Green tags
Encyclopedia
Renewable Energy Certificates (RECs), also known as Green tags, Renewable Energy Credits, Renewable Electricity Certificates, or Tradable Renewable Certificates (TRCs), are tradable, non-tangible energy commodities in the United States that represent proof that 1 megawatt-hour (MWh) of electricity
was generated from an eligible renewable energy
resource (renewable electricity). Solar Renewable Energy Certificates
(SRECs) are RECs that are specifically generated by solar energy.
These certificates can be sold and traded or bartered, and the owner of the REC can claim to have purchased renewable energy. According to the U.S. Department of Energy
's Green Power Network, RECs represent the environmental attributes of the power produced from renewable energy projects and are sold separately from commodity electricity. While traditional carbon emissions trading
programs promote low-carbon technologies by increasing the cost of emitting carbon, RECs can incentivize carbon-neutral renewable energy by providing a production subsidy to electricity generated from renewable sources. It is important to understand that the energy associated with a REC is sold separately and is used by another party. The consumer of a REC receives only a certificate.
In states that have a REC program, a green energy provider (such as a wind farm) is credited with one REC for every 1,000 kWh or 1 MWh of electricity it produces (for reference, an average residential customer consumes about 800 kWh in a month). A certifying agency gives each REC a unique identification number to make sure it doesn't get double-counted. The green energy is then fed into the electrical grid (by mandate), and the accompanying REC can then be sold on the open market.
Once in the grid, renewable energy is impossible to separate from the conventionally generated energy. This makes purchasing of a REC equal to purchasing a claim, that the REC owner consumed energy from the renewable portion of the whole energy in the grid. Therefore REC purchase does not affect how much renewable energy was actually generated - only how it was distributed.
Compliance markets are created by a policy that exists in 29 U.S. states, plus the District of Columbia and Puerto Rico, called Renewable Portfolio Standard
. In these states, the electric companies are required to supply a certain percent of their electricity from renewable generators by a specified year. For example, in California the law is 33% renewable by 2020, whereas New York has a 24% requirement by 2013. Electric utilities in these states demonstrate compliance with their requirements by purchasing RECs; in the California example, the electric companies would need to hold RECs equivalent to 33% of their electricity sales.
Voluntary markets are ones in which customers choose to buy renewable power out of a desire to use renewable energy. Most corporate and household purchases of renewable energy are voluntary purchases. Renewable energy generators located in states that do not have a Renewable Portfolio Standard
can sell their RECs to voluntary buyers, usually at a cheaper price than compliance market RECs.
Critics point out, however, the flaw in this system is that it does not require any proof of displaced polluting power. Since some renewable energy sources, most notably wind power, are intermittent and variable, their production does not displace an equivalent amount of other sources per kW of installed capacity.. They do, however, displace, on a per-kWh-basis, electricity from combustion sources, thus reducing greenhouse gas emissions and byproducts: nitrogen, sulfur, and other oxides and minerals.
REC Marketers=
RECs can be traded directly from buy to seller but 3rd party marketers, brokers, or asset managers are commonly found in the marketplace. Renewable generation facilities will often sell their credits to these entities who then resell them on the market at a later date. http://apps3.eere.energy.gov/greenpower/markets/certificates.shtml?page=2
, for example, tend to be more valuable in the 16 states that have set aside a portion of the RPS specifically for solar energy. This differentiation is intended to promote diversity in the renewable energy mix which in an undifferentiated, competitive REC market, favors the economics and scale achieved by wind farms. Current spot prices for SRECs in most states with solar portfolio standards can be viewed at SRECTrade. For example, prices in July, 2010 ranged from $255/SREC in Delaware to as high as $665/SREC in New Jersey. In Canada, 2008-09 BCHydro offers $3 /MWh for "green attributes", for long-term contracts, 20 plus years. Many Independent Power Producers believe that this is much less than "fair market value", but have no alternative.
