REC 101 - Helping Federal Agencies Meet the Renewable Energy Goal

March 7, 2007

Renewable energy certificates (RECs), also known as renewable energy credits, tradable renewable certificates, or green tags, have become an important element of the market for renewable electricity. RECs represent the environmental and other attributes of electricity generated from renewable resources. These attributes may be unbundled and sold separately from the physical electricity.

RECs (and other renewable power purchase options) enable a site to realize the benefits of renewable energy in the near-term without having to deal with the finances and time needed to install an on-site renewable energy system. On-site renewable systems require investment, but provide renewable energy to the site over their lifetime of up to 25 years. RECs are purchased for a specific period, usually one to three years, and have a specific price. RECs are available to any site and may be purchased from renewable generation sources located anywhere in the country. Thus, RECs are a viable option for any location, but are especially useful for sites located in states without a competitive electricity market and/or when the local utility does not offer a green pricing program. Federal agency purchases of RECs were a significant contributor to the Executive Order 13123 federal renewable energy goal, and are planned as one of several means to meet the Energy Policy Act of 2005 renewable energy goal.

Competitive REC prices are typically much lower than utility green pricing rates and are usually lower than renewable power purchased in competitive electricity markets. REC prices have fallen dramatically in recent years. Market prices for national federal purchases in 2005 and 2006 have typically ranged from $1 to $3 per megawatt-hour (0.1 to 0.3 cents per kilowatt-hour) versus $10 per megawatt-hour or higher when the REC-type product first entered the renewable market. REC prices vary, depending on factors such as renewable resource type and location. States with renewable portfolio standard (RPS) requirements typically have higher REC prices due to increased demand.

Evolution Markets has a monthly REC price report that includes "Compliance" and "Voluntary" market prices. Compliance prices are for RECs that are purchased by utilities or energy suppliers to meet state RPS requirements. Voluntary prices are for large REC buys done on a voluntary basis by federal agencies, private companies, and other entities.

Federal agencies may purchase RECs through either the Defense Energy Support Center or the General Services Administration (GSA). Both have significant experience purchasing RECs. The Western Area Power Administration has a new federal renewable program that is primarily available to agencies in their service territory, encompassing most of the western United States.

There are several verification and certification programs for RECs and other renewable products that are helpful in providing some assurance that a supplier's claims are accurate and that the product meets minimum standards for quality. Federal agencies are encouraged to include an annual verification audit requirement in their REC purchases (see Third Party Verification FY05 Guidance).

This article provides basic information about RECs. For additional information, please see the Green Power Network Web page. Also visit FEMP's Web site on Renewable Purchasing and download the Guide to Purchasing Green Power. A detailed discussion of RECs is also contained in the report, "Emerging Markets for Renewable Energy Certificates: Opportunities and Challenges." (PDF 1.9 MB) Download Adobe Reader.

If you are interested in purchasing this type of product or if you have other renewable power questions, please contact Chandra Shah of the National Renewable Energy Laboratory at mailto:chaundra_shah@nrel.gov or 303-384-7557.