Many electric utilities, including competing utilities and suppliers, now offer their customers ways to purchase renewable energy in exchange for RECs. These include green electricity or green pricing schemes, which are short-term commitments, and green tariffs, which are longer-term contracts. To become “100% renewable,” a company could install solar panels on every roof of every building and generate enough to meet its needs, but for most businesses, that`s impractical, if not impossible. RECs offer companies the opportunity to pay and count for the renewable energy that is fed into the grid for everyone. If they want to become “100% renewable,” they can buy enough CERs to cover every megawatt-hour of energy they buy from their utility or retail electricity provider. Essentially, a REC is a way to track – and claim – not only the amount of renewable energy produced and sold, but also the positive environmental characteristics associated with that energy. For each megawatt-hour (MWh) of renewable electricity produced and sold on the wholesale market, an associated REC is established. The ERC usually contains information on the type and location of renewable resource, a date stamp for the time of its production, an emissions profile of the source of production and a unique identification number. Today`s businesses are feeling the pressure to meet their clean energy goals.
Investors, employees and customers are stressing the importance of using green energy and reducing carbon emissions more than ever, and greenwashing won`t be enough: they want to see real change. If your business is large enough, you may be able to negotiate a long-term contract with your utility for green electricity in what`s called a “green tariff” or a “packaged” PPA. In this agreement, the utility enters into a power purchase agreement with a specific renewable energy project and then provides you with the RECs. Maturities tend to be shorter than direct PPAs with project proponents; They are often 3-7 years, vs 10+ years. This type of contract allows you to support the development of a new renewable project and obtain REBs without having to sign a power purchase agreement yourself. These types of programs are sometimes available in regulated markets where a direct PPA with a supplier is not an option for a commercial buyer. According to 2017 data from the National Renewable Energy Laboratory, PPAs, unbundled REBs and renewable utility contracts are typically purchased in bulk by large non-residential electricity customers. As a result, these products account for about 68% of green electricity sales, but only about 4% of customers (Figure 1 below). In contrast, CCAs, competitive suppliers and green pricing programs for utilities primarily serve small electricity buyers such as residential and small commercial customers.
These products account for about 96% of green electricity consumers, but only about 32% of green electricity sales. To meet Scope 2`s renewable energy targets and reduce emissions, companies must purchase and withdraw renewable energy certificates (RECs), sometimes referred to as renewable energy credits. There are a handful of ways a company can purchase RECs, and most companies use more than one method to achieve their sustainability goals. In this guide, we`ll cover the different ways to buy REBs, as well as some pros and cons to help business leaders with their sustainability planning. Most companies enter the renewable energy market because their customers, executives and stakeholders want them to adopt more sustainable practices. While purchasing unbundled RECs is technically one of the sustainability goals, many stakeholders may ask, “What change has this actually brought?” Achieving additionality ensures that your business promotes a more sustainable world by actively decarbonizing the grid by replacing fossil fuel. A renewable energy certificate, or REC (pronounced: rěk, as wreck), is a market-based instrument that represents property rights over environmental, social, and other non-electrical attributes of renewable energy generation. RECs are issued when one megawatt-hour (MWh) of electricity is produced and fed into the grid from a renewable energy source. A power purchase agreement (PPA) is a contract between a “buyer” (such as a company) and the developer of a renewable energy project. There are two main types of PPA: physical and virtual.
Although the mechanisms differ in all types, the contract guarantees that the developer will receive a fixed price for each megawatt-hour (MWh) of energy it sells (up to a certain number of MWh), and in return, the company will receive the associated RECs. PPPs are long-term contracts with a duration of 10 to 20 years. REBs will be delivered over time as the project produces and sells energy. Unlike purchasing unbundled RECs, the investment can be directly attributed to a new project that is put online. The amount of carbon dioxide emissions avoided when the project goes online varies depending on where it is located. A new renewable energy project on a “dirty” grid will have a much bigger impact on emissions than, say, California, where there are already many wind and solar projects. For example, imagine a new clean energy project under construction in the Southeast, where a lot of coal is burned to produce energy. A renewable energy project that produces RECs there will result in a much greater reduction in carbon emissions than if you were building a new clean energy project in Washington State, where there is a robust hydroelectric grid. Although each scenario produces RECs, Southeastern RECs would generally cost more due to their more positive environmental impact.
Other types of utilities that offer green energy programs include “competing suppliers” and community choice aggregation programs: the utility acquires the associated REBs and then withdraws them on your behalf, in proportion to the amount of green electricity you have purchased. This allows you to claim these REBs in your sustainability reports. To offer this service, utilities charge a premium on energy, which means you could pay much more for RECs than other methods of supply. There is a sound legal basis for the use of Renewable Energy Certificates (RECs) as instruments that represent the attributes of electricity generation from renewable sources and are used to demonstrate the purchase, supply and use of electricity from renewable sources in the broader context of the voluntary and compliant operation of renewable electricity markets. This document provides a summary of selected sources on the definition and function of REBs in the United States. Originally published January 31, 2014.