While the value of RECs fluctuate, most sellers are legally obligated to "deliver" RECs to their customers within a few months of their generation date. Other organizations will sell as many RECs as possible and then use the funds to guarantee a specific fixed price per MWh generated by a future wind farm, for example, making the building of the wind farm a financially viable prospect. The income provided by RECs, and a long-term stabilized market for tags can generate the additional incentive needed to build renewable energy plants.
Whereas air and water pollution travels across state and national boundaries irrespective of its origin, the value of RECs and the emergence of RECs markets depend very much on the markets created state by state through legislative action to mandate a Renewable Portfolio Standard
. Such a balkanized approach to establishing RECs markets and incentives state by state creates issues of equity as some states could legitimately claim that their neighboring states (and their electricity consumers) with voluntary RPS are operating as free riders of pollution prevention, paid for by states (and their electricity consumers) with mandatory RPS. We can learn from EPA's SOx and NOx cap and trade program regarding how the principle of additionality with a national standard provided a benchmark for measuring and validating the commodification of pollution prevention credits that lead to market-driven initiatives with proven results in improving regional and national air quality.
In states with a Renewable Portfolio Standard
, a RECs purchase enables the utility company to meet its minimum renewable electricity percentage without having to install that renewable generating capacity itself, regardless of the source of generating renewable energy. By analogy, in the EPA cap and trade program, a "clean" utility in one state can sell its NOx credits to a "dirty" utility in another state that would otherwise have to install additional smokestack scrubbers.
The United States Environmental Protection Agency
claims to have the highest percentage use of green power of any federal agency. In 2007, it offset the electricity use of 100% of its offices. The Air Force is the largest purchaser in the US government in absolute terms, purchasing 899,142 MWh worth of RECs. Among colleges and universities, the University of Pennsylvania in Philadelphia is the largest purchaser of RECs, buying 192,727 MWh of RECs from wind power. The corporate leader is Intel, with 1,302,040 MWh purchased in 2007, and the largest purchaser among retailers is Whole Foods, which purchased 509,104 MWH, or enough RECs to offset 100% of its electricity needs.
Electricity
Electricity is a general term encompassing a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena, such as lightning, static electricity, and the flow of electrical current in an electrical wire...
was generated from an eligible renewable energy
Renewable energy
Renewable energy is energy which comes from natural resources such as sunlight, wind, rain, tides, and geothermal heat, which are renewable . About 16% of global final energy consumption comes from renewables, with 10% coming from traditional biomass, which is mainly used for heating, and 3.4% from...
resource (renewable electricity). Solar Renewable Energy Certificates
Solar Renewable Energy Certificates
Solar Renewable Energy Certificates or Solar Renewable Energy Credits are a form of Renewable Energy Certificate or "Green tag". SRECs exist in states that have Renewable Portfolio Standard legislation with specific requirements for solar energy, usually referred to as a "solar carve-out"...
(SRECs) are RECs that are specifically generated by solar energy.
These certificates can be sold and traded or bartered, and the owner of the REC can claim to have purchased renewable energy. According to the U.S. Department of Energy
United States Department of Energy
The United States Department of Energy is a Cabinet-level department of the United States government concerned with the United States' policies regarding energy and safety in handling nuclear material...
's Green Power Network, RECs represent the environmental attributes of the power produced from renewable energy projects and are sold separately from commodity electricity. While traditional carbon emissions trading
Emissions trading
Emissions trading is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants....
programs promote low-carbon technologies by increasing the cost of emitting carbon, RECs can incentivize carbon-neutral renewable energy by providing a production subsidy to electricity generated from renewable sources. It is important to understand that the energy associated with a REC is sold separately and is used by another party. The consumer of a REC receives only a certificate.
In states that have a REC program, a green energy provider (such as a wind farm) is credited with one REC for every 1,000 kWh or 1 MWh of electricity it produces (for reference, an average residential customer consumes about 800 kWh in a month). A certifying agency gives each REC a unique identification number to make sure it doesn't get double-counted. The green energy is then fed into the electrical grid (by mandate), and the accompanying REC can then be sold on the open market.
Once in the grid, renewable energy is impossible to separate from the conventionally generated energy. This makes purchasing of a REC equal to purchasing a claim, that the REC owner consumed energy from the renewable portion of the whole energy in the grid. Therefore REC purchase does not affect how much renewable energy was actually generated - only how it was distributed.
