In Asia, the most recent entrant in the REC bandwagon is India, which launched the REC mechanism in the country in November 2010 to encourage competition and use of renewable energy.
A big hindrance to the development and promotion of green technologies is cost. Many a time due to high expenses, new technologies don’t move beyond small scale implementation. Now, there may be hope in the purchase of Renewable Energy Certificates (RECs).
The California Public Utilities Code defines an REC as “a certificate of proof…that one unit of electricity was generated and delivered by an eligible renewable energy resource.” The idea is to track the production of green energy while allowing people to monetarily contribute towards its development.
Also known as Tradable Renewable Energy Certificates or just Green Certificates, RECs are the unofficial “currency” of the renewable energy market, representing the value of renewable energy generated. RECs are bought by utilities or brokers who in turn resell them to individuals. A single REC is equal to one megawatt hour of green energy produced. In other words, it is one hour of power utilized from a green and renewable source rather than from fossil fuels. Consumers can target particular resources as well, by buying solar, wind or hydropower RECs.
RECs have been around for around two decades now. The concept developed in the 1990s after electricity generation was deregulated and the power was then offered at very low prices by different vendors. In such a scenario, green energy sources were dealt a body blow due to their expensive price tag. To encourage the usage of alternative energy sources, the U.S. government outlined the Renewable Portfolio Standard (RPS) in 1999. It specified that utilities should generate a certain amount of electricity using renewable sources. Soon, the first renewable energy credit trading program was developed, which was the basis for the REC. By the end of 2006, 18 states in the U.S. began trading in RECs.
A newly released report from Colorado based Pike Research, a clean
technology market research firm, forecasts that the REC market, both
compliant and voluntary, will triple in size to 329 million MWh by 2015.
The main advantage of RECs is that they allow consumers to support renewable energy efforts. In turn, green projects get subsidized and the prices are reduced. The more RECs purchased, the more clean energy is in circulation.
RECs are issued by the government and are traded through two markets. Compliance Markets are created by electric companies and utilities seeking to meet their RPS targets. For instance in California, electric companies would need to display RECs worth 33% of their electricity sales. On the other hand, Voluntary Markets are driven by individual consumers and companies who want to contribute towards green energy by purchasing RECs rather than buying renewable electricity directly.
So how do consumers know that the certificate they purchased, has really made a difference? For this purpose, many RECs undergo an ‘additionality’ test, which proves to consumers that their contribution is being utilized somewhere or at least promises to show results. The most widely used verification for RECs in the U.S. is the Center for Resource Solution’s Green-e TRC Standard. Green-e’s 2009 report shows that there was a 43% jump in retail sales of their verified RECs and over 18 million MWh were purchased.
Europe is not far behind the U.S. In 2001, the European Union established directives for sourcing 12% of the region’s electricity from renewable resources, with the U.K. and Sweden among the earliest adapters. In 2007, the EU chalked out a Renewable Energy Target to source 20% of its total energy needs from renewable sources by 2020. This has now spurred a green energy boom and REC sales are soaring, assisted by a growing awareness about alternative energy sources.
No doubt, RECs are emerging as crucial promoters of clean energy usage. Recently, Sweden and Norway signed an agreement to form a common green certificate market. Slated to begin functioning by January 2012, the countries expect to generate around 26.4 terawatt hours together. “A system of green certificates will ensure the development of emission-free, environmentally-friendly energy in an efficient manner,” affirmed Marius Holm, deputy chief of Bellona, a Norwegian green organization. Indeed, as countries worldwide seek to knit back the planet’s green cover, RECs appear to be one of the best ways to lend a helping hand.