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“Write to be understood, speak to be heard, read to grow.” ― Lawrence Clark Powell

What Are RECs and Why Should We Use Them?

Posted on 4/10/2018 by in renewable energy REC renewable energy certificates RECs

Author’s Note: This is a two-part series on Renewable Energy Certificates. In this first posting we discuss what a Renewable Energy Certificate is and the history about how they came into existence. In the next posting, we will discuss some of the additional benefits they bring and why we need to continue using them.

What is a REC?

A renewable energy certificate or REC is the attestation, or simply the claim for the renewable energy attributes of a MWh (1,000 kWhs) of generated electricity from a renewable resource connected to the electric grid. RECs are used to counteract the negative impacts associated with the use of electricity from the electric grid due to the predominant use of fossil-fuel. A typical household consumes 1,000 kWhs of electricity from the electric grid each month. These kWhs have an indirect environmental impact that occurs upstream at the electric plants where the electricity was generated. The purchase of one REC counteracts these indirect impacts, since it backs down the same volume of electricity at an electric plant near where they were generated. I’ll explain what I mean by the back down process in the next article.

By purchasing a REC, you or I can say we purchase renewable energy when we purchase RECs in combination with our own electric bill. You could say that by purchasing one REC, you are voting for a renewable future in electricity generation. But I believe it is much more than that. You are literally changing the generation mix of electricity, turning it to renewable energy one MWh at a time. You are cleaning up the air and economically supporting the development of renewable energy. The success of the REC, and REC-based green programs, I believe, is the reason why coal-fired generation is facing significant economic difficulty today. But we will talk more about that later as well.

History of the REC

In the mid 1970s, renewable energy enthusiasts began touting the need for the nation’s electric utilities to turn to renewable energy sources. The White House even provided leadership on the subject when President Carter delivered his famous energy speech, proposing the use of solar energy in 2 ½ million homes.

By 1993, surveys of American attitudes toward energy policy indicated an overwhelming desire for their electric utilities to use more renewable energy. According to a 1993 report by the National Renewable Energy Laboratory (NREL)[1], 88% of residential consumer respondents said their utility should include new renewables as one of their sources of electricity. Meanwhile, utilities were looking the other way. Increasingly concerned that deregulation of their industry was changing their profitable business model, they hunkered down, avoiding investments in renewable power plants.

Six years later, most utilities remained unresponsive to the wishes of the American people. Yet, in 1999, NREL published their groundbreaking report, Willingness to Pay for Renewable Electricity. This report provided a much needed boost in the renewable energy market. According to the data, electricity consumers were no longer simply saying they wanted their utilities to provide renewable energy in their mix; they were now prepared to pay more for cleaner energy. The report found that 70% were willing to pay at least $5 per month more for electricity from renewable sources; 38% were willing to pay at least $10 per month more; and 21% were willing to pay at least $15 per month more, enough to make each electric bill 100% renewable.

Even with this information, most utilities held their ground with traditional forms of energy generation. Although, in many deregulated electricity markets, competitive electric suppliers began offering green power as an option. Still, a majority of American electricity consumers did not have electric choice. And in some states, where electric choice had begun to flourish, the legislatures actually turned back to regulation and electric consumers were forced to give up their green power plans.

On the other side of the issue were renewable energy developers willing to build their renewable power plants to sell energy if they could get power sales contracts that would enable them to finance their projects. The Public Utility Regulatory Policies Act of 1978 envisioned this problem and provided that utilities should pay for renewable energy on their system. However, the rates were set at wholesale levels, well below the rate necessary to fund new renewable energy projects. Because wholesale rates were often one third the value that most the rest of us pay at retail for electricity, it would take three times longer to pay off an investment, dropping returns on investment that should be in the 7 – 9 % range to as low as 2% - 3%. Investors simply will not put large sums of money at risk to build renewable power plants for a 2 - 3% return. As such, many projects were not built even though electricity consumers were willing to pay more for them.

What was needed was an instrument that would circumvent the regulated utilities and parlay the demand for renewable electricity generating plants directly to the developers, future owners and investors who would build them. A unique consortium of non-profits and the US EPA stepped in to develop and support such a mechanism.

Certification of Green Power

In an effort to define green power, since the term was being misused by several deregulated energy concerns, the Center for Resource Solutions, a San Francisco-based non-profit, created the Green-e® Energy standard in 1997, which initially defined the renewable elements necessary to make up a valid green power offering. Utilities and deregulated energy companies wanting to offer a green power product, certified to be from 100% renewable energy, enlisted the certification services of CRS for the Green-e® Energy label. If you lived in an area where there were competitive energy offerings, or a specific utility green power program, you could choose certified renewable energy for your own electric supply.

The Creation of the REC Market

In 2001, two environmental organizations began offering a renewable energy “tag” or “certificate” product. The Environmental Resources Trust, a Washington, DC based non-profit, signed an agreement with Commonwealth Edison (ComEd) January, 2001 to offer EcoPower Certificates to an alliance of northern Chicago municipalities, including the City of Chicago. The Bonneville Environmental Foundation, a Portland, Oregon non-profit, launched their Green Tag Program with Bonneville Power on May 2, 2001 to market Green Tags around the American northwest. Both products were, essentially, a renewable energy certificate (REC) product where the renewable energy attributes were collected from renewable power sites and sold independently to third parties to counteract their electricity use.

For the first time, RECs made it possible for electricity consumers to exercise the power of their own will to purchase renewable electricity regardless of their electric utility. Also, renewable developers had two revenue streams to count on for funding their projects; energy sales to the nearby utility grid and renewable attributes sales through the voluntary market to REC purchasers. The only problem was that these programs were still confined to specific regions of the country.

During June of 2001, the US EPA launched the Green Power Partnership (GPP) Program at a kickoff event held in Portland, Oregon. The program recognizes organizations that make and fulfill commitments to purchase a portion of their electricity from renewable energy, including certified RECs. Suddenly, for-profit organizations sprang into life offering renewable energy purchases for those companies signing up for the new EPA Program. Sterling Planet introduced the first nationwide REC product at this inaugural event. Other organizations quickly followed suit, and by 2004 there were at least half a dozen national REC marketers.

In 2002, CRS refined their Green-e® Energy certification program to recognize certified tradable renewable certificates (TRCs) by issuing their new certification standard for RECs. In addition to the REC marketers, utilities and deregulated retail energy suppliers soon began selling green power based on certified RECs. By 2004, RECs were being traded by the millions, and, at least ten utility programs were REC based. Since 2002, certified RECs are available to anyone anywhere in the country who wants to counteract their electricity use with renewable energy.

Fast forward fourteen years: Renewable energy, as a percentage of US electricity generation has increased to 18%, more than double where it was more than a decade ago. Last year, 2017, was a record 14% increase in renewable energy growth, despite the efforts of the fossil fuel industry to right the ship. First Energy Solutions, a utility that banked heavily on coal generation, just last week filed for bankruptcy and is petitioning the Federal Government for a bailout. So if renewable energy is clearly winning, should we continue to purchase RECs? In my next article I will answer “Yes” to that question and make the case as to why.

[1] Farhar, Barbara C. 1993. Trends in Public Perceptions and Preferences on Energy and Environmental Policy. NREL/TP-461-4857. Golden, CO: National Renewable Energy Laboratory. February. 376 pp.

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