Background
There are two main markets for renewable energy certificates in the United States - compliance markets and voluntary markets.Compliance markets are created by a policy that exists in 29 U.S. states, plus the District of Columbia and Puerto Rico, called Renewable Portfolio Standard
Renewable Portfolio Standard
A Renewable Portfolio Standard is a regulation that requires the increased production of energy from renewable energy sources, such as wind, solar, biomass, and geothermal...
. In these states, the electric companies are required to supply a certain percent of their electricity from renewable generators by a specified year. For example, in California the law is 33% renewable by 2020, whereas New York has a 24% requirement by 2013. Electric utilities in these states demonstrate compliance with their requirements by purchasing RECs; in the California example, the electric companies would need to hold RECs equivalent to 33% of their electricity sales.
Voluntary markets are ones in which customers choose to buy renewable power out of a desire to use renewable energy. Most corporate and household purchases of renewable energy are voluntary purchases. Renewable energy generators located in states that do not have a Renewable Portfolio Standard
Renewable Portfolio Standard
A Renewable Portfolio Standard is a regulation that requires the increased production of energy from renewable energy sources, such as wind, solar, biomass, and geothermal...
can sell their RECs to voluntary buyers, usually at a cheaper price than compliance market RECs.
Critics point out, however, the flaw in this system is that it does not require any proof of displaced polluting power. Since some renewable energy sources, most notably wind power, are intermittent and variable, their production does not displace an equivalent amount of other sources per kW of installed capacity.. They do, however, displace, on a per-kWh-basis, electricity from combustion sources, thus reducing greenhouse gas emissions and byproducts: nitrogen, sulfur, and other oxides and minerals.
REC Marketers=
RECs can be traded directly from buy to seller but 3rd party marketers, brokers, or asset managers are commonly found in the marketplace. Renewable generation facilities will often sell their credits to these entities who then resell them on the market at a later date. http://apps3.eere.energy.gov/greenpower/markets/certificates.shtml?page=2
Prices
Prices depend on many factors, such as the vintage year the RECs were generated, location of the facility, whether there is a tight supply/demand situation, whether the REC is used for RPS compliance, even the type of power created. Solar renewable energy certificates or SRECsSolar Renewable Energy Certificates
Solar Renewable Energy Certificates or Solar Renewable Energy Credits are a form of Renewable Energy Certificate or "Green tag". SRECs exist in states that have Renewable Portfolio Standard legislation with specific requirements for solar energy, usually referred to as a "solar carve-out"...
, for example, tend to be more valuable in the 16 states that have set aside a portion of the RPS specifically for solar energy. This differentiation is intended to promote diversity in the renewable energy mix which in an undifferentiated, competitive REC market, favors the economics and scale achieved by wind farms. Current spot prices for SRECs in most states with solar portfolio standards can be viewed at SRECTrade. For example, prices in July, 2010 ranged from $255/SREC in Delaware to as high as $665/SREC in New Jersey. In Canada, 2008-09 BCHydro offers $3 /MWh for "green attributes", for long-term contracts, 20 plus years. Many Independent Power Producers believe that this is much less than "fair market value", but have no alternative.
While the value of RECs fluctuate, most sellers are legally obligated to "deliver" RECs to their customers within a few months of their generation date. Other organizations will sell as many RECs as possible and then use the funds to guarantee a specific fixed price per MWh generated by a future wind farm, for example, making the building of the wind farm a financially viable prospect. The income provided by RECs, and a long-term stabilized market for tags can generate the additional incentive needed to build renewable energy plants.
