Definition
A Renewable Energy Certificate (REC) is a market-based instrument that represents the property rights to the environmental, social, and other non-power attributes of renewable electricity generation. One REC is typically produced for every megawatt-hour (MWh) of electricity generated and delivered to the electricity grid from a renewable energy resource. These certificates can be sold and traded, and the owner of the REC can claim to have purchased renewable energy.
Phonetic
The phonetic pronunciation of “Renewable Energy Certificate (REC)” would be: – Renewable: /rɪˈnuːəbl/- Energy: /ˈɛnərdʒi/- Certificate: /sərˈtɪfɪkət/- REC: /rɛk/
Key Takeaways
- Proof of Green Power Production: Renewable Energy Certificates (RECs), also known as Green Certificates, Renewable Energy Credits, or Tradable Renewable Certificates, are tradable certificates that represent the equivalent of one megawatt-hour (MWh) of energy being generated from renewable sources like solar, wind, or hydroelectric power.
- Encourages Renewable Energy Production: RECs are an incentive for the production of renewable energy. When a renewable source generates power, a REC is created alongside the generated power. The producer of the renewable energy can then sell the REC, separate from the physical electricity, to businesses and individuals who want to reduce their carbon footprint, allowing them to effectively purchase renewable energy even if they cannot directly source it.
- Flexible and Tradable: RECs are tradable assets that can be bought and sold on the open market. This flexibility not only allows those unable to produce renewable energy themselves to participate in the green energy market, it also allows energy producers to finance further renewable energy projects. Consequently, RECs play a vital role in supporting and expanding the renewable energy sector.
Importance
Renewable Energy Certificates (RECs) are important in the business/finance realm because they represent legal ownership of the environmental, social, and non-power attributes of renewable electricity generation. They serve as a key tool to finance and support the growth of renewable energy sources, playing a significant role in promoting and tracking the production of clean power. Essentially, the generation and selling of RECs enable renewable energy producers to get financial value for the environmental features of the power they generate, which would typically not be compensated in the traditional electricity market. Additionally, RECs are essential for businesses and individuals looking to achieve specific renewable energy goals, as purchasing RECs allows them to claim and report they’re using renewable energy, even if they can’t directly source it. Therefore, RECs are a valuable part of the global transition to a more sustainable and clean energy future.
Explanation
The primary purpose of a Renewable Energy Certificate (REC) is to promote the production and use of renewable energy. It is essentially a market-based tool that incentivizes businesses and individuals to opt for renewable energy sources over traditional fossil fuels. When power producers generate electricity from renewable sources like wind, solar, and hydropower, they are granted RECs in proportion to the amount of power they produce. These certificates can then be sold to businesses or individuals separately from the physical electricity, allowing them to claim the environmental benefits of that power.RECs serve an important role in tracking the use of renewable energy and ensuring its attributes aren’t double-counted. Businesses often use RECs to meet certain regulatory requirements or to achieve sustainability goals. By purchasing these certificates, they can credibly claim to be powered by renewable energy, even if their actual power supply does not come directly from renewable sources. Thus, RECs function not only as a monetary incentive for renewable energy production, but also a mechanism for businesses to demonstrate their commitment to sustainability.
Examples
1. Google: Google purchases Renewable Energy Certificates as part of its commitment to 100% renewable energy. For every unit of renewable energy they generate, they keep a REC as proof. This ensures the energy they are using is from green resources and helps reduce the carbon footprint.2. Microsoft: In 2012, Microsoft made a historic deal to purchase over 500,000 RECs to offset its entire energy use in their green-powered data centers throughout the United States. This move made Microsoft the third-largest purchaser of green power in the United States at the time, championing the use of RECs to drive the renewable energy industry.3. University of California system: The University of California system also buys RECs in order to meet their renewable energy goals. The system has made commitment to achieve 100% clean electricity supply across its campuses and medical centers by committing to purchase RECs along with investing in onsite renewable generation and entering into Power Purchase Agreements for offsite renewable energy.
Frequently Asked Questions(FAQ)
What is a Renewable Energy Certificate (REC)?
A Renewable Energy Certificate (REC) represents the property rights to the environmental, social, and other non-power qualities of renewable electricity generation. They are issued when one megawatt-hour (MWh) of electricity is generated and delivered to the electricity grid from a renewable energy source.
How do RECs work?
RECs are generated when a renewable energy source produces electricity. They can be sold or traded independently of the electricity itself. Buying RECs is a way for businesses, governments, or individuals to support renewable energy even if they can’t directly purchase or generate renewable electricity.
Who can purchase RECs?
Anyone can purchase RECs. Many corporations buy RECs as a part of their sustainability goals. RECs are often used by organizations to offset their non-renewable energy use and claim that they are powered by renewable energy.
What are the benefits of RECs?
RECs incentivize the generation of renewable energy and help to reduce greenhouse gas emissions. They also give buyers an opportunity to support renewable energy development and contribute to sustainability goals.
How are RECs created and tracked?
RECs are created through the generation of renewable energy. They are typically tracked and certified by third-party organizations to ensure their validity.
What types of energy qualify for RECs?
Generally, energy generated by wind, solar, geothermal, biomass, and some types of hydroelectric facilities can qualify for RECs. The specific rules and qualifications can vary based on location and certification standards.
How much do RECs cost?
The cost of RECs varies based on factors like the type of renewable energy used, the location of the project, and market demand. RECs are often bought and sold in markets or through brokers.
Can RECs be used for carbon offsetting?
Yes, RECs can be used to offset carbon emissions. When a REC is purchased, it essentially represents the purchase of renewable energy that displaces the need for non-renewable energy, thereby reducing carbon emissions.
Related Finance Terms
- Green Tags
- Tradable Renewable Certificates (TRCs)
- Renewable Portfolio Standard (RPS)
- Carbon Credit
- Renewable Energy Credit Trading
Sources for More Information
