What are “Renewable Energy Certificates”?

Renewable Energy Certificates (RECs) are an accounting mechanism to make it possible to keep track of responsibility for bringing renewable energy to the grid. When one megawatt-hour (MWh) of electricity is generated from a renewable energy facility that is registered with the grid operator, a REC is issued to represent the renewable aspect of that energy.

Electricity on the grid is identical, whether it comes from a solar array or a coal-fired power plant. But we all know that energy from the sun has a different impact on the world than energy from burning coal. The REC represents that difference. It represents the reduction in soot, mercury, smog, acid rain, radiation, and carbon dioxide that we get from solar (or other renewable) energy as compared to traditional sources. Because we want a cleaner, healthier world, there is social value in the difference represented by the REC.

RECs also have an economic value. Most states have laws requiring electric utilities to include renewable energy in their supply to customers. Each law is unique, but in general a utility complies with the law by presenting the required number of RECs to the state regulatory agency. It might get these RECs by building its own new facilities powered by renewable resources, by purchasing renewable energy generated by an independent producer along with the associated RECs, or by purchasing RECs by themselves, separately from the energy.

When a utility purchases RECs, it is paying the added cost that it takes to bring clean energy to the grid. So it becomes responsible for the renewable aspect of that energy. It doesn’t matter that the utility might be in one state and the renewable energy facility in a neighboring state. The electrical grid crosses state lines, and energy flows across the borders all the time. So does pollution. For the most part, it doesn’t matter if the renewable energy is generated in the first state or the second—as long as it gets generated, it helps to replace dirty power generation in the process.

As an accounting mechanism, it is imperative that all participants keep accurate account of who has what so that there won’t be any double counting. If Mr. Jones has a solar array and sells the RECs that are associated with it to a utility, then only the utility has legitimate claim to the “solar” aspect of the energy produced. Mr. Jones has sold the solar’ness. As the accounting of all energy on the grid works, Mr. Jones takes on responsibility for what is called the “residual mix.” This is the energy in the total electrical supply on the grid that has not been attributed to other participants. On the New England grid, the residual mix consists of 60% fossil fuel and 37% nuclear power.

A renewable energy project that sells its RECs gives up all claims to the positive environmental attributes of renewable energy. The buyer of the RECs has paid the price required to assume responsibility for the renewable energy. Those who sell their RECs trade their renewable energy for "residual mix." In New England, the chart above shows the sources of energy in the residual mix.
A renewable energy project that sells its RECs gives up all claims to the positive environmental attributes of renewable energy. The buyer of the RECs has paid the price required to assume responsibility for the renewable energy. Those who sell their RECs trade their renewable energy for “residual mix.” In New England, the chart above shows the sources of energy in the residual mix.

This is a complicated system. Complicated systems are easy to abuse, because consumers will have a hard time knowing when they are buying what they meant to buy, and when they are not. For this reason, the Federal Trade Commission has published guidelines in the Code of Federal Regulations regarding RECs and their appropriate use in marketing:

If a marketer generates renewable electricity but sells renewable energy certificates for all of that electricity, it would be deceptive for the marketer to represent, directly or by implication, that it uses renewable energy.
— 16 CFR 260.15(d)

Vermont statues depend on strict adherence to proper accounting to enable the state’s renewable energy programs:

The party claiming ownership of the tradeable renewable energy credits has acquired the exclusive legal ownership of all, and not less than all, the environmental attributes associated with that unit of energy.
— 30 VSA 8002(22)(B)

The Vermont Law School Energy Clinic has published guidance on the issue for those who are interested in community solar.

When RECs are stripped (unbundled) from the energy being generated from the renewable source, the offtakers and owners of the generation source can no longer claim the environmental attributes of the energy being generated. That is, they cannot say they are producing green energy. [Someone using energy that has had its RECs sold off] is no more reducing their carbon footprint than if they had not constructed the solar array in the first place.
— “What It Means to Separate the RECs from the Solar Energy”

When the REC system is abused with deceptive marketing practices, the result is not only consumers who are fooled into buying residual mix when they intended to buy solar energy. Solar developers engaging in these practices note that, by selling the RECs, they get added money that helps fund their projects, and they claim that therefore the sale of RECs has helped increase the amount of solar energy in the grid.

In fact, their deceptive marketing results in less new solar being constructed overall, rather than more.

Imagine a solar array is constructed in Vermont, and the developer sells the RECs associated with it to a utility in Massachusetts. If the story ended there, then this would be how the REC system was meant to work: new solar has been added to the grid, and it is used to help the utility satisfy its legal requirement regarding clean energy.

But instead, the developer then markets the same facility to the public as a “community solar” project. Vermonters buy into the project thinking that they are “going solar,” even though all of the solar attributes were sold off long before they entered the picture. These are people who wanted to go solar both to benefit from the cost savings of net metering and to do the right thing for the environment. While they are getting the net metering savings they expected, without realizing it they are not doing anything positive for the environment.

In other words, there is double counting going on in the system. The utility has bought the RECs and has legal, legitimate claim to responsibility for the solar energy generated by the project. Meanwhile, the Vermont customers think they went solar. Both the utility and the Vermont customers believe they have gone solar from this single facility, but only the utility is correct.

If the developer honestly wanted to provide community solar, s/he would have retained all the environmental attributes and not sold any RECs. Then the Vermont customers would genuinely be going solar. Meantime, the utility would still need to meet its legal requirements for clean energy, so it would have to support the funding of an alternative project. That way, in order to provide enough solar to satisfy both the utility and the Vermont customers, two separate solar facilities would need to be constructed.

When solar developers follow the rules regarding truth-in-advertising, the system as a whole ends up developing more solar. When developers play loose with the rules, less solar is developed. If all of this were just about money, it would be a simple case of taking advantage of customers. But solar is about more than the money. It is also about the global warming crisis, about asthma and other respiratory diseases caused or exacerbated by energy pollution, about mercury poisoning in the fish we eat. When deceptive marketing slows down the development of desperately needed renewable energy projects, the harm goes far beyond shifting a few dollars from some consumers’ pockets to those of the developer.

Solaflect Energy exists because its founder and employees are devoted to the benefits of solar energy. We are in the business of solar energy, not residual mix. Our customers honest and truly go solar—and they save money in the process.

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