REC Renewable Energy Certificates (RECs)

A renewable energy certificate (REC)s are a separate revenue stream to the owners of solar or other renewable energy assets. They signify the intangible benefits of renewable energy and are sold on open markets to utilities or other buyers. Let's explore more about this unique investment instrument! 

A REC is produced for every megawatt-hour of energy sourced from renewable sources. Each REC is unique and proves the owner can sell the associated intangible benefits of renewable energy their assets produced.

RECs are a market-based instrument, and the certificate can be sold as a profitable commodity on an individual state market. For example, entities known for producing carbon emissions may purchase a REC as a credit to offset their pollutants.

How Do RECs Work?

Electricity, including conventional electricity and electricity generated from renewable sources, is mixed in the grid. There is no way to tell the energy source.

RECs define the various types of energy delivered to the grid. A REC is produced for every megawatt hour of renewable electricity produced. The owner of the renewable energy source receives a REC that they can keep or sell.

When you buy the REC, it can be applied to the energy you consume from the grid. The certificate allows you to claim that your energy came from a low or zero-emissions source, without owning the renewable source.

RECs are uniquely numbered and tracked like an online bank account. Once RECs are purchased, they cannot be resold. After a REC sells, it is typically retired in the tracking system so no one else can claim it.

The Environmental Protection Agency (EPA) recommends buying certified RECs. The certification shows that your power was generated by a reliable green source.

RECs are emerging as the currency of the clean energy market. They allow people and companies to invest in green projects to reduce their carbon footprint. They offer a way to invest in renewable energy even if you can’t generate it yourself!

What are REC’s Data Attributes?

A REC includes several data attributes, including:

  • Certificate data

  • Certificate type

  • Renewable fuel type

  • Tracking System ID

  • Nameplate capacity of the project

  • Project name

  • Renewable facility location

  • Project build date or vintage

  • Certificate generation fee

  • Renewable facility location

  • Certificate unique identification number

  • Utility the project connects to

  • Eligibility for certification or renewable portfolio standard (RPS)

Emissions rate of the renewable source

What are the Benefits of RECs?

  • Allows consumers who don’t have access to clean energy to buy renewable power from the grid

  • Supports the green energy market and efforts to reduce unhealthy emissions and reduce carbon footprints

  • Consumers gain documented proof that they are using clean energy generated by reliable producers

  • Generators, users, and stakeholders will know where their energy is coming from and how it was produced

  • Consumers gain the flexibility to use varying amounts of renewable energy in different locations without purchasing expensive equipment and facilities

  • Small producers may sell energy back to the grid to increase profitability

  • RECs show consumers’ support for renewable energy promoting industry growth

What are the Requirements for RECs?

Additionally, some states have a Renewable Portfolio Standard (RPS) that requires utility companies to create a certain amount of solar power which increases each year. Power companies often purchase RECs from homeowners to ensure they meet state requirements.

State laws regarding the use and sale of RECs vary. However, they are recognized by many state and local governments, utility companies, and trade groups. They apply to solar and wind energy, hydropower without dams, geothermal generators, biofuels, and hydrogen fuel cells.

What is REC Arbitrage?

A REC arbitrage or swap involves the almost simultaneous buying and selling of RECs at different price ranges. Like most investments, traders try to profit from the differences in buying and selling prices.

For example, State X may have a higher RPS requirement and solar carve out than State Y. As a result, the demand for RECs is higher in State X, driving up their price so they are more valuable than State Y RECs. Providers in State X would be incentivized to purchase RECs from State Y to use these credits to meet their requirements.

RECs will always apply to one-megawatt hour (MWh) of energy production. The source of the energy and the price of the REC will vary. Broker intermediaries typically facilitate REC arbitrage, but providers can take advantage of profitability and encourage market growth.

What is the Difference Between RECs and SRECS?

RECS can be acquired and sold for any type of clean energy generation. SRECS are a type of REC specific to solar energy.

What is the Difference Between RECs and Offsets?

Like RECs, offsets are also purchased to reduce greenhouse gas emissions, but there are distinct differences between the two. Offsets can supplement a business’s efforts to reduce emissions. They are often a voluntary way to lower emissions when other alternatives are not viable.

