Alternative Energy Solutions  |  Renewable Energy Credits (RECs)  |  How REC prices are set

How renewable energy credit prices are set

One REC (“renewable energy credit” or “renewable energy certificate”) represents the generation of one megawatt-hour (MWh) of electricity from a renewable energy source. REC prices vary from state to state and depend on a variety of factors, including where you purchase your RECs.

States can be divided into “voluntary” and “compliance” REC markets. The price of RECs changes depending on your state’s market structure. States with compliance markets have standards that require electrical utilities to generate a certain percent of their power from renewable resources, known as the Renewable Portfolio Standard (RPS).

Utilities in states with an RPS have to buy RECs if they don’t generate enough renewable energy themselves, which increases REC prices in the state. States with voluntary markets typically have less expensive RECs, since there is less demand for them from utilities.

RECs are not necessarily tied to the actual delivery of electricity, and you can purchase them from anywhere in the United States. Outside suppliers sell RECs that come from new energy projects built within the past 12 years, so that you know you’re supporting the construction of new renewable energy facilities. You can also often buy RECs through your electrical utility as part of what are called green power programs. Most green pricing premiums cost around 1 to 2 additional cents per kWh.

Cost of renewable energy certificates

States with compliance markets typically have to buy RECs within their region. The price of these RECs can vary greatly from state to state and year to year. According to the National Renewable Energy Laboratory (NREL), in 2011 the price of one REC in Ohio was a little under $35, and it fell to $8 by 2015. By comparison, prices in New England were below $20 in 2011, and climbed to between $45 and $50 in 2015.

RECs can be sold “bundled,” or paired with electricity. Bundled RECs must be purchased locally, since the consumer needs to be able to buy the electricity from their local utility. Other RECs can be sold “unbundled,” or separate from the renewable electricity they represent. Anyone can buy these RECs and, since there is often an oversupply of unbundled RECs, they are very inexpensive. In 2014 unbundled RECs cost less than $1 each.

Unbundled and bundled RECs offer a great deal of flexibility to a buyer. If price is the most important factor to you,  unbundled RECs from anywhere in the country can be as cheap as $1 or less. If you want to support local energy, bundled RECs offer a way to buy electricity locally along with RECs.

Why buy RECs?

Buying RECs allows you to support the renewable energy market without having to install solar panels on your roof or invest in other more involved methods of generating renewable energy. Depending on what type of RECs you buy, you can help local renewable energy projects or even future projects that haven’t yet been built.

When buying RECs, not all RECs are created equal

RECs always represent the renewable energy attributes of one MWh of electricity generated, but some RECs have more positive impact on the renewable energy market than others.

“Future RECs” are RECs that will be generated in the future, bought as an up-front purchase. These RECs are sold by new renewable energy facilities or facilities that have not yet been built. Buying future RECs helps to encourage new renewable energy generation, as they provide financial support to the builders of new facilities. The disadvantage to this approach is that the buyer cannot claim the renewable energy attributes of the RECs until they are actually generated. If a facility is not built or is destroyed after construction, consumers cannot claim those RECs—if you’re looking into buying future RECs, consult with the seller first.

Additionally, some states rank RECs into different levels, or “tiers,” depending on their generation source and environmental impact. This is typically done in states with Renewable Portfolio Standards (RPS), such as Maryland, Pennsylvania, and Massachusetts. Tier 1 RECs refer to RECs that have been newly generated and come from the cleanest renewable resources. Renewable resources such as biomass and hydropower generally fall into the two lower tiers—Tier 2 and Tier 3—although these classifications change from state to state.

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