Renewable Energy Credits (RECS): A Review of the Basics and Questions to Ask Before Utilizing RECs as a Way to Meet Renewable Energy Goals

By Hillary Dobos and Emily Artale

The Basics

A grid-tied renewable electricity generator, such as a solar array, produces two distinct products: 1) electricity and 2) a package of environmental benefits resulting from not generating the same electricity and emissions from a conventional natural gas or coal-fired power plant. This package of environmental benefits is known as Renewable Energy Credits (also known as RECs, Renewable Energy Certificates or greentags). A REC represents the collective environmental benefits, such as avoided carbon dioxide and mercury, as a result of generating one MWh or 1000 kWh of renewable energy. RECs are then sold, traded, or bartered on a market or through bilateral transaction.

There are two distinct markets for RECs: compliance and voluntary.

Compliance Market

The compliance market is made up almost entirely of energy companies that are mandated through a Renewable Portfolio Standard to own or purchase a certain percentage of renewable energy. Many utilities rely on RECs to help achieve these renewable energy percentages. Compliance RECs are usually more expensive and required to be purchased from within a specific region. For example, Xcel Energy is mandated through the State of Colorado’s Renewable Energy Standard to generate or cause to be generated at least 30 percent of its electric sales from “eligible energy resources”, one of which is renewable energy sources.[1] One way that Xcel Energy meets its mandate is by purchasing RECs from solar arrays that are interconnected into Xcel Energy’s grid. When RECs are purchased from the solar array, the owner or subscriber of that array can no longer claim the environmental benefits of the system.

Voluntary Market

The voluntary market is made up of individuals, households, and organizations that chose to buy RECs as a way to reduce their environmental footprint and help fund renewable energy development.  RECs allow organizations to claim that the electric power they are using comes from renewable sources and apply the renewable attributes to any facility. Additional benefits include hedging against future electricity price increases and numerous public relations benefits such as brand differentiation, generating customer loyalty and employee pride, and leading by example.

In general, voluntary RECs are cheaper than compliance RECs. Between 2010 and mid-2013, wholesale REC sales in voluntary markets have generally traded at less than $1/MWh (J. Heeter and T. Nichols, NREL Report, 2013)  In general, the cost of RECs can depend on many factors such as type of renewable energy (e.g. solar RECs are generally much more expensive than wind), the vintage (year in which REC was generated), where the REC was generated, the volume purchased, and if the RECs are 3rd party certified (e.g. Green-e Energy). Low prices often make the purchase of RECs a very cost effective option for supporting renewable energy.  

RECs can be purchased through utilities, REC marketers, and other third party entities who may sell RECs alone or bundled with electricity. For a current list of companies offering voluntary RECs click here.

What You Can Do

There are several questions that you can ask to better inform yourself before purchasing RECs

• Clearly understand your motivation for purchasing RECs and make sure it aligns with your sustainability and energy goals.

• Consider all of your options for procuring renewable energy such as community solar or entering into a power purchase agreement before committing to the purchase of RECs.

• There are many ways to purchase RECs (wholesale, long-term contracts, through your local utility). It is worthwhile to consider a few of the options to find the best fit.

• Make sure your RECs are third party certified (i.e. Green-e Certified) to guarantee that they are not double-counted (only one buyer can claim the RECs) and meet national standards for resource content and environmental impact. You can also buy RECs that have been issued by a regional certificate tracking system.

• If supporting local renewable energy generation is important to you, make sure to ask where the RECs were generated.

• Ask what vintage your RECs are (the date when the RECs were created), as well as the renewable generators vintage (the year the renewable generator was built). Older RECs might be cheaper but it is harder to make the argument that your purchase is leading to the creation of new renewable energy if the RECs were created in past years.

• Discuss the role of additionality with your REC vendor. Additionality means that the purchase of RECs introduces new renewable energy into the electricity grid beyond what would have happened in a “business as usual” scenario. In other words, your purchase of RECs is not simply subsidizing renewable energy that has already been added to the grid but instead helping an electricity supplier generate electricity from a renewable energy source that would otherwise be too costly.

• Consider long-term purchase agreements. Many companies are entering long-term REC purchase contracts (10-20 years). These contracts help stimulate renewable energy production by providing predictable cash flow to a developer and usually provide cheaper RECs due to the bulk purchase.

• If your company or organization owns a renewable energy system, research the utility connection agreement to see if you have retained your RECs. If so, then you can claim the environmental benefits. If you have sold your RECs, your organization cannot make certain environmental claims such as “we are reducing our greenhouse gas emissions” or “we are using or generating a certain percentage of renewable energy to offset electricity use.”

We are available to help you wade through the complicated world of RECs, carbon offsets, and financing renewable energy purchases. For more information please contact us at hillary@merrillgroupllc.com or emily.artale@lotussustainability.com.

[1]“2014 Renewable Energy Standard Plan”. Public Service Company of Colorado. July 2013. http://www.xcelenergy.com/staticfiles/xe/Regulatory/Regulatory%20PDFs/CO-RES-Plan-2014-Vol-1.pdf

Join us for our webinar series that discusses emerging topics in the sustainability and energy fields. Our next webinar titled, “How to Set Effective and Measurable Sustainability Goals” on July 30th, 2014 at 12:00 p.m. MDT. To register please visit: http://www.anymeeting.com/PIID=EA57D680844A3B

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AUTHORS

Emily Artale, PE, CEM, LEED AP is Principal and Owner at Lotus Engineering and Sustainability, LLC, www.lotussustainability.com. She has been working in the industry for nearly a decade and she has a background in energy management, sustainability planning, and water quality. Emily helps teams develop action-oriented solutions that will improve efficiency and integrate sustainability into current processes. She received her undergraduate and graduate degrees in environmental engineering from the University of Colorado at Boulder. She is a Colorado native and spends most of her time outdoors with her family.

