Renewable Energy Certifi cates (RECs), also known as “green tags,” “green certifi cates,” and “renewable energy credits,” are tradable instruments which can be used to meet voluntary renewable energy targets as well as to meet compliance requirements for renewable energy policies. A REC is a certifi cate that indicates the generation of one megawatt hour (MWh) of electricity from an eligible source of renewable power. Each REC denotes the underlying generation source, location of generation, and year of generation (a.k.a. “vintage”). RECs are often
considered to represent a claim to the environmental attributes associated with renewable energy generation.
What are the differences between compliance and voluntary markets for RECs?
Policies that require electricity service providers to incorporate a minimum level of renewable energy in their electricity supply create compliance markets or mandatory markets for RECs. These energy policies, such as state Renewable Electricity Standards (RES) and Renewable Portfolio Standards (RPS), specify the eligible energy resources or technologies that can be utilized and describe how electricity service providers must comply. (For more information on RES/RPS, see Issue 5 of The Bottom Line.) Electricity service providers must produce or obtain RECs in an amount suffi cient to meet their renewable energy obligations under an RES/RPS.