When people find out I'm an energy journalist, they often ask me how ordinary people can support clean energy. I have found through repeated conversation-killing experience that people who ask this question do not want to hear about politics or policy. They want to know how to express themselves through their purchases.
So can you buy clean energy? The answer is yes! In fact, there are all sorts of ways to do so, several of which I plan to cover in my next post.
But in order to understand and assess them, it is first necessary to grapple with a boring but crucial mechanism that lies at the heart of all clean electricity purchases in the US.
Yes, we need to talk about Renewable Energy Certificates (RECs).
RECs are not what you'd call a super-fun topic, but if you want to buy clean electricity in the US, you need to come to terms with them. So let's jump in.
There is no such thing as clean electricity, which makes buying clean electricity tricky
RECs are, above all, the answer to a need: the need to buy green electricity. Why do people need to buy it? The primary reason is that policy in many states mandates that utilities buy more green electricity, through a Renewable Portfolio Standard (33 states now have some version of an RPS). Beyond that, government agencies often aspire to procure some percentage of their electricity from clean suppliers. Beyond that, companies often want to buy green electricity for reputational purposes — it's nice to be able to say, "Powered by 100 percent clean electricity!"
And beyond that, concerned individuals often want to be able to show their support for a clean energy transition by buying green electricity directly.
So there's demand for green electricity. But there's a problem.
Remember a key fact about electricity: Once it is dumped onto the grid by a generator, it blends in with all the other electricity. There's no way to track "clean electricity" through the system, any more than you could track a cup of water you dumped into a river.
In other words, it's impossible, physically speaking, to draw only green electricity from the grid. Physically speaking, there is no such thing as green electricity. There are no clean electrons and dirty electrons, only electrons.
So you can't buy green electricity, not literally.
This poses something of a dilemma for people who'd like to buy it (and those who'd like to sell it). You can't buy or sell the thing itself. So what can you buy and sell?
RECs are the US electricity system's answer to that question.
What are RECs?
There are all kinds of myths and misconceptions floating around about RECs. So it's important to get clear on what they are. (If this doesn't sate your curiosity, see also this short NREL primer and this EPA page.)
When a renewable energy generator — a wind farm or solar power plant, for example — generates a megawatt-hour (MWh) of power, it creates two sources of value. It creates electricity, which it can sell at prevailing market rates. And under federal law, it receives one REC, a certificate saying that it generated one MWh of electricity from clean sources, which it can also sell. This means every renewable generator in the US (as long as it meets certain criteria) has two revenue streams, electricity and RECs.
The REC represents the social and environmental benefits of an MWh of clean energy. You can think of it as the mirror image of a carbon tax: Rather than putting a negative value on carbon emissions, it puts a positive value on clean generation.
The creation of RECs splits "green electricity" into two separate revenue streams: greenness and electricity. The electricity is sold as KWh. The greenness is sold as RECs. An REC is effectively a certificate of property rights over one unit of greenness.
Once you've got a system of RECs established, you make it possible to buy green electricity. You just buy some electricity (from anywhere), buy the same amount of greenness (in the form of RECs), and boom, the electricity is green. The electricity and the greenness are separate products, with separate markets.
So, say I'm an industrial customer who buys 1,000 MWh a year from my utility, which mostly offers coal and natural gas power. If I also buy 1,000 RECs, I am officially "powered by 100 percent clean electricity." I purchased an amount of greenness equal to my electricity consumption.
These RECs can be bought and sold; they are a kind of currency. But, importantly, only the party that "retires" the REC — i.e., takes it out of circulation — can claim the environmental benefits.
When a utility says it is getting 20 percent of its energy from clean sources, what it means is that it has bought and retired a number of RECs equal to 20 percent of the power it sold. When a customer buys green electricity from a utility, what she's really doing is paying the utility to retire a set number of RECs. When a business says it is "powered by 100 percent clean electricity," it means it bought and retired a number of RECs equal to its power consumption.
You'll note that this leads to a somewhat counterintuitive situation: If you buy electricity from a wind farm but do not buy an equal number of RECs from it, you are not buying "green electricity." You're only buying the electricity, not the greenness. Whoever buys the RECs gets to claim the greenness. You're obviously supporting the wind farm, which you may view as good in and of itself. But you're not buying clean electricity.
