What are Renewable Energy Credits (RECs)?
Last updated 5/4/2023
Written by Jacob Marsh
Renewable energy credits (also known as renewable energy certificates, or RECs) are an initiative that represent the energy generated by renewable energy sources, such as solar or wind power facilities. Buying RECs is not equivalent to buying electricity. Instead, RECs represent the clean energy attributes of renewable electricity.
How renewable energy credits work
Electrons enter the electricity grid from many different sources, ranging from wind and solar power to natural gas and nuclear power. Because of this, there is no way to know exactly what energy source your electricity comes from. To solve this problem, you can purchase RECs along with your electricity. RECs are certificates that transfer the “renewable” aspects of renewable energy to the owner. In other words, renewable energy credits, paired with electricity from the grid, are renewable energy that is being generated on your behalf.
How RECs are generated
A REC is produced when a renewable energy source generates one megawatt-hour (MWh) of electricity and delivers it to the grid. For example, if a wind power facility produces 5 MWh of electricity, they have 5 credits to either keep or sell. If you or your business buys those credits, you are buying the “renewable” aspect of the electricity from the wind farm, and you can say that 5 MWh of your electricity use came from a renewable source.
A REC that has been sold once cannot be purchased again. All renewable energy credits are uniquely numbered and generally include information such as where they were generated, the type of renewable resource they came from, and a date of generation. The exchange of RECs is tracked and recorded.
Benefits of RECs
RECs give you certified proof that you are using renewable energy from the grid without having to install solar panels or other renewable energy systems at your home or business. So in effect, they are also a tracking system for renewable energy. This gives you flexibility, especially if your business is based in multiple places or does not have the infrastructure to install solar panels. With RECs, your business can reduce its carbon footprint.
Procurement of RECs also supports the renewable energy market by providing a demand signal to the market, which in turn encourages the production of renewable energy to meet this demand. In this way, RECs not only help businesses meet their carbon emission goals – they also encourage renewable energy generation RECs are a good fit for you if you:
RECs are a good fit for you if you:
- want to support the renewable energy market
- cannot install solar panels or other renewable energy technology at your home or business
- want to reduce your environmental impact and carbon footprint
- have environmental goals you are trying to reach, as a business or individual
- want to know specifically where your electricity is coming from
RECs encourage the production of renewable energy, which is energy from any source that produces no fossil fuel-based greenhouse gas emissions (ghg) or other environmental pollutants. Renewable electricity is cleaner and better for the environment than burning natural gas or coal.
RECs can be generated via power plants from the following renewable energy sources: wind, solar, moving water (hydropower), organic plant and waste material (biomass), and the earth’s heat (geothermal). Unlike coal or natural gas, renewable energy resources like these promote sustainability, are readily available and constantly replenish.
The difference between RECs and SRECs
Solar renewable energy certificates (SRECs) are a type of renewable energy credit and green power market. These market-based credits come from electricity that is specifically generated by solar panels. Like RECs, SRECs are tradable commodities for owners of renewable power facilities. In the case of SRECs these facilities must be solar facilities.
Some state Renewable Portfolio Standards have “solar carve outs”. In addition to setting a requirement for renewable energy production, an RPS with a solar carve out says that a certain percent of the state’s electricity production comes specifically from solar panels. SRECs account for this energy produced by solar panels.
Homeowners and commercial businesses earn one SREC for every one megawatt-hour (MWh) of electricity generated by their solar panels. They can then sell these SRECs to electrical utilities. An SREC can be worth $300 or more in certain markets and, for a typical 5 kW home solar installation, you could earn as much as six SRECs in a year. Additional information on the legal difference between SRECs and RECs can be found via the EPA and the Center for Resource solutions.
Should I buy renewable energy credits?
REC purchasers fall into two categories: voluntary and compliance.
Voluntary credit buyers are typically environmentally conscious organizations focused on reducing their greenhouse gas emissions. These organizations can have many motivations for purchasing renewable energy credits. They might have emissions goals they are trying to reach as a company, or might want to know where their electricity is coming from. Examples of voluntary REC buyers include Whole Foods and Starbucks. Homeowners can also be voluntary buyers, meaning anyone can support renewable energy at an individual level.
Compliance buyers are electrical utilities that are obligated to have a certain percent of their electricity generation come from renewable resources. Some states have regulations called Renewable Portfolio Standards (RPS) that set requirements for renewable energy use. These laws mean that a utility has to provide renewable credits as proof that they are sourcing a set amount of their electricity from renewable resources. The utility can generate the RECs themselves with renewable energy sources, but if they do not generate enough they have to purchase them.