Renewable Energy Certificate (REC)
Candlefocus EditorWhen a renewable energy project is commissioned, the project developer is issued a REC to represent the clean energy generation in a particular area. Each certificate holds one megawatt-hour (MWh) of renewable energy production. This certificate may then be redeemed or sold to customers willing to buy them.
In many cases, states have renewable portfolio standards (RPS) which require utilities to generate a certain amount of energy from renewable sources. If a utility does not generate enough energy from renewable sources, it must purchase RECs from an accredited REC registry. This encourages utilities to invest in renewable energy projects and help meet their RPS goals.
RECs can also be bought and sold by organizations looking to offset their carbon emissions or by speculators betting on the value of the renewable energy credits. REC swaps take place when RECs are traded to take advantage of the price disparity between two different states' RPS standards.
REC's also provide an important tool for green marketing. Companies that purchase RECs to “green” their operations can demonstrate to customers that they are helping reduce the environmental impact of their operations.
In addition to helping accelerate the transition to a more sustainable energy economy, REC’s can also be a lucrative investment. Speculators can purchase RECs at a low price, hold them and wait for their market value to increase.
Overall, RECs represent a market-based way of promoting the use of renewable energy sources and help provide financial incentive for project developers and utilities alike to invest in renewable energy. By purchasing RECs, organizations can also demonstrate to customers that they are helping reduce the environmental impact of their operations.