REC certification
RECs are known under functionally equivalent names such as Green Tags or Tradable Renewable Certificates (TRCs), depending on the market. The U.S. currently does not have a national registry of RECs issued. The Center for Resource Solutions administers a voluntary program which attempts to ensure RECs are properly accounted for and no double counting takes place. Under the Green-e Energy program, participants are required to submit to an annual Verification Process Audit of all eligible transactions to ensure the RECs meet the requirements for certification. The certification process requires 3rd party verification to be performed by an independent certified public account or a certified internal auditor. The CRS maintains a list of auditors who meet the criteria to be listed on the program website. Increasingly RECs are being assigned unique ID numbers and tracked through regional tracking systems such as WREGIS, NEPOOL, GATS, ERCOT, and M-RETS.Qualifying technologies
The following generation technologies qualify as producers of RECs:- Solar electricPhotovoltaicsPhotovoltaics is a method of generating electrical power by converting solar radiation into direct current electricity using semiconductors that exhibit the photovoltaic effect. Photovoltaic power generation employs solar panels composed of a number of solar cells containing a photovoltaic material...
- WindWind powerWind power is the conversion of wind energy into a useful form of energy, such as using wind turbines to make electricity, windmills for mechanical power, windpumps for water pumping or drainage, or sails to propel ships....
- GeothermalGeothermal powerGeothermal energy is thermal energy generated and stored in the Earth. Thermal energy is the energy that determines the temperature of matter. Earth's geothermal energy originates from the original formation of the planet and from radioactive decay of minerals...
- Low Impact Hydropower (small-run-of-the-riverRun-of-the-river hydroelectricityRun-of-the-river hydroelectricity is a type of hydroelectric generation whereby a considerably smaller water storage called pondage or none is used to supply a power station. Run-of-the-river power plants are classified as with or without pondage...
facilities, not ones that require large dams and reservoirs, or affecting river flows adversely.) - BiomassBiomassBiomass, as a renewable energy source, is biological material from living, or recently living organisms. As an energy source, biomass can either be used directly, or converted into other energy products such as biofuel....
, biofuelBiofuelBiofuel is a type of fuel whose energy is derived from biological carbon fixation. Biofuels include fuels derived from biomass conversion, as well as solid biomass, liquid fuels and various biogases...
s and landfill to gas - Fuel cellFuel cellA fuel cell is a device that converts the chemical energy from a fuel into electricity through a chemical reaction with oxygen or another oxidizing agent. Hydrogen is the most common fuel, but hydrocarbons such as natural gas and alcohols like methanol are sometimes used...
s (only if powered by hydrogenHydrogenHydrogen is the chemical element with atomic number 1. It is represented by the symbol H. With an average atomic weight of , hydrogen is the lightest and most abundant chemical element, constituting roughly 75% of the Universe's chemical elemental mass. Stars in the main sequence are mainly...
produced by one of the above approved generators, not from fossil fuelFossil fuelFossil fuels are fuels formed by natural processes such as anaerobic decomposition of buried dead organisms. The age of the organisms and their resulting fossil fuels is typically millions of years, and sometimes exceeds 650 million years...
s). - In some states, Combined Heat & Power Systems
RECs and additionality
"Additionality" in the context of greenhouse gas (GHG) regulations means that a purchased renewable energy certificate introduces new renewable energy onto the electricity grid beyond what would have happened without the project or "business as usual". The U.S. Environmental Protection Agency (EPA) favors performance based measures of additionality, such as the megawatt hour (MWh) equivalent per REC.Whereas air and water pollution travels across state and national boundaries irrespective of its origin, the value of RECs and the emergence of RECs markets depend very much on the markets created state by state through legislative action to mandate a Renewable Portfolio Standard
Renewable Portfolio Standard
A Renewable Portfolio Standard is a regulation that requires the increased production of energy from renewable energy sources, such as wind, solar, biomass, and geothermal...
. Such a balkanized approach to establishing RECs markets and incentives state by state creates issues of equity as some states could legitimately claim that their neighboring states (and their electricity consumers) with voluntary RPS are operating as free riders of pollution prevention, paid for by states (and their electricity consumers) with mandatory RPS. We can learn from EPA's SOx and NOx cap and trade program regarding how the principle of additionality with a national standard provided a benchmark for measuring and validating the commodification of pollution prevention credits that lead to market-driven initiatives with proven results in improving regional and national air quality.
