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Renewable Energy Credits (RECs), Explained

Recently, we reported that New York Governor Andrew Cuomo would be allowing New York building owners to purchase renewable energy credits (RECS) in order to comply with Local Law 97 (LL97), a groundbreaking new law which aims to reduce emissions in the Big Apple. Now, we’d like to equip you with everything you need to know about renewable energy credits – what they are, how they work, and how they’re produced. In this article, we’ll discuss all these things, as well as outline who buys RECS and what their benefits are.

So, What Exactly Are Renewable Energy Credits?

Renewable energy credits are tradable, non-tangible commodities that represent proof that 1 MWh of electricity was generated from a renewable energy resource and was then fed into the shared system of power lines that transport energy.

How Do Renewable Energy Credits Work?

Since electricity in the grid comes from many different places and sources, there is traditionally no way to know exactly what energy source your electricity comes from. It could be coming from clean renewable sources like wind and solar or more harmful fossil fuels like oil. RECs are a solution to this issue. Companies may purchase RECs along with their electricity, and the RECs certify, as mentioned above, a certain amount of the electricity was from a renewable source. In essence, RECs transfer the renewable aspects of renewable energy to the company. Thus, when you pair renewable energy credits with electricity from the grid, renewable energy is being generated on your behalf.

How Are RECs Produced?

Renewable energy credits are produced when a renewable energy source (wind, solar, hydroelectric, etc.) generates one MWh of electricity and sends it to the grid. For example, if an onshore solar power facility produces 5 MWh of electricity, they have 5 renewable energy credits that they can either sell or keep. If a business buys those credits, they are buying the “renewable” part of the electricity from the wind farm and can then say that 5 MWh of their electricity came from a renewable source.

Once a REC has been sold, it cannot be purchased again. Each renewable energy credit has a unique number and includes information about where it was generated, what type of renewable source it came from, and the date it was generated. Additionally, the exchange of all RECs is tracked and recorded.

What are the Benefits of RECs?

RECs provide you with definite proof that you are using renewable energy, which investors and consumers love to see. Additionally, RECs negate the need to invest in capital intensive projects, like installing solar panels. They also serve as a means of reducing emissions without implementing stringent efficiency measures. This is ideal if you have a large portfolio of buildings or your company has branches in multiple locations. That being said, too much reliance on RECs can look bad for your company. In fact, some climate activists were displeased about Governor Cuomo allowing New York buildings to purchase RECs to comply with Local Law 97 because they feel it gives buildings the incentive to rely solely on RECs and do little to actually reduce their energy use or emissions. In today’s climate conscious world, keep in mind that some investors and consumers expect the companies they do business with to go the extra mile and make structural, sustainable changes.

RECs also encourage the production of renewable energy since it raises the demand. As the demand for renewable energy sources increases, energy companies increase the volume being produced, which makes renewable energy more plentiful (and cheaper, too!). With the threat of climate change continuing to loom, this is definitely a win for the planet.

Who Should Buy RECs?

RECs are ideal for environmentally conscious organizations that want to reduce their greenhouse gas emissions. (Two major companies which buy RECs are Whole Foods and Starbucks).

Renewable energy credits may be a good fit for your company if you:

  • want to support the renewable energy market
  • are facing difficulties installing solar panels or implementing efficiency projects at your home or business
  • want to reduce your energy use and carbon emissions
  • have ambitious environmental goals you are trying to reach

Note that some companies are required to purchase RECs. Electrical utility companies are obligated to have a certain amount of their electricity generation come from renewable resources. Some states have regulations called Renewable Portfolio Standards (RPSs) that set requirements for renewable energy use. Under these laws, utilities must provide renewable credits as proof that they are sourcing a set amount of their electricity from renewable resources.

How EnergyWatch Can Assist Your Company with Purchasing RECs

The process of understanding and purchasing RECs, along with all the components and risks that come with procuring renewable energy, is complex and tedious, but it is often necessary to make strategic energy purchases.  Your renewable energy procurement strategy should align with overall facility operations, and your energy rate consultant should understand how to structure contracts for demand-supply optimization.  Contact us to see how EnergyWatch makes it easier by providing market expertise and ensuring supply contract decisions are optimized for future operations at your facility.  Additionally, our software, WatchWire, will track your contracts to ensure their performance is meeting expectations.