A Quick Guide To Renewable Energy Credits
5 - Minute Read
PUBLISHED: Apr 15, 2022
For homeowners and businesses alike, the Renewable Energy Credit (REC) can seem like a lifeline for those who want a cheap, easy way to shrink their carbon footprint.
In theory, RECs allow individuals and organizations to buy clean energy produced by solar, low-impact hydroelectric, geothermal, biomass or biofuel sources. This might sound great for those who, for one reason or another, can’t produce clean energy themselves. For example, a homeowner who can’t afford or doesn’t have space for solar panels could buy RECs to show their commitment to cleaning up the power grid. Sometimes solar renewable energy credits are also abbreviated as SRECs.
But how do RECs work as intended and are they a good alternative for homeowners considering solar panels? Let’s find out.
How Renewable Energy Credits Work
An REC — which can also stand for Renewable Energy Certificate — signifies that a source of renewable electricity has produced one megawatt-hour (mWh) of power. They’re not free-flowing electricity, but an accounting mechanism that tracks the origin of clean energy going into the grid. Each credit represents the benefits of clean energy – both socially and environmentally.
Organizations running renewable energy sources get credits for the power they generate, and they can in turn sell them. These credits are becoming a viable second source of revenue for green energy producers in addition to the energy they sell. Currently, REC prices are on the rise, a phenomenon we’ll discuss later.
Once a renewable energy credit is sold, the next owner can’t sell it again. RECs are uniquely numbered and include information about the source where they were produced.
Here’s an example of the credits in action: Company A has a solar panel farm. It supplies 10 mWh of electricity generation to the grid, so it receives 10 credits. Company A can keep the credits or it can sell them. If the company sells its certificates, it doesn’t get to tout itself for creating clean energy – instead, the company that purchased the certificates can claim it’s powered by renewable sources. This makes the credits valuable for corporate citizenship or compliance.
Is A REC The Same As A Carbon Offset?
RECs and carbon offsets are two different concepts, though both involve renewable energy. With a carbon offset, a company can reduce its liability for energy use that produces greenhouse gas (GHG) emissions. One offset purchased represents one ton of CO2 emissions avoided.
Who Can Buy RECs?
In short, the REC market has two major components: voluntary buyers and compliance buyers.
Homeowners and renters interested in solar are perfect examples of voluntary REC buyers. They don’t need to buy RECs, but they want to show their support for green energy. Maybe they live in a community that doesn’t allow solar panels. In that situation, buying RECs is a good way to contribute to the green economy.
Organizations may have more practical reasons for buying RECs, so they’re more likely to be compliance buyers. Examples include companies bidding for government contracts or utility companies that are obligated to have a certain amount of renewable energy sources in their portfolio.
Utilities that don’t produce renewable energy can buy RECs to comply with renewable portfolio standards.
If I Buy RECs, Does That Mean My Power Comes From Renewable Sources?
Buying a REC does not really mean that renewable energy is being pumped into your home or business. Once electricity enters the grid from the source of production, it’s not possible to distinguish one source from the other.
For homeowners, buying RECs is more of a symbolic gesture rather than a way to generate tangible environmental benefits. You’re supporting green energy sources.
It’s important to realize that, unlike a carbon offset, a REC doesn’t represent a reduction in the use of fossil fuels or other non-renewable energy. It is a data point in favor of clean energy, though.
How Much Do RECs Cost?
RECs fluctuate in value. Factors that affect their price induce the type of energy source, the source’s location and its age.
Bids for solar-specific RECs varied from $284 in Massachusetts to about $10 in Ohio, according to SRECTrade at the start of 2022. The average-sized home solar power system (also called photovoltaic system) in the U.S. will produce about 9 mWh per year. That means, at the extremes, a homeowner could make between $2,556 in Massachusetts and just $90 in Ohio by working with a broker to sell their credits to utility companies.
Homeowners with solar panels in other states might be able to sell credits, but they’d likely need to do so through a platform that allows them to auction their credits.
Selling Renewable Energy Credits
Selling credits can be complicated, whether you’re an organization or individual. There are layers of requirements intended to protect consumers and businesses. Here’s a brief overview of what’s involved.
Organizations can’t sell RECs directly to another party. They have to work with a broker to find a buyer.
Green-eⓇ is one example of a marketplace for RECs. It also certifies credits and maintains standards that energy producers must meet. Green-eⓇ only certifies newer clean energy sources to encourage the funding and creation of new clean energy sources.
Your energy production project will have to meet the standards of the marketplace you choose.
If you have solar panels on your home, the idea of getting credits and selling them may sound great but it can be complicated. Plus, only a few states have these types of credit programs.
To sell your credits, you’ll need to register your system. Your solar-powered home will also need to be in an area covered by PJM. If your home is in a different part of the country, you’ll need to visit the residential section of the SRECTrade website to learn about your options.
Why Solar Panels Do More Than Clean Energy RECs
Overall, adding solar panels to your home can provide more value than buying RECs. RECs signify your support for green energy but they have a few caveats you should know about:
1. You’re Paying For Power And SRECs
You won’t save money by purchasing RECs/SRECs, unlike installing solar panels. Over time, solar panels will eventually pay for themselves. Money you spend on RECs is unlikely to make a tangible benefit to your finances.
2. RECS Don’t Improve Home Resale Value
Homes with solar panels in the U.S. tend to sell for a higher price than comparable homes without them, depending on the state the house is located in.
Buying RECs won’t impact your home’s resale value.
3. Homeowners Who Purchase RECs Don’t Get Better Rates
Many utility companies have different rates for homeowners who own solar panels and are still attached to the power grid – also known as grid-tied. This can offer significant savings over time.
Homeowners who purchase RECs don’t have any utility rate benefits similar to homeowners with solar panels.
4. There Are No Incentives For Purchasing RECs
Homeowners who choose solar have may qualify for some significant incentives available from government entities and utility companies, including the Federal Solar Tax Credit. Some of these can reduce that payback period for purchasing a solar system. There’s really no tangible incentive for purchasing RECs.
The Bottom Line: Skip The RECs, Go For Solar
Ultimately, adding solar panels to your home lets you generate your own clean electricity while energy credits allow you to support a third party’s renewable energy project. Homeowners interested in clean energy will likely find that solar panels can offer more benefits than buying RECs. Still, RECs may be a good option for you if you’re not a homeowner or your current home isn’t a good fit for a solar array.
Still have questions about the benefits of solar panels? Connect with a Rocket SolarSM consultant to see how solar panels may help the environment and your bottom line.