Now, there's nothing intrinsically shady about any of this. It is simply a way of giving the positive externalities of renewable energy generation a tangible representation in the marketplace. Where questions about RECs arise is in the way they are used and the claims that some people make on their behalf.
What are RECs used for?
The original impetus behind RECs came early in the 2000s from utility "green power" programs, through which customers could voluntarily pay a little extra for renewable energy. In the latter half of the decade, RECs were adapted as a way for utilities to comply with state renewable portfolio standards (RPS), which required utilities to procure a set and rising amount of their power from renewable sources. Those remain the two big markets, the voluntary market and the "compliance" market.
Don't freak out, but I'm going to blow your mind a little bit with a spaghetti graph of where RECs come from and where they end up:
You don't have to decode all this. Just a couple of things to note.
First, that green column on the far left shows what energy sources comprise RECs. As you can see, it's mostly wind, which accounts for 67 percent of the total market. Everything else is a comparative sliver, especially solar way down there at the bottom.
Second, the column on the far right shows where RECs end up. The big red box is the compliance market, where utilities retire RECS to comply with state renewable energy standards. That makes up about 80 percent of RECs retired each year. (Utilities can also "bank" RECs for future compliance.)
The other 20 percent or so are retired on the voluntary market. Who retires them? Those purple boxes to the left of the voluntary market tell the tale. By far the biggest buyers of voluntary RECs are large companies, which buy them in order to make green claims. Residential homeowners and federal agencies account for most of the rest.
Here it's important to note that compliance markets tend to have much higher standards, and thus much more expensive RECs, than voluntary markets. For instance, compliance RECs must be bought from within the utility's own region. Some RPSs include carve-outs for specific technologies, which means some utilities must buy, for example, solar RECs. Some state RPSs, like California's, require that RECs be "bundled" with the electricity that generated them. All these restrictions raise prices.
The voluntary market does not face those restrictions. You can buy RECs from anywhere in the country, from any technology, unbundled. A nonprofit certification program called Green-e does impose some standards on voluntary RECs, but it's a low bar to clear, which is why voluntary RECs are dirt cheap.
What are RECs not?
The primary characteristics of a REC are its energy source (wind, solar, etc.), the age of the generator, and its geographical location. All those characteristics are knowable and can affect its price.
An REC is not a guarantee that any particular amount of fossil fuel electricity generation is avoided. It is not a guarantee that any particular amount of carbon emissions was avoided. It is not an "offset."
It is possible to estimate how much fossil fuel generation or carbon pollution was avoided by an MWh of renewable energy. Doing that requires a counterfactual: How much would have been burned or emitted if the clean MWh hadn't been generated? Like any counterfactual, however, this involves some assumptions, valuations, and predictions. There's a great deal of uncertainty in the modeling.
The claims sometimes made by companies that sell RECs — that an REC worth one MWh displaces or avoids one MWh of fossil fuel electricity — are, shall we say, approximate in a way that is not always communicated to the customer.
Big-picture-wise, the growth of renewable energy does affect fossil fuel use. It does affect carbon emissions. But those effects are at a systems level; it certainly can't be reduced to a one-for-one MWh-for-MWh exchange.
In short, it's best to think of buying RECs not primarily as a blow against fossil fuels or carbon emissions, but as a (modest) blow for clean energy. You will have some knock-on effects on the former, but your most direct effect will be to support the latter.
Do RECs actually lead to more clean energy?
RECs sound complicated and somewhat counterintuitive, and the whole idea of buying and selling greenness is a bit unsettling. That leads many people to assume that the system must be a scam — a bunch of paper shuffling and double counting, a game of three-card monte.
It's an understandable reaction, but in reality, the system of RECs is quite well-established and tightly monitored. There are regional tracking organizations that give each REC a unique identifying number; every transaction involving the REC must be registered with such an organization. These organizations ensure that environmental benefits do not get double counted, that no one claims environmental benefits they are not due, and that RECs stay retired when they are retired. (For more, see the Environmental Tracking Network of North America or this overview from EPA.) In the voluntary market, Green-e certifies most RECs.
Anyway, chicanery is not really the problem with RECs. The problem, ironically, is that the thundering success of renewable energy, especially wind, has left the market highly oversupplied. At least right now, there are way too many RECs floating around.
