Learn about Renewable Energy Credits and how they work.
What are renewable energy credits?
Households and companies can purchase renewable energy credits as a way to supply their home or building with clean energy. A renewable energy credit (REC) generates one megawatt-hour (MWh) of electricity from a renewable energy source and then shares it with a power line system that transports energy around the region. RECs are tradable, non-tangible commodities1.
For individuals who want to reduce their overall carbon footprint, renewable energy credits are something to consider. If installing solar panels or other renewable energy sources is too tricky or costly, purchasing renewable energy credits is another way to source environmentally-friendly energy. Similarly, businesses can purchase RECs to power their office or warehouse(s). Companies may also have difficulties installing renewable energy sources on their property, making renewable energy credits an alternative solution for renewable energy usage.
The following are a few reasons why your home or business may want to use renewable energy credits:
- To support the renewable energy market
- If you are unable to install solar panels or other renewable energy sources
- To achieve specific environmental goals
How is a renewable energy credit created?
Renewable energy credits are created when a renewable energy source (solar, hydroelectric or wind power) produces 1MWh and forwards it to the power grid. For example, you'll have six renewable energy credits if you generate 6MWh of electricity using solar panels, and you can either keep or sell those renewable energy credits. If you decide to sell a REC, you can only sell it once, and it cannot be purchased again. Unique identification numbers are linked to each REC that tell where and what energy source generated the credit and the date it was developed.
Why do people buy renewable energy credits?
RECs offer companies, individuals and institutions several benefits. Most importantly, they offer an easy way to reduce carbon footprint and support the clean energy market2.
Energy can enter the grid from many different resources, so it can be hard to know where exactly your energy is coming from. RECs can solve that, as they will always come from renewable sources. In addition, if you can sell RECs, you can help others reduce their carbon footprint while generating revenue.
Purchasing RECs allows you to use renewable energy without installing renewable energy systems, like solar panels. You can avoid the initial investment and any maintenance costs that may stop installing a renewable energy system. Additionally, you can set an example and encourage others in your community to reduce their carbon footprint by purchasing and/or selling RECs.
If you are considering buying renewable energy credits, consider unbundled and bundled RECs. Unbundled RECs are usually less expensive and sold separately from the original electricity source they represent. Unbundled RECs can come from a market with a surplus of supply or out-of-state solar farms, which makes them cheaper. Bundled RECs must come from your regional grid, which is linked to the purchase of electricity. While bundled RECs may cost more, they can help drive more renewable energy projects in your area3.
Why do businesses buy renewable energy credits?
Social responsibility is becoming more and more critical for small and large businesses. Sixty percent of Fortune 100 companies have greenhouse gas emissions goals. Some have even committed to getting 100% of their electricity from renewable resources. These companies include Johnson & Johnson, Walmart and Starbucks.
Companies often buy RECs to promote their commitment to saving the environment by using clean, renewable energy, which offers the benefits of using renewable energy without the costly investment to build renewable energy infrastructure on-premise.
How are renewable energy credits used?
Individuals with personal renewable energy systems or those wanting to purchase RECs can use them just as they consume regular energy. The best way to get started is by researching the cost and availability of RECs in your current area. As for businesses, the most common ways to purchase or produce RECs include purchasing unbundled RECs through green power programs or self-generation of renewable energy4.
How are RECs priced?
Renewable energy credit prices vary depending on the market. Markets include compliance markets and voluntary markets, with compliance markets being more expensive. In a compliance market, RECs meet renewable portfolio standards, while in involuntary markets, REC prices are usually driven by climate-related sustainability goals. With fewer strings attached, voluntary markets may have lower prices. Prices can also vary based on changes to wholesale energy markets.
In some states, there are tier systems. For example, Tier 1 RECs may be centered around wind and solar projects. Tier systems can also impact pricing. RECs that have a higher carbon-reduction impact may be more expensive than RECs with less impact.
What are solar renewable energy credits?
Solar renewable energy credits (SRECs) are a bit different from renewable energy credits. While they share the same concept, solar renewable energy credits are solely generated by solar panels. If you own renewable energy facilities, you can trade solar renewable energy credits for renewable energy credits.
In some states, there are Renewable Portfolio Standards (RPS) with "solar carve-outs." A solar carve-out is a specified percent of the state's electricity production that must come from solar panels exclusively. In specific markets, SRECs can be worth $400+5.
What states have solar renewable energy credits?
If you own solar panels, you should invest time into understanding solar renewable energy credits. SRECs can provide sizable amounts of money for solar panel system owners. Learning how to make solar more financially rewarding can keep its list of benefits growing. You may have already invested in a solar system, so why not take advantage? Depending on your state, SREC prices can vary from below $15 to $400.
In addition, the state's alternative compliance payment (ACP) can affect the price. ACP is the fee charged to electricity providers if they do not obtain enough SRECs.
States with active SREC markets include6:
- District of Columbia
- New Jersey
How much are RECs worth?
RECs can vary in price depending on the state and the market. Prices are steadily rising from $1 to almost $8 for wind energy sources, and in some markets, they may cost even more. Solar renewable energy credits (SRECs) are even more expensive, ranging from $10 to $400, depending on the market7.
For companies purchasing RECs, the rising prices may be motivating you to consider renewable energy alternatives. While you may consider buying RECs now and holding on to them, they typically expire three to five years after purchase.
2020 SREC prices for select markets are listed below8:
- Washington D.C.: $440
- Massachusetts: $315
- New Jersey: $225
- Maryland: $77
- Ohio: $7.50
- Pennsylvania: $40
- Delaware: $400
How do you sell renewable energy credits?
RECs are sold by having a surplus of energy and listing your remaining energy sale. Specific platforms make selling RECs easy. Some of the top venues for buying and selling SRECs are SREC Trade, Sol Systems and Knollwood Energy. In addition, some solar installers and other organizations purchase SRECs from you in advance to help reduce installation costs.
Who buys renewable energy credits?
There are two categories of REC purchases, voluntary and compliance. Let's compare the two categories.
- Voluntary REC buyers: Voluntary REC buyers choose to buy RECs, regardless of regional or business standards. In most cases, voluntary buyers are environmentally-friendly organizations that commit to reducing greenhouse gas emissions. Motivations for purchasing renewable energy credits can include emission goals or a desire to know where their electricity is coming from. Whole Foods and Starbucks are two major companies that voluntarily purchase RECs. Homeowners can also be voluntary buyers. Whether you are at an individual or corporate level, you can support renewable energy.
- Compliance REC buyers: Compliance REC buyers have agreements to use renewable energy and specifically choose to purchase renewable energy credits to meet this. For example, some electrical utility companies must have a certain percentage of their electricity from renewable energy sources. These utility companies would be considered compliance REC buyers. There are Renewable Portfolio Standards (RPS) in some states, which sets requirements for renewable energy use. Compliance REC buyers can produce their own RECs or buy them if needed.
RECs are an excellent way to use renewable energy in your home. If you'd like another easy way to use renewable energy in your home without the hassle of installing personal renewable energy systems, then check out Inspire Clean Energy. With Inspire, you get access to renewable energy for a predictable monthly price.
To get started, visit our homepage and enter your address and/or ZIP Code. If Inspire's clean energy supply plans are available in your area, you can proceed with linking your utility and discover the beginning of consistent and predictable monthly energy bills.