What is a Renewable Energy Credit?
Renewable energy credits (RECs), also known as credits, green certificates, green tags, or tradable renewable certificates are tradable certificates of proof that one MWh of electricity has been generated by a renewable-fueled source.
Customers can buy green certificates whether or not they have access to green power through local utility entities or a competitive electricity marketer; without having to switch electricity suppliers, thereby making REC buying and selling independent of geography.
Renewable Portfolio Standard (RPS)/ Renewable Electricity Standard (RES)
Renewable Energy Credits are central to the RPS (also known as RES). The RPS requires all electricity generators (or electricity retailers, depending on policy design) to demonstrate, through ownership of credits, that they have supported an amount of renewable energy generation equivalent to some percentage of their total annual MWh sales. For example, if the RPS is set at 10%, and a generator sells 100, 000 MWhs in a given year, the generator would need to possess 10, 000 credits at the end of that year. Renewable Energy Credits are a tradable commodity and the pricing of RECs primarily vary by supply/ demand within a state/ region and how the RECs are packaged for sale.
The Renewable Portfolio Standard (RPS) is a flexible, market-driven policy that can ensure that the public benefits from wind, solar, biomass, and geothermal energy. It also ensures that renewable energy generation continues to be recognized and utilized as electricity markets become more competitive. The policy states that a minimum amount of renewable energy is included in the portfolio of electricity resources serving a state or country, and -- by increasing the required amount over time -- the RPS can put the electricity industry on a path toward increasing sustainability. Because it is a market standard, the RPS relies almost entirely on the private wholesale and retail electricity markets for its implementation. Private market implementation will result in competition, efficiency, and innovation that will deliver renewable energy at the lowest possible cost. The RES provides a predictable, competitive market, within which renewable generators compete with each other to lower prices (as more renewable energy is generated within a state/region, this also generates more RECs, ultimately driving the cost of the RECs in that state/region to be lowered as the supply increases). Mandatory RPS policies currently exist in 29 U.S. states and the District of Columbia.
As renewable energy generators automatically earn credits (RECs), they actually earn extra income from the sale of the credits. These credits then have to be purchased by electricity generators or retailers to compensate for the electricity that is generated from non-renewable sources (i.e. mostly fossil fuels). Therefore, a mandatory RPS directly benefits the growth of the wind power industry and also provides extra income for wind farms as the RPS requirements are increased over time. As not only existing states continue these requirements, but as states that have yet to adopt a mandatory RPS develop such guidelines, the wind industry hopes to continue to see considerable growth.
