nature but still flow into the power grid (meaning not consumed onsite). Renewable energy categories eligible for the REC procurement process include solar, wind, hydroelectric, biomass, and geothermal.

It is not always possible to accurately know and track what’s coming in and out of the power grid (including where it was sourced or needs to go), and RECs are a verified solution for this issue—particularly as it relates to emissions tracking and reduction.

When it comes to REC ownership, renewable energy is generated on behalf of the owner of the corresponding credit. As an instrument of measurement, RECs are ideal for tracking and substantiating renewable energy claims made by businesses and organizations.

Sale and Trade Process

The REC sales process includes multiple options, depending on how corporations want to procure their renewable energy credits. For example, you might use one of the following options.

  • Purchase unbundled RECs Unbundled RECs are generated by a renewable energy project but not sold as part of the physical output (locally). This is perhaps the most flexible and available choice, but it does not necessarily provide locational (i.e., potential emissionality) or additionality benefits.
  • Purchase RECs through a Virtual Power Purchase Agreement (VPPA) – VPPAs can be an asset to customers that are looking for a strictly financial contract or agreement for RECs at a fixed price on the market.
  • Purchase RECs as part of a (Physical) Purchase Power Agreement (PPA) – This method directly procures clean energy from a generating project (with or without the RECs associated with it).

An important consideration when using RECs in a corporate energy strategy involves Green-E Certified RECs (a certification structure developed by the Center for Resource Solutions. Using a Green-E certified broker is a proven way to obtain reputable RECs – meaning ones that won’t be double-counted – in your emissions reductions plan. 

Should My Organization Invest in RECs?

If your organization has a vested interest in renewable energy procurement or creation, but you operate out of leased space that doesn’t allow you to make onsite improvements (such as installing solar panels or designing in-house energy-efficient projects), RECs can be a key tool to help you accomplish your goals. 

Moreover, RECs are a signal that your organization is looking to:

  • Support clean, renewable energy usage on a broad scale
  • Reduce measurable carbon emissions in your operations or supply chain
  • Help meet or advance public environmental goals in order to stay accountable

Leveraging RECs is not the only way to take responsibility, 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.

Are There Any Drawbacks of Investing in RECs?

Based on specific scenarios, there are a few potential downsides to investing in RECs. For example, if your organization’s RECs are bought unbundled from existing projects (those that are not on your facilities’ regional grid), then they could have less decarbonization impact in comparison to those being generated by new projects coming online. 

This situation corresponds to the benefit of additionality, in which the owner of the REC can essentially claim partial responsibility for emissions-reducing projects that wouldn’t have happened otherwise. The common denominator, in this scenario, involves the players in the market looking to make carbon offsets. 

Additionally, procuring unbundled RECs from existing projects limits any potential “emissionality” benefit as well. Emissionality refers to benefits from renewable energy projects that help reduce grid emissions on a regional grid, based on how much emissions each megawat-hour of clean energy displaces from higher-carbon energy sources on that grid. 

Benefits of Renewable Energy Certificates (RECs)

Why should global businesses care about seeking RECs? Are the tradeoffs and investment really worth it? 

To answer this question honestly and accurately, it’s first important to acknowledge that RECs aren’t a magic eraser for carbon emissions. RECs don’t remove or eliminate unclean energy, but they do offset them – and depending on how the purchased RECs are sourced, they can have more or less environmental impact. 

But for companies getting started on their decarbonization journey, there are numerous advantages to using RECs to displace greenhouse gas emissions in the environment.

Businesses Reduce their Carbon Footprint

The overarching advantage is that procuring RECs ultimately points companies on a path toward carbon emissions reduction. Holistically, this means that RECs support a reduction in pollution and greenhouse gas emissions, which undeniably harm the environment and create worldwide issues as a result of global warming.

RECs Encourage Renewable Energy Production

In terms of displaying less responsible sources of, renewable energy credits support the process of creating clean and renewable energy instead. According to EnergySage, this benefit depends on a process “that produces no fossil fuel-based greenhouse gas emissions or other pollutants. This makes renewable electricity cleaner and better for the environment than burning natural gas or coal.” 

In this scenario, some of the kickbacks can also be understood based on simple economic principles. If there is less demand for non-renewable energy sources and production, and more demand for clean sources, the production of renewable sources increases. 

Planning to source clean energy from new projects helps send that signal and drive new capacity on regional grids that serve your facilities.

Reduces (For Now) the Need for Capital Investments

Another advantage, perhaps for smaller companies, is that buying RECs supports renewable energy supply without significant capital expenditures, costs that could be passed on to consumers down the line. Many businesses lease their space and can’t necessarily improve their facilities by installing onsite renewables, like solar panels, geothermal, energy storage or other technologies – or aren’t in a position to invest in deeper energy efficiency upgrades/retrofits. Instead of putting off any emissions reduction work altogether, RECs offer an initial option for those who want to offset their use of grid power with renewable energy from different suppliers and locations.

Additional Factors to Consider When Using RECs

Critics of renewable energy credits may caution against purchasers overly relying on these instruments as an accurate form of carbon reduction. There are concerns around double-counting, which makes it possible (although not guaranteed) for renewable energy to be represented more than once, leading to inaccurate environmental goals. 

Since brand new energy sources aren’t necessarily being built as a result of unbundled REC purchases, owners must recognize that this process is not the same as reducing your carbon footprint through more direct energy strategies.

Finally, RECs are regulated differently in separate places, locations, and utilities. Having access to registries and Green-e certification are critical to preventing double-counting and sourcing high quality RECs. 

But in order to be most effective, many standards need to work collectively alongside one another. New laws taking effect (such as New York City’s Local Law 97) are limiting the extent to which companies decarbonizing their offices and facilities can claim to do so using RECs. As a result, corporations must assess how they will comply with modern requirements that could potentially change the way carbon accounting has been handled most recently.

Be Proactive in Renewable Energy—Starting Now

At Cleartrace, we believe that decarbonizing is a journey, not an endpoint. That’s because global energy supplies and prices fluctuate over time, power plants retire and others are constructed, and the overall grid mix that supports a company’s operations continually changes.

Understanding these concepts helps your team prioritize not only the power you’re sourcing, but where, when, and how you do it as a way to reach the goals you establish.

When you’re ready to take action on your decarbonization goals, we’ll connect with a Cleartrace expert. Book your Cleartrace demo today