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When people learn that I’m an energy journalist, they often ask me how ordinary people can support clean energy. I’ve had frequent conversations where people asking this question don’t want to hear about politics or policy. They want to know how they express themselves through their purchases.
So can you afford clean energy? The answer is yes! There are actually a variety of ways to do this, some of which I plan to cover in the next post.
But to understand and appreciate them, it’s important to first grapple with the tedious but important mechanism at the heart of all clean electricity purchases in the United States.
RECs aren’t what you’d call the most exciting topic, but if you want to buy clean electricity in the US, you have to deal with them. So let’s jump in.
After all, REC is an answer to a need: the need to buy green electricity. Why should people buy? The main reason for this policy is that many states require utilities to buy more green electricity through the Renewable Portfolio Standard (33 states now have some version of the RPS). In addition, government agencies often seek to purchase their electricity from clean suppliers. Also, companies often want to buy green electricity because of the reputation – “100% clean electricity!” It is very good that you can say!
In addition, people involved want to show their support for clean energy transition by directly buying green electricity.
Remember an important fact about electricity: when it is fed into the grid by a generator, it is mixed with other currents. There is no way to track “clean electricity” in any way other than tracking a cup of water you pour into a river.
In other words, it is physically impossible to get green electricity from the grid. Physically, there is no such thing as green electricity. There are no clean electrons and dirty electrons, there are only electrons.
This creates a dilemma for those who want to buy (and sell). You cannot buy or sell the item yourself. So what can you buy and sell?
There are all kinds of myths and misconceptions about REC. Therefore, it is important to understand what they are. (If that doesn’t interest you, check out this short NREL primer and this EPA page.)
When a renewable energy plant—such as a wind farm or solar plant—generates one megawatt hour (MWh) of electricity, it creates two sources of value. It produces electricity, it is sold at the current market price. And under federal law, a REC certifies that it has produced one megawatt-hour of electricity from clean sources that it can sell. This means that every renewable generator in the US (if it meets certain criteria) has two revenue streams, electricity and RECs.
REC represents the social and environmental benefits of one megawatt hour of clean energy. You can see a carbon tax as a mirror image: instead of putting a negative value on carbon emissions, it puts a positive value on clean production.
Creating a REC pays for “green electricity” through two different revenue streams: green electricity and electricity. Electricity is sold as kilowatt hours. Blueness is sold as GHI. REC is actually a certificate of ownership of each green.
Once you set up a REC system, you can buy green electricity. Just buy some electricity (from anywhere), buy the same amount of green electricity (like GHI) and boom, green electricity. Electricity and green are products with different markets.
So let’s say I’m an industrial customer buying 1,000 megawatt hours from a utility that primarily supplies coal and natural gas. And if I buy 1000 RECs, I’m officially “100% electricity clean”. I bought as much green as my electricity consumption.
These RECs can be bought and sold. are currency But most importantly, only a party that “removes” a REC—that is, takes it out of circulation—can claim environmental benefits.
When a utility company says it gets 20 percent of its energy from clean sources, it means it buys and disposes of 20 percent of the electricity it sells. When a customer buys green electricity from a utility, what they are doing is paying the utility to remove some RECs. When a business says it “runs on 100% clean electricity,” it means they’ve purchased and disposed of as many RECs as they use.
You’ll notice that this leads to a counter-intuitive situation: if you buy electricity from a wind farm but don’t buy an equal amount of RECs from it, you’re not buying “green electricity”. You only buy electricity, not electricity. A green certificate is required for anyone purchasing a REC. Obviously, if you support a wind farm, you can take good care of yourself. But they don’t buy clean electricity.
Now, there is nothing inherently ambiguous about this. Renewable energy production is simply a way to provide a tangible representation of positive externalities in the market. Questions about RECs arise from how they are used and the statements that some people make on their behalf.
The main driving force behind RECs emerged in the early 2000s from “green energy” applications whereby customers could pay a little more for renewable energy. In the second half of the decade, RECs will require regulated utilities to meet state renewable portfolio (RPS) standards, purchase utility packages, and increase the amount of electricity they generate and increase their energy from renewable sources. These are still the two big markets, the voluntary market and the “compliance” market.
Don’t worry, but I’ll give you a spaghetti diagram of where RECs come from and where they end up:
First, the green column on the left shows the energy source including REC. As you can see, 67% of the total market is mainly wind. Everything else is a comparison piece, especially the sunlight in the picture below.
Second, the right column shows where the REC ends. The big red box is the compliance market, where utilities require RECS to comply with government renewable energy standards. That’s about 80 percent of those who retire each year. (Utilities can “bank” RECs for future compliance.)
The remaining 20% are voluntarily retired in the market. Who will retire them? The purple boxes on the left side of the Goodwill Market tell the story. The largest number of RECs are voluntary purchases by large companies to make green claims. Homeowners and federal agencies make up most of the rest.
It should be noted here that the compliance market has a much higher level and therefore RECs are more expensive than the voluntary market. For example, compatible RECs must be purchased from the company itself. Some RPSs have a cap for certain technologies, which means that some additional equipment such as solar RECs must be purchased. Some state RPSs, such as California’s, require RECs to be “coupled” with the electricity they generate. All these restrictions increase the price.
Voluntary markets do not face such restrictions. You can buy RECs from anywhere in the country, from any technology, without packaging. A non-profit certification program called Green-E imposes criteria on voluntary RECs, but it’s a low threshold for transparency, which is why voluntary RECs are so cheap.
The main characteristics of REC are the energy source (wind, solar, etc.), the age of the generator and the geographical location. All these features are known and can affect the price.
REC is not a guarantee to eliminate any particular fossil fuel production. No specific carbon emissions are guaranteed to be eliminated. Not “compensation”.
One megawatt hour of renewable energy can be estimated from fossil fuel production or carbon pollution. Doing so requires a counterfactual: how many net MWhs would be burned or emitted if not generated? However, like any other method, this method involves a number of assumptions, guesswork, and predictions. There is a lot of uncertainty in the model.
Sometimes companies selling RECs claim – the price per MWh is that the REC replaces or removes a MWh.
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