In the period from roughly 2007 to 2012, the federal production tax credit (PTC) for wind power was quite generous. This drove a massive buildout of wind power, leading many states to blow right past their RPS requirements. (Texas has already exceeded its 2025 targets, 10 years early.)
Utilities banked a bunch of those RECs to comply with future RPS targets and released the rest of them to the voluntary market. In some big wind states, like Oklahoma, there is no RPS, so all the RECs went to the voluntary market. As you'd expect, that flood resulted in rock-bottom prices.
And that's how things remain today. Here's a map of the five REC regions of the country, with their RED demand as of 2012 and REC prices as of 2013.
Again, two main things to notice.
First, in almost all regions of the country (with the exception of the Northeast, where wind expansion has been choked by transmission constraints and local opposition), there's a massive oversupply of RECs, which has yielded extremely low prices.
Second, as you can see in that box on the bottom right, this has also resulted in ridiculously low prices in the voluntary market. The key thing about the voluntary market is that it is not bound by any region, so it tends to sync up with the lowest prices in any region.
Anyway, RECs are cheap, so cheap they have become all but irrelevant to the financing and investment decisions of the power industry.
That's a problem.
People who voluntarily buy RECs want to know that they are getting "financial additionality." In other words, they want to know that their REC purchases are a helping to build clean energy projects that wouldn't otherwise get built.
Additionality is notoriously difficult to establish, but in the present case, RECs are so oversupplied and so cheap that it's pretty easy to conclude they're providing virtually no financial additionality at the moment. They're just not a big enough revenue source to make the difference on a large power project. Most projects receiving REC revenue now would have been built regardless.
Does that mean RECs are worthless? I don't think so. But everyone should be clear what they're getting.
It's unlikely that RECs are currently providing much direct financial additionality, but it can still be argued that they provide indirect additionality. In other words, the availability of this modest second revenue stream may not make the difference on any individual project proposal, but on a total market basis, the additional revenue, combined with the tangible demonstration of a demand for clean electricity, favorably changes economic conditions for renewable energy.
On the other hand, that's a pretty modest effect relative to a lot of green claims. It's incredibly cheap now for a business to be "powered by 100 percent clean electricity," but by the same token, it's probably not doing all that much for renewable energy.
There are some ways businesses can more directly help renewable energy, but it can be difficult for consumers to pick those signals out of all the green noise. The door is open to all kinds of greenwashing.
So should you buy RECs? I'll discuss it more in my next post, but the short answer is, sure. They're cheap! Just be aware that under current market conditions, they don't have a very big impact. (That's why they call it cheap.) If you want a bigger impact, buy more expensive, higher-quality RECs and reward businesses that do the same.
How can RECs be improved?
I'll just briefly touch on two reform ideas.
The problem with the REC market now is that it's out of balance; supply exceeds demand. Thus RECs are cheap, and thus have little market-moving impact. The obvious solution is either to constrain supply or boost demand.
- Reform Green-e standards. Obviously no one wants to constrain the supply of renewable electricity; more is better. But it is possible to constrain the supply of voluntary RECs, simply by tightening the standards they have to meet. (Arguably, large tranches of tech-neutral, geography-neutral, age-neutral RECs, some of which aren't even Green-e certified, should be eliminated entirely; they are junk.) Green-e could require that RECs be constrained to the region of their origin, that they be "bundled" like California does, or that they pass some sort of additionality test. All such standards would raise both the quality and price of voluntary RECs.
- More and higher RPSs. The best way to boost demand for RECs is to increase the stringency of existing RPSs, and pass RPSs in states that lack them. Regions where RPSs are scheduled to rise, like the MRETS region (Minnesota, Wisconsin, Illinois), will slowly work their way out of oversupply and rebalance the market over the next five years. But in ERCOT (Texas), where the RPS is fairly low, already exceeded, and not set to rise, it is oversupply as far as the eye can see.
RECs are crucial for evaluating clean energy purchases
If you want to buy clean electricity in the US, you need to know what you're getting, so you need to understand RECs.
In my next post, I'll review a few different ways that people can support green power these days. Most involve RECs. Having slogged your way through this background, you will now be better equipped to evaluate those options.