Hillary Dobos is Principal and Owner of Merrill Group, LLC, www.merrillgroupllc.com. Hillary brings both expertise and creative thinking to working with clients which she draws from her experience as a consultant advising public and private clients throughout the United States, as well as the one tasked with embedding sustainability throughout a 25,000+ person organization (Colorado State Government). Hillary earned her B.A. in Art History and Economics from Bowdoin College in Maine and her MBA from the University of Colorado-Boulder. Hillary was born and raised in Denver, Colorado, where she currently enjoys life with her husband, son, and moderately trained canine, Mr. Smiles.

 

Disclaimer: The information presented above is based on the opinions and experience of the authors. The authors are not liable for any errors or omissions in this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.

Increasing Transparency of the Solar Garden Process: The Top 4 Questions You Should Ask When Considering Participation in a Solar Garden

Community solar gardens are an emerging and an innovative approach to acquiring renewable energy. Many of our clients are asking us about the risks and benefits of participation, with an emphasis on understanding potential impacts on their financial bottom line and the ability to meet community sustainability and energy goals. We invite you to read our take on this process and use this information to guide conversations with your solar garden developer or utility company representative.

To learn more or receive an analysis specific to your organization contact us at emily.artale@lotussustainability.com or hillary@merrillgroupllc.com.

What are solar gardens? Solar gardens consist of a large number of solar panels connected as an array and located on a large parcel of land. Government agencies, businesses, non-profits, and residences can buy a select number of solar panels from an array or purchase electricity generated by a select number of solar panels and receive credit, as utility incentives, on their electricity bills for the electrons that they own.

Why solar gardens?  As we all know, solar energy provides numerous environmental and financial benefits. There are a variety of mechanisms in which an organization or individual can acquire solar energy, and solar gardens are just one of the many options. Solar gardens make sense for entities that are unable or not prepared to host or own a system on their building’s roof or adjacent to their property.

Solar garden arrangements provide unique benefits including established operation and maintenance practices administered by a third party, the potential to avoid land management issues, the ability to transfer renewable energy to different premise locations, and ideal placement that can maximize the production output.

Understanding the risks and opportunities. As with any project, sustainable or otherwise, we recommend that you have a solid understanding of the risks and opportunities. To aid you in that analysis we have crafted four questions that we suggest you discuss with your solar garden developer, utility company, and/or a neutral third-party consultant before you sign a contract (usually 20 years).

1.     What is the role of REC payments and how will REC payments influence my sustainability and renewable energy goals?

2.     What reduction in electricity use and electricity costs could I expect to see on my bill?

3.     How are changes in electricity rates determined and how could future electricity rates impact my payback period and potential long-term savings?

4.     How are changes in future utility incentives determined and how could future utility incentives impact my payback period and potential long-term savings?

 What you can do. There are several approaches that you can take to better inform and prepare yourself before committing a solar garden membership:

• Understand your motivation for participating and make sure it aligns with your sustainability and energy goals.

• Discuss the questions listed above with your solar garden developer and utility company representative.

• Clearly understand your project proposal and all contract language.

• Conduct a utility bill analysis to better understand your utility rates and potential for change.

• Model your risk and various “what-if” scenarios.

We are available to conduct a neutral third-party technical analysis of your project proposal and we can help you evaluate the potential opportunities, risks, and various “what-if” scenarios for your solar garden project. For more information please contact us emily.artale@lotussustainability.com or hillary@merrillgroupllc.com.

Join us for our next webinar titled, “How to Set Effective and Measurable Sustainability Goals” on July 30th, 2014 at 12:00 p.m. MDT. To register please visit http://www.anymeeting.com/PIID=EA57D680844A3B

 This webinar is part of a series that discusses emerging topics in the sustainability and energy fields based on real-world consulting experience.

Authors

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Emily Artale, PE, CEM, LEED AP is Principal and Owner at Lotus Engineering and Sustainability, LLC, www.lotussustainability.com. She has been working in the industry for nearly a decade and she has a background in energy management, sustainability planning, and water quality. Emily helps teams develop action-oriented solutions that will improve efficiency and integrate sustainability into current processes. She received her undergraduate and graduate degrees in environmental engineering from the University of Colorado at Boulder. She is a Colorado native and spends most of her time outdoors with her family.

Hillary Dobos is Principal and Owner of Merrill Group, LLC, www.merrillgroupllc.com. Hillary brings both expertise and creative thinking to working with clients which she draws from her experience as a consultant advising public and private clients throughout the United States, as well as the one tasked with embedding sustainability throughout a 25,000+ person organization (Colorado State Government). Hillary earned her B.A. in Art History and Economics from Bowdoin College in Maine and her MBA from the University of Colorado-Boulder. Hillary was born and raised in Denver, Colorado, where she currently enjoys life with her husband, son, and moderately trained canine, Mr. Smiles.

Disclaimer: The information presented above is based on the opinions and experience of the authors. Additional information could become available from the solar garden developer and/or utility company that could impact the statements made above.