Questions About Renewable Energy Certificates

What are Renewable Energy Certificates?

To understand Renewable Energy Certificates (RECs), you first need to understand what makes renewable energy desirable, as well as a little about how electricity is transmitted.  Renewable energy is basically: Commodity Electricity (Neutral Electrons) + Environmental Benefit (Renewable Energy Certificates).  Renewable energy needs to be separated into these two parts because of the nature of the energy grid. When electricity is transmitted through the power grid, it has no environmental attributes. It is simply made up of neutral electrons. There is no way to tell the difference between an electron that was delivered to the grid by a renewable power plant and one from a coal fired power plant. What is of concern is not the electrons themselves, but rather how the electron stream was generated.  Renewable energy is desirable because producing it doesn't cause the environmental damage associated with conventional electricity generation, and further, it doesn't influence our foreign policy. So, in essence, when you produce renewable energy, you are delivering both neutral electrons and environmental and social benefits.  Renewable Energy Certificates are a way for producers of renewable energy to sell the two parts separately. The certificates can be sold to anyone who wants to support renewable energy, while the electricity is sold on the open market without any claim about its environmental attributes.

What is the benefit of buying Renewable Energy Certificates?

Since a given unit of green energy generated represents an 'input' into the grid, it therefore displaces the same amount of fossil fuel energy. Federal law mandates that those who manage the grid purchase renewable energy whenever it is available. An increase in demand for renewable energy will decrease the amount of fossil fuel energy generated. In addition, certificates can be key to building new, clean renewable generation facilities in the United States; new facilities are being built today based in part on certificate sales. Your purchase of Renewable Energy Credits (RECs) benefits the environment by increasing renewable energy generation, facilitating the construction of new renewable facilities, and displacing fossil generation from the electricity system.

How do Renewable Energy Certificates work?

When a renewable energy generator produces electricity, it has two options: a) sell the green electricity on a contract to a willing buyer or b) sell the commodity electrons to the utility managing the grid and sell the remaining Renewable energy Credits (RECs) to a third party. Since that third party is already buying commodity electricity from somewhere else, its utility provider, for example, it only needs to buy the Certificates to claim the environmental benefit. Once the RECs are sold, the generator must produce an "attestation" form to complete the transaction. This proves that the generator actually produced the renewable energy purchased and acts as the operative instrument of the transaction. The generator, in turn, must submit its meter data to the power authorities, who do a detailed accounting on an annual basis. There is also a voluntary organization called "Green-e" that monitors such sales. Such organizations keep the system functioning smoothly with no room for fraud.  While there are places, generally in remote areas, that power themselves with propane, solar, or other fuel sources, most of us are intimately connected to the power lines that serve our communities. The interconnection of these power lines is referred to as "the grid." Anyone who produces electricity can feed it into the grid, and anyone who needs it can take it off the grid through his or her existing utility service provider. Utility companies control the grid in local or regional areas, monitoring how much electricity is being drawn from the grid and ensuring that enough electricity is being supplied. To meet consumer demand, utilities purchase electricity produced at area power plants, both renewable and dirty, and all of that electricity is mixed together in the grid. In the contiguous U.S. there are 3 main grids; the Western Grid (11 western states), the Eastern Grid (everything else) and the Texas Grid.

How does renewable energy work on the grid?

Qualifying renewable power producers must register with the appropriate power trading authorities and are labeled as certified renewable power plants. After a plant is certified as renewable, those that manage the grid must purchase any output from that certified power plant, displacing conventional sources of fossil fuels such as oil, gas, and coal. Once the electricity is plugged into the grid, it makes no difference how it was produced, at least from the perspective of utility companies, because by then it is simply made up of electrons that are identical to the output of any other kind of power plant. For those that manage the grid, the only way in which renewable energy is different is that they must give it priority when purchasing, but that does not mean that they pay more for that electricity. In fact, they are required by law to supply their customers with the lowest cost energy available. As a result, renewable energy facilities receive the same payment per megawatt hour produced as do dirty power facilities. In a nutshell, the fact that the grid will give priority to, but not pay more for, renewable energy explains the need for breaking the energy into two portions: the electrons and the environmental benefits.

