REC Overview

In the US, a growing recognition of the importance of renewable energy has resulted in a number of federal and state initiatives to encourage the growth of the renewables sector and incorporate more energy from renewable sources into the nation's power grids. One outcome has been the recognition that electricity from renewable sources comprises two distinct commodities - the underlying electricity, and the "green" attributes associated with renewable generation.

Renewable Energy Certificates or RECs, are tradable units that represent the commodity formed by unbundling the environmental attributes of a unit of renewable energy from the underlying electricity. Under most programs, one renewable energy certificate is equivalent to the environmental attributes of one MWh of electricity from a renewable generation source.

The development of tradable REC programs is driven by the implementation of legislation known as Renewable Portfolio Standards (RPS). RPS typically mandate that a certain percentage of total annual energy sales come from renewable sources. As an example, if the RPS is set at 5%, and a retail supplier had annual sales of 2,000,000 MWh, the supplier would need to purchase 100,000 MWh from renewable sources.

Since RPS legislation is state specific, requirements and program implementation vary widely.  Generally, to enforce compliance states impose an alternative compliance payment or penalty on regulated companies that do not meet renewable energy mandates.  These penalties create substantial demand and value for Renewable Energy Certificates.

Solar RECs

Solar Renewable Energy Certificates (RECs) are generated when 1MWh of electricity is produced from a solar energy system.  Many states have a solar set aside as part of their Renewable Portfolio Standards which mandates that a certain percentage of energy must come from solar.  In these states, Solar RECs have substantially more value and are traded separately from RECs from other renewable sources.  As an example in New Jersey, solar RECs currently trade for over 10 times the value of RECs from other renewable sources. 

EnergyOne RECs

EnergyOne can help your organization make sense of the complexities of the REC markets.  We can help you evaluate the impact of RECs on new development projects as well as on your portfolio of assets.