October 21, 2010 - renewable energy credits

Yesterday, we began a look at RECS: renewable energy credits, or renewable energy certificates.  A REC represents the renewable attributes associated with a particular megawatt-hour of generation.  This approach to placing a higher value on renewable generation as opposed to other technologies works well because electrons are generally fungible, and indeed because power transactions are often “virtual” as opposed to physical deliveries of electrons from a specific generator to a specific consumer.  RECs may thus be sold to any purchaser, even if no power actually changes hands.  In some jurisdictions, RECs may be traded and used for compliance even if the underlying power would not physically be deliverable to the REC buyer.  It is thus important to view RECs as a separate commodity offering renewable generators a new revenue stream.

Each REC contains a broad range of information about its origins: what type of renewable resource produced the power, the date the REC was created, when the renewable generator was built, and the location of the renewable generator.  RECs include this information to allow buyers to make specific claims regarding the nature of the power they consume.  For example, a manufacturer might elect to purchase RECs generated by wind resources in order to market its products as environmentally sustainable.

Because many U.S. states have enacted legislative standards (called Renewable Portfolio Standards, or RPS) requiring certain amounts of utility load served to be sourced from renewable power, RECs also include information on their eligibility for certification for compliance with these state requirements.