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Renewable Energy Credits Explained

3p Contributor | Wednesday October 26th, 2011 | 6 Comments
Wind Energy

http://www.flickr.com/photos/loozrboy/

Author: By Mirsad Hasic

Many companies which cannot invest in their own solar panels or wind turbines purchase green energy credits. These credits represent the renewable energy resources associated with power production. When they are certified, they are eligible for renewable energy certificates (RECs). The credit can be sold, bartered or traded and the green energy credits represent the source of the energy produced.

RECs are similar to carbon emissions trading except, instead of trading tons of avoided carbon, kilowatt hours are traded. For RECs, the green energy credits represent electricity produced using environmentally friendly processes while the certificate is sold to a third party company.

For example, a wind farm would be credited with one green energy credit for every 1000 kWh of electricity produced. A designated agency certifies the production and issues a number for each certificate.

The electricity produced by the wind farm is then routed into the commercial electrical grid (this is a requirement for an REC). At that point, the REC can be sold by the owner of the wind farm.

Markets for Green Energy Credits

Markets for renewable energy certificates are divided into compliance ad voluntary markets. Compliance markets exist in 29 states in the US, the District of Columbia and Puerto Rico. Electric companies in those states must generate a percentage of power from renewable resources by a certain time.

In California, the law mandates 33% of electricity produced must utilize renewable resources by the year 2020. By 2013, New York will have a 24% requirement for renewable energy.

By purchasing green energy credits, the states can meet the requirements set by the laws of that state. It’s a balancing act where solar and wind energy created in one part of the country can be used to offset use of fossil fuels in another state.

Voluntary markets are states that do not have set requirements for producing a certain amount of power through renewable resources. In these states, customers choose to buy renewable energy due to concerns for the environment. RECs sold in voluntary markets are usually sold for less than in the compliance markets where acquiring REC’s is the only way to meet timelines of state laws.

There is much discussion and dispute over the marketing of green energy credits as critics have pointed to flaws in the system. Solar and wind power can be intermittent as they depend on natural factors out of our control (sun and wind).

The critics claim the unreliable electrical production of solar and wind cannot be used to cancel other energy sources. Proponents of green energy credits hold that greenhouse gas, sulfur, nitrogen and other pollutants are reduced overall.

The business of selling renewable energy certificates has grown rapidly but there is not a national registry of the RECs being issued. There is a voluntary program to ensure the certificates account for and not double counted. This program is form of an audit where a third party verifies the creation and sale of an REC.

Today most RECs are assigned numbers that are uniquely identifying and can be tracked. Systems are becoming available on a regional basis that can keep a running audit of green energy credits and this tracking ability will grow as the business of green energy continues to flourish.

Where Do Green Energy Credits Come From?

There are several power producing technologies that can qualify for creating green energy credits. These are

Why Would Business Buy Green Energy Credits?

Environmental concerns have gained public awareness and focus in recent years. Damage to the environment caused by burning fossils fuels to provide for our ever increasing need for electricity is problem that must be solved.

The renewable energy resources must be captured where they are readily available. You can build a fossil fuel burning power plant anywhere there’s enough land but you can’t relocate a geothermal field.

Some areas of the country have winds that blow reliably day after day while others have winds that are blocked by mountains or other topography. In states like Arizona, the strong sunshine is a daily fact of life while in northern Ohio clouds hide the sun for days on end throughout the year.

http://www.flickr.com/photos/mountainash/

Selling green energy credits encourages the use of renewable resources for electricity production by providing a financial incentive to companies investing in these energy sources. At the same time, use of renewable energy decreases the environmental damage of fossil fuel plants in that area.

Renewable energy certificates provide money for further growth of natural renewable power sources and allow companies and individuals across the country an opportunity to participate in the “green” movement.

One of the leading web hosting providers in the country features green energy credits on sales pages. Located in Texas, this company buys REC’s produced by Texas wind farms.

That company now hosts over 4,000,000 websites with 130% wind power. By purchasing renewable energy certificates, the company has in effect eliminated its reliance on fossil fuels and can advertise as an environmentally responsible hosting provider.

An entire new group of businesses has resulted from REC’s. These companies focus on providing funds for clean energy and carbon reduction projects by selling green energy credits to businesses in large cities that will allow wind farms and solar power producers to expand their production.

Summary

When a wind farm, geothermal field or other form of renewable resource is used to produce electrical power that power can be sold to a commercial power grid. If that is done, a renewable energy certificate is issued and that certificate can then sold to offset power use of a company located in a city far away from the power plant. Once the certificate has been sold, it is used to offset the buyer’s electrical use and meet state requirements. At that point, the certificate is retired as it can only be used one time for one power offset.

[Image credits loozrboy, mountainash, Flickr]


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Categorized: Renewable Energy|

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  • http://www.theleafexchange.com Stu

    Nice article on RECs Mirsad. One thing I would add is the differentiation between bundled RECs and Unbundled RECs, like the kind that the New Jersey SREC market has gotten so much press over. Here in California there is legislation in the works to allow unbundled RECs to qualify for the state RPS. Home solar rejoice!

  • paul

    First sentence makes no sense.

    • Jen Boynton

      edited. Thanks for the catch!

  • http://www.facebook.com/ted.bendixson Ted W. Bendixson

    Please, somebody help me solve this. Why does the price of the renewable energy credits matter at all? Isn’t this sort of like giving to charity? Whether purchasing $1000 worth of credits gets me 100 credits or 10 credits seems inconsequential. It’s still $1000 going to the development of renewable technologies.

    Are companies really trying to purchase the credits at a lower price so they can say they’re carbon neutral even though they’re trying to avoid contributing to the very thing they are deeming worthwhile? The ethics of doing something like this seems paradoxical and puzzling.

    Let’s flip the question on its head. Imagine there was a hunger prevention charity that gives out credits for every child fed. Those credits are then traded among businesses the world over, and a sort of competition emerges regarding which company fed the most children. But once it comes down to trade, the real contributions don’t matter anymore. A company could have donated a very small amount and then wheeled and dealed to appear though it has fed the most children. I find this rather appalling. 

    Is there some memo I didn’t get? Is my logic totally wrong? Please HELP!

    • PC

      In your example, there may be wheeling and dealing to the point where a company that contributed very little gets the credit for lots of fed children.  While that’s not appealing on the face of it, lots of children still got fed.  Maybe the people who actually fed the children aren’t getting credit for it or maybe they didn’t get fair financial consideration for their contributions during the “wheeling and dealing”, but more children were fed than would have occurred under a business as usual scenario.  

  • http://nikkipantony.github.io Nikki Pantony

    Thanks for the info! :)