RECs, TRCs and Green Tags -- Paying for Renewable Energy

Renewable Energy Has Premium Value--How to Capture It?

Renewable Energy Certificates (RECs), also known as Green Tags, Renewable Energy Credits, or Tradable Renewable Certificates (TRCs), are environmental commodities in the United States which represent proof that 1 megawatt-hour (MWh) of electricity was generated from an approved renewable resource.

Renewable energy is produced by wind farms, solar farms, biomass energy and waste-to-energy facilities, low-impact hydropower, geothermal energy, and the like. These sources are not usually located close to energy consumers who want access to renewable electricity.

So when the electricity they produce is fed into the grid a REC is created for every MWh delivered. A certifying agency gives each REC, and therefore each MWh, a unique identification number. These certificates can be bought and sold. So an energy consumer can purchase them to cover some or all of its electricity consumption, effectively paying a premium (over its existing electric bill) for the generation of that renewable power.

Pay For the Renewableness Separately From the Electricity

In effect, purchases of RECs transfer money from electricity customers who want to prove they are using renewable power to the producers of such power, in a quantifiable and verifiable way. These payments create additional income for the renewable electricity generator, often making the difference between profit and loss, or increasing profit or reducing loss. The energy user is paying a premium for purchased power, but not through its utility. It pays the premium directly to the generator of the electricity.

The cost of RECs is set in the open market, and depends on the supply of and demand for electricity produced from renewable resources. The recent prices of various RECs are shown at this Department of Energy site.

This is a form of component pricing, common for agricultural products, applied to electricity, which wouldn't seem to have many components.

Level the Playing Field

The cost of RECs can be seen as a voluntary "tax" paid by some energy consumers to compensate for the tax breaks, subsidies, and externalities associated with nuclear and fossil-fuel electricity generation, thus making production of renewable energy economically feasible.

Can RECs Make You Carbon Neutral?

Whether companies which purchase certificates to cover all of their electricity use can claim to be "carbon neutral", at least with respect to electric power, is open to dispute. Most renewable energy projects which issue RECs would not qualify under the stricter Kyoto Agreement rules on "additionality". But there is no doubt that these transfer payments stimulate investment in renewable energy and its increased production.

For more information check this overview at 3 Degrees, and this Wikipedia article.


[crossposted to the HaraBara blog]