In states with a Renewable Portfolio Standard
Renewable Portfolio Standard
A Renewable Portfolio Standard is a regulation that requires the increased production of energy from renewable energy sources, such as wind, solar, biomass, and geothermal...
, a RECs purchase enables the utility company to meet its minimum renewable electricity percentage without having to install that renewable generating capacity itself, regardless of the source of generating renewable energy. By analogy, in the EPA cap and trade program, a "clean" utility in one state can sell its NOx credits to a "dirty" utility in another state that would otherwise have to install additional smokestack scrubbers.
The United States Environmental Protection Agency
United States Environmental Protection Agency
The U.S. Environmental Protection Agency is an agency of the federal government of the United States charged with protecting human health and the environment, by writing and enforcing regulations based on laws passed by Congress...
claims to have the highest percentage use of green power of any federal agency. In 2007, it offset the electricity use of 100% of its offices. The Air Force is the largest purchaser in the US government in absolute terms, purchasing 899,142 MWh worth of RECs. Among colleges and universities, the University of Pennsylvania in Philadelphia is the largest purchaser of RECs, buying 192,727 MWh of RECs from wind power. The corporate leader is Intel, with 1,302,040 MWh purchased in 2007, and the largest purchaser among retailers is Whole Foods, which purchased 509,104 MWH, or enough RECs to offset 100% of its electricity needs.
See also
- Carbon offsetCarbon offsetA carbon offset is a reduction in emissions of carbon dioxide or greenhouse gases made in order to compensate for or to offset an emission made elsewhere....
- Climate change in Sweden#Policy - Renewable energy certificate system
- Energy accountingEnergy accountingEnergy accounting is a system used within industry, where measuring and analyzing the energy consumption of different activities is done to improve energy efficiency.-Energy management:...
- Energy developmentEnergy developmentEnergy development is the effort to provide sufficient primary energy sources and secondary energy forms for supply, cost, impact on air pollution and water pollution, mitigation of climate change with renewable energy....
- Energy economicsEnergy economicsEnergy economics is a broad scientific subject area which includes topics related to supply and use of energy in societies. Due to diversity of issues and methods applied and shared with a number of academic disciplines, energy economics does not present itself as a self contained academic...
- Energy Efficiency Credit
- Green certificateGreen certificateA Green Certificate - terminology used in Europe - also known as Renewable Energy Certificates in the USA, are a tradable commodity proving that certain electricity is generated using renewable energy sources. Typically one certificate represents generation of 1 Megawatthour of electricity...
(Europe) - Green energy
- Green tax shift
- Guarantee of originGuarantee of originSince electricity is a commodity, it used to be impossible to claim any specific quality for a particular quantity of electricity. However the use of guarantees of origin is changing this...
- Renewable Energy Certificates RegistryRenewable Energy Certificates RegistryThe Renewable Energy Certificates Registry is an internet based registry system that is required by the Australian Renewable Energy Act 2000 .The REC-registry is dedicated to:...
- Australia - Renewable Energy Certificate SystemRenewable Energy Certificate SystemThe Renewable Energy Certificate System is a voluntary system for international trade in renewable energy certificates that was created by RECS International to stimulate international development of renewable energy...
- Europe - Renewable energy development
- Renewable Energy PaymentsRenewable energy paymentsRenewable Energy Payments are a competitive alternative to Renewable Energy Credits .Although the intent with both methods is the same, to stimulate growth in the alternative and renewable energy space, REP's have proven to offer benefits to local jobs, businesses and economies while making the...
- Renewables
- Renewables Obligation Certificates (UK)
- Solar-charged vehicle
- Solar Renewable Energy CertificatesSolar Renewable Energy CertificatesSolar Renewable Energy Certificates or Solar Renewable Energy Credits are a form of Renewable Energy Certificate or "Green tag". SRECs exist in states that have Renewable Portfolio Standard legislation with specific requirements for solar energy, usually referred to as a "solar carve-out"...
External links
- Green Power Network's RECs page (EERE).
- Green Power Partnership (U.S. Environmental Protection Agency).
- EPA
- REC Tracking Systems
- U.S. Department Of Energy - Green Power Markets Comparison Table