A Renewable Energy Certificate (REC) is a market-based instrument that serves as proof of ownership for one megawatt-hour (MWh) of electricity generated from a renewable energy source. After the renewable power has been supplied to the grid, the REC obtained can be traded on the open market as a commodity. These RECs can be sold to other entities, such as those generating pollution, to be used as carbon credits for offsetting their emissions.
Other terms used interchangeably with RECs are Green Tags, Tradable Renewable Certificates (TRCs), Renewable Electricity Certificates, and Renewable Energy Credits.
How Does Renewable Energy Certificate (REC) Function?
Renewable Energy Certificates (RECs) serve as a means of tracking and accounting for the entry of solar, wind, and other green energies into the electricity grid. Since renewable-generated electricity is indistinguishable from electricity generated by conventional means, a tracking mechanism is necessary.
The need for tracking arises because storing electricity in batteries is challenging and expensive. Therefore, surplus renewable energy that is not utilized by the generator is fed back into the power grid, making it available for consumption by other customers. In this process, the provider of renewable electricity, such as a homeowner with solar panels on their roof, is issued a REC. While it is possible to sell these Energy Certificates, they are typically used as a credit to offset the provider’s power consumption.
What are the Requirements for Renewable Energy Certificates (RECs)?
In many states, power utilities are required to either buy or produce renewable solar power. These requirements are known as solar carve-outs. Additionally, states have Renewable Portfolio Standards (RPS), which means power companies must generate increasing amounts of renewable energy each year. These RPS requirements drive the trading of Renewable Energy Certificates.
To meet their renewable energy obligations, power companies can purchase RECs from homeowners. Different states have varying rules about how RECs can be used and sold, but they are recognized by state and local governments, regional electricity authorities, NGOs, and trade groups.
RECs are not only for solar and wind power but can also be obtained for energy generated from geothermal, hydro-power without dams, biofuels, and hydrogen fuel cells.
Must Read: What is RES (Renewable Energy Standard)?