Today, it’s easier than ever to begin your journey toward living a more sustainable lifestyle, from ridding single-use plastics to using less water when you shower. But for most people, it starts with an investment in green energy. While installing solar panels on the roof of your home is a great investment, it’s not the only way you can harness the power of our sun.
Meet Renewable Energy Credits. These credits (also referred to as Renewable Energy Certificates or RECs) ensure the electricity you purchase is generated from green energy sources such as wind power, solar and geothermal. If you want to power your home with renewable energy, you should have a basic understanding of how RECs work, as they represent the bulk of how renewable energy is purchased in the U.S.
In this article, we’ll explain:
- What a REC is
- How RECs are created
- How RECs work
- The benefits of RECs
- The difference between RECs and solar RECs (SCRECs)
- The difference between RECs and carbon offsets
What is a renewable energy certificate (REC)?
To understand what a REC is, you need to understand the energy grid. The “grid” is an umbrella term for our entire energy network — the power plants, transmission stations, powerlines, wires, sensors and poles. Unless you completely generate your own electricity, we’re all connected to one another through the power grid. It’s how we receive the electricity that powers our lives.
Why it matters: Be it fossil fuels, renewables or nuclear power, these sources of energy all generate electricity. Electricity enters the grid from all of these different sources. So, once it reaches your house, it’s virtually impossible to tell whether your electricity comes from traditional or green energy. This is where RECs enter the picture.
RECs solve the issue of wondering about the source of your electricity. A REC is a sellable, tradable and barterable legal instrument that represents the environmental benefits of renewably generated electricity.1 So, whoever owns these certificates (which comes with purchasing electricity) gets to claim that the power they purchased comes from renewable sources.
Specifically, electricity that’s added to the grid CANNOT be considered renewable unless it has a REC to substantiate its environmental benefits. Because of this fact, RECs are the currency of all renewable energy on the market today.
How are RECs created?
RECs are created from any of the following renewable energy sources:
- Certain hydropower sources
Since Chariot is a solar energy company, let’s use a solar farm as an example:
- A solar farm produces a certain amount of electricity.
- They are granted one green energy credit from a designated third-party agency.
- Each certificate authenticates one megawatt-hour’s worth (1 MWh, or 1,000 kWh) of electricity produced from renewable energy generators.
To be considered a REC, the green energy created on that solar farm must be sold and added to the grid. This means if you have solar panels generating electricity for your home, you aren’t creating RECs unless you add it to the grid. This is why the energy grid plays such a key role in the creation of RECs.
Each certificate is unique in that once it is sold, it cannot be used again. It’s considered to be “retired.”
How do RECs work?
RECs are the basis of all green and renewable energy plans, even ours at Chariot Energy! When you enroll in a renewable energy plan, or even a partial renewable plan, your Retail Electricity Provider (REP) trades and buys RECs on your behalf to ensure you’re doing your part to contribute to the green economy. Pretty cool, right? You can actually see the percentage of renewable energy you’re purchasing on your Electricity Facts Label (EFL).
Businesses can also tap into the green power market and substantiate your commitment to the environment via RECs. The two most popular methods are:
- Tax equity investments. Tax equity allows companies to buy green power in the form of RECs and helps develop local green power infrastructure such as wind or solar farms.
- Power purchase agreements (PPAs). There are two types of PPAs: physical and financial. Both are financial arrangements where companies purchase RECs to claim emissions reductions, but with a physical PPA, power generators actually supply the grid with electricity that powers a company’s facilities.
What are the benefits of RECs?
While having solar panels on your home is an excellent idea, that sort of renewable energy system isn’t a financially feasible option for most people — not yet, at least. RECs are an easy way for people who want to make a difference to have a positive impact on the world. Specifically, RECs help you:
- Directly invest in renewable energy projects and infrastructure
- Indirectly lower your carbon footprint by offsetting fossil fuel demand
- Diversify your region’s energy portfolio
- Make the energy grid more reliable as the demand for electricity increases with population growth
What’s a Solar Renewable Energy Credit (SCREC)?
Certain states employ a concept called a Renewable Portfolio Standard. This mandate requires states to not only prove a certain percentage of power sourced by renewables, but also by solar specifically. Also known as a “solar carve out, ” it refers to states having to “carve out” or designate a particular chunk of its energy portfolio for solar electricity generation.2
That’s why solar energy, in particular, has its own kind of certificate. In fact, these are the certificates Chariot trades! SCRECs serve to differentiate solar from the rest of the renewable energy crowd.
However, RECs and SCRECs represent only one slice of the larger clean energy pie. Consumers and businesses also cut their carbon footprint through Voluntary Emission Reductions, more commonly known as “carbon offsets.”
What is the Difference Between RECs and Offsets?
RECs and carbon offsets are quite similar, but rather than determining the number of kilowatt-hours produced, carbon offsets are measured and sold by the tons of greenhouse gas emissions avoided. So, while they accomplish much of the same outcome (i.e. reducing CO2 emissions), their goals and reasons for existence are fundamentally different. Still, many people often confuse them, which is why it’s worth explaining their differences.
Offsetting carbon involves specific activities that reduce, capture or store carbon emissions such as planting trees. Trees capture and store carbon in the earth, which reduces the amount of CO2 in the atmosphere. When you purchase a REC, you’re buying green power that produces no emissions or pollution – not just offsetting or avoiding the emissions you’re generating.
RECs Make Buying Renewably Sourced Electricity Possible
Now that you have a greater understanding of how clean energy works in the U.S., you are able to make more informed decisions when it comes to purchasing your next electricity plan.
No longer do you have to settle for brown power from fossil fuels. Today, with the use of RECs, you can truly know the energy you are purchasing is green, emission-free, and won’t dirty the environment.
Are you ready to make the switch? Contact Chariot Energy today and compare the options you have in your area.