Introduction to Renewable Energy Certificates

Posted : August 19, 2023
Buyers of Environmental Commodities

Renewable Energy Certificates (RECs) are an important category of environmental commodities!

Technically speaking, RECs are an Energy Attribute Certificate (EAC), but we’ll use the term “RECs” to talk about the category for this introduction. The market is more familiar with the term “RECs”.

Renewable Energy Certificates

A REC is evidence that a unit of electricity was generated from a renewable source, tying corporate energy consumption directly to renewable energy production. RECs are issued and purchased on the basis that one certificate is for one megawatt hour of renewable electricity.

Outside of the EU and the US, the most common standard for RECs is the International Renewable Energy Certificate (I-REC). This standard is responsible for the verification of its RECs and maintains a registry for the issuance and retirement of its RECs.

The Use for RECs

In a functional sense, RECs are used to reduce a company’s Scope 2 emissions. These emissions occur from the generation, transmission and distribution of the electricity used by the company.

RECs are typically used on the basis of the rules set by RE100, a leading corporate standard for the use of renewable electricity.

Companies will calculate their total electricity use. This electricity will have been drawn from a national grid, which is a combination of renewable and non-renewable sources of electricity.

Companies will then purchase RECs to certify that they’ve used renewable electricity. Rather than building a system to connect individual companies direct to sources of electricity that are exclusively renewable, verifiable certificates are the most efficient way to match renewable energy generation with responsible use of electricity. It would make no sense to duplicate national grid infrastructure, where a system of environmental commodities will fulfil this role efficiently and effectively.

RECs have been designed specifically to achieve this system!

How do RECs Work?

RECs are created for each MWh of renewable energy produced by power plants registered on the International Tracking Standard (formerly I-REC Standard) or TIGR. Businesses can then purchase these RECs to ensure that no greenhouse gas has been released in the generation of the electricity they’ve used.

The revenue generated supports the development of new renewable energy projects, encouraging further reduction of greenhouse gas emissions and benefiting end-consumers.

The Benefit of Using RECs

RECs provide a direct pathway for companies to achieve sustainability targets. Being able to certify that your company uses a specific amount of renewable electricity is an important step on the road to corporate social responsibility. Using RECs allows your company to reduce its Scope 2 emissions.

RECs are also increasingly popular for companies to reduce their Scope 3 emissions. By requiring their suppliers to use renewable electricity, companies are able to reduce the environmental impact of their supply chain.

The reduction of Scope 2 and Scope 3 emissions can have significant benefits to a company’s reputation and public image. Reduced emissions may be a requirement in some industries or some jurisdictions.

How to Use RECs: Getting Started

Using RECs is simple. Calculate your company’s electricity use in MWhs and then purchase that number of RECs. These certificates are then ‘retired’ with your company’s details attached.

There are certain rules that apply to the use of RECs. According to RE100:

RECs should originate from the same country as the electricity was consumed. If you use power in Vietnam, you should purchase RECs from Vietnam.
RECs should be used from the same period as the electricity was consumed. If you use power in 2023, you should purchase RECs from the 2023 vintage.
Only a very small proportion of RECs can be sourced from renewable energy projects that are older than 15 years. In general, RECs should be from projects that were commissioned in the last 15 years.

Please note there are some variations to the above in certain circumstances. There are also some other rules that may apply to the purchase and use of RECs, due to a specific country (eg. Singapore’s RECs Code) or a specific industry.

Please also note that minimum purchasing quantities apply, and RECs may not be available in all locations. There is also a big difference between RECs and carbon credits, which you can read more about here.