Renewable energy credits (RECs): What you need to know

Renewable energy credits (also known as renewable energy certificates or RECs) are an initiative that represents the energy generated by renewable energy sources, such as solar or wind power facilities. Buying RECs is not equivalent to buying electricity. Instead, RECs represent the clean energy attributes of renewable electricity.

Electrons enter the electricity grid from various sources, ranging from wind and solar to natural gas and nuclear power. Because of this, there is no way to know exactly what energy source your electricity comes from. To solve this problem, you can purchase RECs along with your electricity. RECs are certificates that transfer the "renewable" aspects of renewable energy to the owner. In other words, renewable energy credits, paired with electricity from the grid, are renewable energy generated on your behalf.

A REC is produced when a renewable energy source generates one megawatt-hour (MWh) of electricity and delivers it to the grid. For example, if a wind power facility produces 5 MWh of electricity, they have five credits to keep or sell. If you or your business buys those credits, you are buying the "renewable" aspect of the electricity from the wind farm, and you can say that 5 MWh of your electricity use came from a renewable source.

A REC that has been sold once cannot be purchased again. All renewable energy credits are uniquely numbered and generally include information such as where they were generated, the type of renewable resource they came from, and the generation date. The exchange of RECs is tracked and recorded.

RECs provide certified proof that you're using renewable energy from the grid without installing solar panels or other renewable energy systems at your home or business. In effect, they're a tracking system for renewable energy. This gives you flexibility, especially if your business is based in multiple places or doesn't have the infrastructure to install solar panels.

REC procurement also supports the renewable energy market by providing a demand signal, encouraging renewable energy production to meet the demand. This way, RECs not only help businesses meet their carbon emission goals, they also encourage renewable energy generation

RECs are a good fit if you:

• Want to support the renewable energy market

• Can't install solar panels or other renewable energy technology at your home or business

• Want to reduce your environmental impact and carbon footprint

• Have environmental goals you want to reach as a business or an individual

• Want to know specifically where your electricity comes from

Solar renewable energy certificates (SRECs) are a type of renewable energy credit and green power market. These credits come from the electricity specifically generated by solar panels. Like RECs, SRECs are tradable commodities for owners of renewable power facilities. In the case of SRECs, these facilities must be solar facilities.

Some state Renewable Portfolio Standards have "solar carve-outs." In addition to setting a requirement for renewable energy production, an RPS with a solar carve out says that a certain percent of the state's electricity production comes specifically from solar panels. SRECs account for this energy produced by solar panels.

Homeowners and commercial businesses earn one SREC for every one megawatt-hour (MWh) of electricity generated by their solar panels. They can then sell these SRECs to electrical utilities. An SREC can be worth $300 or more in certain markets, and for a typical 5 kW home solar installation, you could earn as much as six SRECs in a year. Additional information on the legal difference between SRECs and RECs can be found via the EPA and the Center for Resource Solutions. 

REC purchasers fall into two categories: voluntary and compliance.

Voluntary credit buyers are typically environmentally conscious organizations focused on reducing greenhouse gas emissions. These organizations can have many motivations for purchasing renewable energy credits. They might have emissions goals they're trying to reach as a company or want to know where their electricity is coming from. Examples of voluntary REC buyers include Whole Foods and Starbucks. Homeowners can also be voluntary buyers, meaning anyone can support renewable energy individually.

Compliance buyers are electrical utilities obligated to have a certain percentage of their electricity generation come from renewable resources. Some states have regulations called Renewable Portfolio Standards (RPS) that set requirements for renewable energy use. These laws mean that a utility must provide renewable credits as proof that it sources a set amount of its electricity from renewable resources. The utility can generate the RECs with renewable energy sources, but if they don't develop enough, they must purchase them.