The renewable energy market is booming – with more corporations and utilities investing in sources like solar, wind, and hydroelectric to meet sustainability goals and government mandates. This growth has spurred rapid development of Renewable Energy Credits (RECs) to track renewable energy usage and compliance.
In this blog post, we’ll simplify RECs, outline the key players in REC trading, explain why RECs matter, and discuss how specialized software can help manage the complexities of renewable energy credit accounting and transactions.
By clearly defining RECs, why they hold value, and how our solutions can track them, energy companies can better evaluate opportunities in renewable energy.
What is a renewable energy credit?
A Renewable Energy Credit (REC) is a tradeable market-based instrument used to track and verify renewable energy usage. In simple terms, a REC represents the environmental benefits of 1 megawatt-hour (MWh) of renewable electricity generated.
How do renewable energy credits work?
So, how do they work? For every 1 MWh of renewable electricity created (for example from a solar panel system), 1 REC is also generated. A REC can then be sold and traded separately from the underlying physical electricity. The owner of the REC can claim they used renewable energy.
It’s important to note the key differences between RECs and carbon offsets. RECs specifically track renewable energy generation. Carbon offsets allow companies to fund projects that reduce greenhouse gas emissions to compensate for their own emissions.
Who are the players in the REC trading market?
There are a few key participants in the REC trading market:
- Renewable energy developers: The organizations that invest in, build, and operate renewable electricity projects like wind farms or rooftop solar
- REC brokers: Intermediaries who help connect renewable developers with buyers for their RECs
- Power utilities: Many eElectricity providers that are required by law to source a percentage of their power from renewables through Renewable Portfolio Standards (RPSs)
- Corporations: Major companies like Google, Amazon, Apple, etc., who voluntarily buy RECs to meet sustainability targets and make greener business claims
Why do RECs matter?
RECs serve both regulatory and voluntary purposes. They provide the following core value:
Help meet RPS requirements: Utilities can retire RECs to demonstrate they sourced electricity from renewable projects, as mandated by state laws.
Bolster renewable project revenue: The extra income from selling RECs helps improve profitability for wind farms, making these ventures more cost-effective.
REC tracking systems: challenges and software solutions
The main complexities with RECs involve regulatory and geographic fragmentation. There are separate REC tracking systems in different states, countries, and power markets. Prices also vary greatly based on supply and demand factors like RPS policies.
This decentralized tracking landscape creates major coordination and accounting headaches. Spreadsheets fall short managing high REC volumes across compliance markets with different rules. Specialized software provides robust renewable energy credit management with functions like:
- Forecasting production volumes and credit requirements
- Handling transactions from multiple tracking registries
- Tracking inventory, retirements, and transfers
- Producing reports for compliance filings
- Valuing credits and assessing market risks
By centralizing all REC data flows into one platform, energy companies can simplify oversight. This helps them fully capitalize on these fast-growing environmental commodities to optimize profits from renewables.
PCI is a trusted partner to energy companies around the world with a 30-year track record of rapidly adapting to the ever-changing energy landscape and policies. Let us help you take advantage of the opportunity to trade new commodities like renewable energy credits (RECs) — visit our Renewable Energy Trading & Scheduling page to learn more.