Riposte on REC’s

Last Wednesday, I listened in on the monthly renewable energy teleconference co-sponsored by the American Council on Renewable Energy (ACORE) and the American Bar Association (ABA). This month’s topic: renewable energy credits (REC’s).

October 18 REC teleconference

I have historically found REC’s a maddening topic. REC’s should be conceptually easy to understand, but they have a number of complexities that in actuality prevent them from being much of a factor in the real-world marketplace. The presenters provided an excellent overview of the nuances associated with REC’s:

  • Inconsistent definition of REC’s among different states inhibits the ability for trade between renewable project developers/owners and “green” buyers (mandated or voluntary) beyond state borders. Thus, there are many illiquid REC markets across the U.S., rather than one possibly-liquid national REC market.
  • Since REC’s compel the development of renewables, a REC is a “coupon” that is intertwined with not one but in fact several attributes simultaneously: reductions on various pollutants (CO2, NOx, SO2, particulates), and provision of energy from a permanent (as opposed to a depleting, fossil fuel) source. However, a persuasive argument can be made that the values of each of these attributes is better realized in an unbundled manner.
  • These attribute values change immensely depending upon the renewable resource involved and the conventional energy source displaced — which in turn varies tremendously by geography and time of day/week/month/year. Without adequate liquidity, such volatility and lack of transparency make for an unattractive market for buyers, sellers and intermediaries alike.
  • The accounting and legal ownership of REC’s is very unclear, making double counting very easy. This is further complicated by the fact that the intent of REC’s is to create a market for “new” renewables that promote further reductions in emissions and fossil fuel reliance, rather than to provide a means to monetize the desirable attributes of a pre-existing renewable source (e.g., a 1950’s hydro plant).
  • Because of these concerns, various parties have emerged to validate the authenticity of REC’s so that buyers know what they are buying. The fact that authenticating organizations are necessary, and are competing to set standards, is not a good sign for the future health of a traded market.

With all of these issues surrounding REC’s, it’s no wonder that they haven’t made much of a contribution to further development of renewables in the U.S. I’m not bullish about their future. The future growth of renewables will be driven more by other factors — improved relative economics of renewables, mandated purchases of renewables by states or corporations — than by the existence of these clumsy REC’s.

9 replies
  1. perkydanp
    perkydanp says:

    REC’s need a separate identity. Energy efficiency has been ignored as having a value when compared to renewables. Renewables are easy to quantify by counting the kWh or BTU’s produced but far more valuable are EE’s (Energy Efficiency) measures that don’t require creating BTU’s or kWh.LEED (Leadership in Energy and Environmental Design) under the guidance of the USGBC commercial/industrial buildings are a good example. Using Recycled materials, installing water saving devises, insulation reducing HVAC demand, cool roof materials, low E-windows, non-toxic materials and sensor controls throughout the building are some of those things that LEED awards are given for. REC’s should be given for recognizing performance in five key areas of human and environmental health: sustainable site development, water savings, energy efficiency, materials selection, and indoor environmental quality.New residential developments the exceed Title 24 values need to be recognized for a value that is quantifiable based on a rating by third party inspections. Placing a value on Energy Star appliances, cool roofs, Low-E-Windows, insulation beyond Title 24, water saving devises, placement of trees for shade are all things that can add points for REC’s.A third party “Rater” can give a value to those EE things done by retrofitting existing buildings, both residential and industrial/commercial. Existing occupied buildings can clearly count the savings based on the reduction of their utility bills. Un-occupied homes or buildings can also be rated based on a preview of those things that need to be done and applying points by verifying the work done. The “Raters” are trained and ready for work, software is in place for placing values by US Green Building Council and HERS providers. The wheel does not need to be reinvented for REC or Green Tag values.Dan PerkinsEnergy Smart HomesSan Diego CaliforniaDan@EnergySmartHomes.net

  2. Neal Dikeman
    Neal Dikeman says:

    Richard,How do you see the evolution of RECs comparing or interacting with the evolution of emissions credits, or do you see them evolving as totally separate products/markets?Neal

  3. Diane Dandeneau
    Diane Dandeneau says:

    I have been researching REC's and even selling them, and am concerned about the quality and transparency as well. I do believe REC's have value and are like recycling as a starting point for people to begin to feel that they are a part of positive change. But like recycling, reducing our use is an even better solution.

  4. Marco & Shauna
    Marco & Shauna says:

    I'm having a Solar Hot Water system fitted to my new house in Australia – and as such the system will generate a certain number of REC's. I have the option of selling them to the manufacturer – but I'm finding it very difficult to establish their true worth – ie is the manufacturer 'ripping me off?'.Any ideas?

  5. Marco & Shauna
    Marco & Shauna says:

    I’m having a Solar Hot Water system fitted to my new house in Australia – and as such the system will generate a certain number of REC’s. I have the option of selling them to the manufacturer – but I’m finding it very difficult to establish their true worth – ie is the manufacturer ‘ripping me off?’.Any ideas?

  6. Marco & Shauna
    Marco & Shauna says:

    I’m having a Solar Hot Water system fitted to my new house in Australia – and as such the system will generate a certain number of REC’s. I have the option of selling them to the manufacturer – but I’m finding it very difficult to establish their true worth – ie is the manufacturer ‘ripping me off?’.Any ideas?

  7. Marco & Shauna
    Marco & Shauna says:

    I’m having a Solar Hot Water system fitted to my new house in Australia – and as such the system will generate a certain number of REC’s. I have the option of selling them to the manufacturer – but I’m finding it very difficult to establish their true worth – ie is the manufacturer ‘ripping me off?’.Any ideas?

  8. Marco & Shauna
    Marco & Shauna says:

    I’m having a Solar Hot Water system fitted to my new house in Australia – and as such the system will generate a certain number of REC’s. I have the option of selling them to the manufacturer – but I’m finding it very difficult to establish their true worth – ie is the manufacturer ‘ripping me off?’.Any ideas?

  9. Peter
    Peter says:

    Heck, its so confusing that I, as a solar installer in Colorado, dont even know what a REC is worth. What do I tell my customers? I have heard that they are worth about 2cents per KW and potentially another 1.9cents per KW from some government thing. Whats the real story?

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