What Are RECs?
When an individual or group becomes interested in buying clean power the first, and most obvious, solution is to purchase the power directly. This involves finding someone producing clean power who sells that power to the same ‘grid’ that you belong to and arranging to purchase that power from them. This is what is known as a ‘delivered product.’
However, for many states, Maryland included, it is very hard to find cost-effective ‘delivered products.’ Maryland, for example, does not have any wind farms, solar installations, or geothermal plants. They have a few landfill gas plants and small biomass producers, but nothing large scale. Even within the PJM Interconnection, Maryland’s ‘grid,’ there are not very many clean power producers. This means that individuals or groups in Maryland looking to purchase green power are going to have a hard time finding deliverables to purchase.
This is where Renewable Energy Credits (RECs) step in. To explain what they are it is best to use an example market:
Market Assumptions:
Traditional fossil fuel energy costs .07 cents per kilowatt hour
Clean energy costs .08 cents per kilowatt hour
In this imaginary market, like most U.S. markets, clean energy costs more to produce than fossil fuel energy. However, to remain competitive, the clean energy producers still have to sell their energy to the grid at the same price, taking a 1 cent loss. All energy is the same once it hits the grid, so consumers in this fictional market do not see any reason to pay more when coal energy turns on the lights the same way that wind energy does.
Clean energy operators in the past had two choices: they could either refuse to sell electricity to the grid at anything below their operating costs (and end up with most consumers buying the cheaper fossil fuel power) or they can sell their electricity at a loss. Both of these scenarios stunt the growth of clean energy - why would you invest in an industry that does not make money?
There are two solutions that have been implemented to open the market to renewable technologies. The first is a regulatory solution - states mandate that a certain percentage of the electricity sold within their jurisdiction must come from renewable sources called a ‘renewable portfolio.’
The second, if you haven’t guessed it by now, is RECs. This is a private industry solution to the problem. RECs are certificates issued by clean power producers and certified by independent auditing bodies such as the Center for Resource Solution’s in their Green-e program.
RECs represent units of power such as kilowatt hours or Megawatt hours. They are priced based on the difference between the market rate (.07 cents in our example) and their production rate (.08 cents in our example). So, a 100 kilowatt hour REC in our fictional market would cost 1 dollar.
By purchasing a REC you are paying the difference between market rate and the production rate, allowing clean power producers to enter the competitive marketplace without operating at a loss.
So, by purchasing RECs to cover your energy consumption, you are allowing clean energy to enter the market at a competitive price. You are purchasing all legal rights to the benefits clean energy creates - namely the pollution avoided (carbon dioxide, nitrogen oxides, sulfur dixoide, murcury, and particulate matter) and the economic benefit to rural communities that are often the homes to these technologies. While these may not be benefits that we can physically claim ownership to, the social impact is huge. By purchasing RECs you help generate a market for clean, renewable technologies that are looking more and more attractive as prices continue to rise across Maryland.