So far, RECs and offsets may seem a lot alike. But there are critical differences as follows:

  • Unit of Measure: RECs are assigned for 1 MWh of renewable energy. Offsets are assigned based on one metric ton of CO2 emissions.

  • Purpose: Offsets represent reduced emissions, support emission-reducing activities, and lower greenhouse gas emissions costs. RECs provide consumers with more electricity choices, promote the benefits of renewable energy, and support clean energy project development.

  • Source: Offsets can be assigned for any project that lowers emissions. RECs are specific to renewable energy sources.

  • Claims: Offset buyers claim to have reduced greenhouse gas emissions outside their organization’s operations. A REC buyer claims to have used 1 MWh of renewable electricity generated from a low or zero-emission source.

  • Accountability: Offsets offset an organization’s 1, 2, or 3 scope emissions. In accounting, they are often entered as a separate line item. RECs are deducted directly from a company’s total emissions and apply only to scope 2.

Additionality Requirement: The additionality requirement means offsets must be real, permanent, verified, and enforceable. They must come from activities that are additional to an organization’s day-to-day environmental efforts. No additionality requirements apply to RECs.

What to Look for in a REC

Not all RECs are created equal. For example, an older company may generate RECs, but purchasing them may not incentivize the creation of new renewable energy products. The RECs generated from these companies are typically uncertified.

Certified RECs that support new projects will come from factories that are less than 15 years old and weren’t built for compliance reasons. 

Buying uncertified RECs is an effective way to support clean energy, and they may be less expensive than certified RECs. However, certified RECs allow you to buy with confidence.

Additionally, not all RECs are for clean emission projects. They support solar, windmills, hydroelectric generators without dams, geothermal stations, biomass digesters, and some hydrogen cells. 

Purchase a REC that supports 100% clean emission projects for best results. 

Factors That Affect REC Pricing

According to an EPA 2024 report, REC prices are affected by several factors, including:

  • Solar Carve Outs: States with solar carve-outs generally have higher REC prices as compared to RECs in other states.

  • State Policies: State policies affect supply and demand dynamics.

  • RPS Compliance: States that are required to meet RPS compliance standards have more expensive RECs.

Supply and demand are critical indicators of REC prices. For example, New Jersey proposed a mandated goal of 370 MW of Energy for 2012. Once the goal was reached, the price of RECs fell sharply going from $600/MWh to $200/MWh.

The Current REC Market

Currently, the demand for RECs is on the rise. According to a 2024 S&P Global report, certificates are set to double past 2030. Experts predict they will overtake their compliance counterparts in 2024 to account for more than two-thirds of all U.S. certificates.

The latest outlook predicts that RECs will advance at a 15.9% compound rate from 2024 to 2033 increasing compliance credits from 473.1 million in 2024 to 1.8 billion or more by 2033. These projections would yield a 1.34 billion increase within ten years.

Most of the REC demand comes from corporations. Many corporations operate data centers that heavily contribute to greenhouse gas emissions. They are likely to purchase RECs to meet government regulations and self-imposed clean energy goals.

Supply challenges also fuel REC demand. Shipping disruptions are preventing many consumers from purchasing solar systems. They will invest in RECs as an alternative to put more clean energy on the grid.

The report also predicts that the growing adaption of RECs may cause alternative compliance certificates to become obsolete.

Is It Worth It to Invest in a REC?

RECs are an effective way to support renewable projects. However, they should not be a substitute for real-world energy generation.

Furthermore, you will get the most out of your REC by purchasing certified certificates that support renewable energy products in a strong market. For example, Illinois has a program that yields a national average of $24,000 in rebates for solar installation. 

Solar America Will Help You Reach Your Solar Goals

RECs are an effective way to take part in the solar movement if you are unable to access solar firsthand. If you are equipped to handle solar, Solar America will help you find the best provider.

Solar America connects you with local solar installers to provide free, no-obligation quotes throughout the country. We have connected millions of homeowners with solar companies over the past 15+ years. Submit your information and one of our reps will call in minutes to help you find the ideal contractor for your solar needs.

"I’d put my money on the sun and solar energy. I hope we don’t have to wait till oil and coal run out before we tackle that." - Thomas Edison

"I’d put my money on the sun and solar energy. I hope we don’t have to wait till oil and coal run out before we tackle that." - Thomas Edison