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| Fig. 1: Solar and wind power are two examples of renewable-based generation sources that RECs can be applied towards, both directly and indirectly. (Source: Wikimedia Commons) |
With the recent affordability and accessibility of renewable energy as a source of power across the grid, many of the fifty states, including the District of Columbia, have written renewables portfolio standards in an attempt to follow state and federal policy, along with creating ways to implement renewable energy sources, such as solar, wind and hydro. Renewable energy certificates (RECs) are used to verify compliance with these requirements set by each states renewables portfolio standards. [1] The system of renewable energy certificates is a system where producers of green electricity receive a certificate for each pre-defined unit of electricity produced. These certificates can be traded at a certificate market and adds to the revenue that the producer can get for the electricity itself. [1] In this report, I will highlight what exactly a Renewable Energy Certificate is, issues with implementing Renewable Energy Certificates, and the significance of the Renewable Energy Certificates on the environment and growth of renewables.
A Renewable Energy Certificate (REC) is also commonly referred to as a Green Tag or a Tradable Renewable Certificate. Renewable Energy Certificates are often used to meet demand in voluntary green power programs. A REC represents the property rights to the environmental, social, and other non-power qualities of renewable electricity generation from one megawatt-hour (3,600,000,000 joules) of renewable electrical energy. [2] Renewable Energy Certificates can be sold separately from the underlying physical electricity associated with a renewable-based generation source. For example, some companies are not able to invest in their own solar panels or wind turbines (both pictured in Figure 1), so they will instead purchase Renewable Energy Certificates and trade and sell these credits for other similar credits of ways to provide infrastructure for their companies. Renewable Energy Certificates can be tracked and verified by regional organizations empowered by state utility commissions. A key component of Renewable Energy Certificates is that they provide buyers flexibility. They procure green power across a diverse geographical area. Also, buyers can apply the renewable attributes to the electricity purchases for use at a facility of choice or using a technology of choice. This allows organizations to contract for renewable energy kilowatt-hours when green power products are not locally available. [2]
Even though the system for Renewable Energy Certificates has constantly been restructured and adjusted to meet the requirements and policies at the state and federal level, there are still issues that need to be adjusted to make the system work for more efficiently. One of the biggest issues deals with what constitutes as a renewable energy source and if certain sources can be issued RECs. An example of this is that, currently, it is assumed electricity generated from large hydro plants is competitive and is therefore excluded from receiving Renewable Energy Certificates. This further assumes that the certificates are more based on cost rather than based on renewable energy sources, which needs to be defined is a smooth system of Renewable Energy Certificates is to be achieved. [3] A second issue is the current penalty for not meeting the minimum targets and goals of the Renewable Energy Certificate. The system currently lacks strict penalties for failing to meet requirements. Certain proposals, however, state that by instilling a penalty that is higher than the market price of the certificates, then the system would be more effective.
Renewable Energy Certificates allows the renewable energy attributes of energy to be sold or traded separately from the physical unit of energy. Since the Renewable Energy Certificate removes potential locational and physical gridlocks, both consumers and suppliers gain flexibility in the marketplace when implementing different forms of renewable energy. [4] RECs are also a successful tool to meet Renewable Portfolio Standards that are required state to state. Taking into account the different implications and potential issues of Renewable Energy Certificates, along with how to maximize the effect of these implications while eliminating these issues, Renewable Energy Certificates can be an integral part to jump start the wide use of renewable energy across the nation.
© Colton Hock. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] E. A. Holt and R. H. Wiser, "The Treatment of Renewable Energy Certificates, Emissions Allowances, and Green Power Programs in State Renewables Portfolio Standards," Lawrence Berkeley National Laboratory, LBNL-62574, April 2007.
[2] E. Holt and L. Bird, "Emerging Markets for Renewable Energy Certificates: Opportunities and Challenges," National Renewable Energy Laboratory, NREL/TP-620-37388, January 2005.
[3] G. J. Shaeffer et al. "Tradable Green Certificates: A New Market-Based Incentive Scheme For Renewable Energy: Introduction and Analysis," Energy Research Center of the Netherlands (ECN), ECN-I-99-004, March 1999.
[4] P. Mozumder and A. Marathe, "Gains from an Integrated Market for Tradable Renewable Energy Credits," Ecol. Econ. 49, 259 (2004).
