Renewable Energy Certificates: The Missing Piece to Solve the Puzzle of Clean Electricity

For businesses and large facilities that don’t have the on-site infrastructure for renewable energy generation, there’s an inherent problem with committing to using more electricity from “clean” sources. How do you prove the energy you’re using is actually “clean”?

According to the U.S. Energy Information Administration, about 20 percent of the electricity used in the U.S. in 2021 was from renewable energy sources like hydroelectric, solar and wind, while around 61 percent was from fossil fuels including coal and natural gas. This issue is after energy is produced, it all gets dropped into the same power grid, regardless of source. Once it’s blended together, there’s no way to sift the “clean” electrons from the “dirty” ones.

Those who don’t work in the energy sector might think an electron is just an electron. But for facility operators hoping to reduce Scope 2 emissions, meet renewable energy targets, reduce their carbon footprint or publicly demonstrate a commitment to using clean energy, the issue is a real conundrum. Short of building on-site solar or encouraging the U.S. to somehow create a “Green Grid” that only accepts and sells renewable energy, how can organizations prove to stakeholders, their community and the public that some (or all) of the energy they use is from renewable sources?

The Renewable Energy Certificate (REC) was created to help solve this exact problem.

What Are Renewable Energy Certificates?

Sometimes called Renewable Energy Credits, a Renewable Energy Certificate is basically a kind of receipt, used to prove the energy your facility uses was indeed purchased from sustainable sources and is the only facility claiming this energy.

Every time the operator of a certified renewable energy source like a solar plant or wind farm produces and delivers one megawatt hour (MWh) of electricity to the power grid, that producer is awarded a REC. RECs differ from carbon offsets, in that an offset represents one metric ton of reduced or avoided greenhouse gas emissions.

Each REC certifies its owner has the legal right to use one MWh produced by a non-polluting source. The REC tracking system ensures each REC is only held by one legal owner, and allows RECs to be bought, sold and traded electronically. Nonprofits, businesses and individuals can then buy and sell those RECs.

Currently, more than 850 utility providers in the U.S. offer Green Tariff or Green Power programs that allow customers in their service area to purchase RECs. Most charge a premium of around 1.5 cents per kilowatt hour — about $15 per MWh — in addition to the cost of the electricity. The non-profit organization Green-e, founded by the Center for Resource Solutions, certifies energy producers as sustainable and REC eligible, and ensures that RECs are not double-counted. It’s recommended that businesses only purchase RECs related to energy produced by suppliers certified by Green-e.

If a business that hopes to demonstrate its commitment to non-polluting energy uses 5 MWh of electricity in a month, they can buy and invalidate (or “retire”) five RECs. Once officially used, retired RECs can’t be bought, sold or traded again. In addition to supporting renewable energy producers, buying RECs provides end users with documented certification that electricity used during a certain period was obtained from non-polluting sources.

How does the REC tracking system work?

In North America, the process of tracking, awarding and administering RECs is overseen by 10 regional authorities, each with its own specific territory. Much of the central U.S., for example, is part of the Midwest Renewable Energy Tracking System (M-RETS), which stretches from the Louisiana Gulf Coast to the northern border of Canada’s Manitoba Province. Energy users are not required to buy RECs from their home state or regional territory, but they do have to register with their regional authority to participate in REC markets.

One factor to keep in mind when considering RECs is that in many U.S. states are sorted into either “compliance” or “voluntary” markets, which can have an impact on the price of RECs produced there.

Currently, laws in more than 29 states plus Puerto Rico and Washington D.C. require electric utilities to generate a certain percentage of the electricity they produce through renewable sources. These are the “compliance” state markets. If energy producers in those states don’t meet renewable energy targets, they can be required to purchase RECs to offset the difference.There are “voluntary” market states, including North and South Dakota, Idaho, Wyoming, Florida, Kentucky, Louisiana and Georgia. In those states, the demand for RECs is primarily from companies hoping to meet voluntary sustainability goals, or REC purchases by businesses in compliance markets. Due to lower demand and other factors, RECs created in voluntary market states are usually less expensive.

Because energy users in one regional territory are free to purchase RECs created anywhere in the U.S., users in compliance states often purchase RECs created in voluntary market states, where each REC-certified KWh of electricity is often more affordable. In doing so, the system helps support sustainable producers in voluntary states, where a greater percentage of electricity is produced from fossil fuels. Although people are free to buy RECs from anywhere, specific types of RECs may be required to meet regulatory requirements. For example, they may require wind RECs or solar RECs, or require them to be locally sourced.

Like any traded commodity or financial instrument, RECs and the system that allows them to be bought, traded and sold can be complicated. Still wondering whether your business should use RECs to reach its sustainability targets? Nobody knows energy better than Bernhard, and we can help RECs make sense for your large facility’s electrical needs. In doing so, we’ll support renewable energy generation and help more businesses meet their clean electricity goals, creating a brighter future for us all.