Does the green energy come to my home or place of business?

Not exactly. If you wanted to receive the specific electrons generated by a specific renewable facility, you would have to string power lines from that facility to your home or place of business, which is prohibitively expensive and impractical. The grid was created in the first place to prevent such a situation. If you are connected to the grid and buy either renewable certificates or renewable energy, what you will buy is the claim to the production of the renewable power. This means that you will be able to legitimately claim that the power (and pollution associated with it) in your home is being offset by renewable energy. In many ways, the power grid is like a large bathtub with several faucets and several drains. Imagine that one faucet pumps out dirty water, while another faucet delivers clean, clear water. When you purchase renewable energy, you turn on the clean faucet and turn off the dirty one. The water that drains out of the bathtub is still pretty brown, but it is cleaner than it was before you turned on the clean faucet. In the same way, your renewable energy purchase helps the grid's fuel mix become cleaner, but the mixture on the grid is still rather brown.

Who verifies that the transaction is legitimate?

Renewable Energy Certificates are certified by the Green-e Energy certification program (, sponsored by the non-profit Center for Resource Solutions, and is subject to a complex audit each year that accounts for every last megawatt hour of Renewable Energy Certificates sold, who sold it, who purchased it, where that energy was generated, and so on, until there is no question as to the proper origin and title of the certificates. This eliminates fraud and double counting, and helps to ensure customer confidence in their purchases.

Are Renewable Energy Certificates a way to avoid being punished for polluting?

No. Many companies produce pollution in several ways. Energy use is generally a huge source of pollution, but many industries also produce other kinds of pollution during the manufacturing process. We must remember that the purchase of Renewable Energy Credits is a voluntary decision, while most of the familiar 'pollution credit' trading is based on a mandatory, federally regulated system in which there is an artificial "cap" on how much pollution is acceptable (subject to intense political lobbying, often by the polluters themselves). Companies that use green energy or Renewable Energy Certificates to run operations that produce other forms of pollution have the same claim to the green energy/certificates as companies that make environmentally neutral products. Both types of operations are objectively supporting renewable energy generators.

Do my Renewable Energy Credits actually contribute to environmental change?

Providing a market-based solution for people to exercise their values encourages innovation and prosperity within the renewable energy space. In fact, most skepticism about Renewable Energy Certificates arises from a lack of understanding of how the grid works and the operational realities of renewable power plants. The system we have in place benefits everyone by offering renewable power producers a way to sell renewable energy without having to find buyers every time the sun shines, the wind blows or the rains come. It also allows them to recoup their costs more easily and stay in business. The buyer gets a benefit by not having to change his or her existing electricity service, but still having claim to the benefits realized by buying green energy. The environment wins too, because more renewable energy is being generated and displaces the burning of fossil fuels.

Why is there a system in which the environmental benefits of renewable energy can be sold separately from the electricity?

The system was created to provide greater efficiency and flexibility for buyers and sellers. One key reason for sellers is distance: A renewable energy producer in the middle of nowhere can't always send electrons to densely populated cities where people might care about renewable energy, but he can sell the environmental attributes of this energy. This allows him to site the facility in the most appropriate place for generating energy and then sell to the most lucrative market for the benefits, free of delivery constraints. Another reason for the seller is time: Energy is not always produced when people need it most, yet when it displaces oil, gas and coal, the environmental benefits provided are just as important. With Renewable Energy Certificates, the generator sells the power to the grid at the moment it is generated but can sell the Certificates a day, month, or year later. This has the advantage of complete efficiency, selling each part of the energy to the easiest and most appropriate market. On the buyer's side, buying certificates makes it easy to purchase green electricity without involving the local utility and the kind of complex scheduling, transmission and delivery intricacies normally required to deliver actual power. Furthermore, for electricity consumers living in regulated energy markets where there is no choice between electricity service providers, certificates are often the only option for purchasing renewable energy (other than installing solar panels or other devices on site.

HomeWho We ArePennies for PowerREC's for Investors30% Federal Tax CreditFAQs and LinksContact Us