Global warming is urging businesses to prioritize sustainability in its practice. To help renewable energy projects compete with less sustainable companies, the market-based instrument gave birth to a Renewable Energy Certificate (REC). How does a Renewable Energy Certificate (REC) work?
Renewable Energy Certificate (REC): understanding the basic
Renewable Energy Certificates (RECs) are a form of market-based instruments. The amount RECs units comes from the amount of energy saved from the power grid. It tracks solar, wind and other green energies flowing through the power grid, and transform it into the measurement unit, megawatt-hour (MWh). In short, owning RECs means the owners are eligible for one megawatt-hour (MWh) of renewable energy resource-generated electricity.
Noted from Investopedia, REC is also known with a lot of different names. Other names for REC are Green tag, Tradable Renewable Certificates (TRCs), Renewable Electricity Certificates, or Renewable Energy Credits.
What do we do with RECs?
Owners of RECs may sell their certificates. But, they usually use it as a credit for their own power usage too. Where do the owners sell the credits to? It could be to other owners, or to power companies. Power companies usually look for RECs to renew their Renewable Portfolio Standard (RPS).
RECs are also trade commodities. REC arbitrage, or REC swap is the act of buying and selling RECs of different prices. Hence, traders can earn profits through the disparity between the buy and sell price.
A lot of state and local government, regional electricity transmission authorities, non-government organization (NGOs), and even trade groups have acknowledged RECs. However, it is important to keep in mind that the law regulating RECs differ from one country and another. Another thing to note is that RECs expirations date falls 5 years after it is generated.