Renewable Energy Credits (RECs) are a way to track and verify the generation of renewable energy. RECs are used to incentivize and promote the development and use of renewable energy sources, such as wind and solar.
What are RECs?
Renewable energy credits are certificates that represent the environmental benefits of renewable energy. They are created when a unit of renewable energy is generated, such as a kilowatt-hour of solar or wind energy. The RECs are then sold separately from the physical energy, allowing the buyer to claim that they have used renewable energy.
The purpose of renewable energy credits is to promote the use of renewable energy and reduce the use of fossil fuels. They do this by creating a market for renewable energy and providing a financial incentive for renewable energy generators. The money generated from the sale of these credits can then be used to finance further renewable energy projects, helping to drive the growth of the industry.
Read: How Corporations Can Invest in Solar Renewable Energy Credits (SRECs)
How do RECs work?
RECs are created and traded through a system of registries. Each time a unit of renewable energy is generated, a credit is created and registered with a central registry. The renewable energy credits are then traded on the open market, allowing buyers to purchase them and claim that they have used renewable energy.
Compliance buyers in the electrical utility industry are required to generate a specific percentage of their electricity from renewable sources. Some states have set these requirements through Renewable Portfolio Standards (RPS). To comply with these laws, utilities must provide proof of their use of renewable energy through renewable credits. Utilities can either generate the RECs themselves using renewable energy sources or purchase them if their own generation falls short.
Read: What the Investment Tax Credit Extension to Energy Storage Means for the Industry
The Benefits of RECs
The use of RECs provides a number of benefits to both the renewable energy industry and to the environment. For the renewable energy industry, these credits provide a source of revenue that can be used to finance further renewable energy projects. This helps to drive the growth of the industry and increase the amount of renewable energy being generated.
For the environment, these credits provide a way to reduce greenhouse gas emissions and promote the use of clean energy. By incentivizing the use of renewable energy, the credits help to reduce our reliance on fossil fuels and contribute to a cleaner and more sustainable energy mix.
The Risks of RECs
While the use of RECs provides a number of benefits, there are also some risks associated with them. One of the main risks is that the market for renewable energy credits may be volatile, leading to fluctuations in price. This can make it difficult for renewable energy generators to plan and finance their projects.
Renewable energy credits are an important tool for promoting the use of renewable energy and reducing the globe’s reliance on fossil fuels. By creating a market for renewable energy and providing a financial incentive for renewable energy generators, RECs help to drive the growth of the industry and contribute to a cleaner and more sustainable energy mix.
Read: How Solar Tax Equity Funds Work
Interested in starting a renewable energy project?
To make the use of renewable energy more widespread and reduce dependence on fossil fuels, Renewable Energy Credits (RECs) play a crucial role. They do so by establishing a market for renewable energy and offering a financial incentive to those who generate it. At EnergyLink, we have a team of experts in energy project design, construction, and financing who can assist you with evaluating your project’s economic impact, project cash flow, and other important factors. Get started by clicking the button or calling (866) 218-0380 to speak with an expert. Keep up with the latest energy industry news by subscribing to our bi-weekly newsletter by clicking the link below.