RECs, or Renewable Energy Certificates, are market-based instruments that certify the generation of one megawatt-hour (MWh) of electricity from a renewable energy source such as wind, solar, hydro, or biomass
. They represent the environmental, social, and other non-power attributes associated with renewable electricity production, distinct from the physical electricity itself
. When a renewable energy facility generates electricity and delivers it to the grid, it produces two products:
- The physical electricity, which is indistinguishable from electricity generated by fossil fuels once on the grid.
- The environmental benefits, which are quantified and sold as RECs to track and incentivize renewable energy use
RECs are issued by power companies or independent certifying bodies and include detailed data about the generation source, location, and vintage
. They can be traded separately from the electricity, allowing companies and individuals to purchase RECs to claim the environmental benefits of renewable energy, often to offset their carbon footprint or meet regulatory requirements
. There are two main markets for RECs in the U.S.:
- Compliance markets: Created by state Renewable Portfolio Standards (RPS) that require utilities to source a certain percentage of their electricity from renewables. Utilities meet these mandates by purchasing RECs
- Voluntary markets: Where customers buy RECs voluntarily to support renewable energy beyond regulatory requirements
RECs provide a financial incentive for renewable energy projects by creating an additional revenue stream, helping renewable sources compete economically with fossil fuels
. However, critics argue that RECs sometimes allow companies to claim emissions reductions without actual operational changes, while proponents say that REC purchases drive increased renewable energy production
. In summary, RECs are certificates that prove renewable energy was generated and fed into the grid, allowing buyers to claim the associated environmental benefits and support the growth of clean energy
