Hope Now Alliance

Understanding Renewable Energy Certificates (RECs)

Renewable Energy Certificates (RECs) are tradable instruments that verify one megawatt-hour (MWh) of electricity was generated from a renewable source and delivered to the grid. They separate the environmental attributes of renewable generation from the physical electricity, allowing those attributes to be bought, sold, and retired independently.

Key takeaways

• One REC = 1 MWh of renewable electricity produced and delivered to the grid.
• RECs let producers monetize the environmental value of renewable generation and let buyers claim renewable energy use or meet regulatory obligations.
• Many states use Renewable Portfolio Standards (RPS) and solar carve-outs to require utilities to source a share of power from renewables, driving REC demand.
• Selling a REC transfers the right to claim the associated renewable electricity; if you sell the REC generated by your solar panels, you cannot claim to be using that renewable electricity.
• Market developments aim to add time-and-location detail to REC trading to improve transparency and project signals for developers.

How RECs work

Because electricity on the grid is indistinguishable by source, RECs provide a tracking mechanism for the renewable attribute of generation. When a renewable generator (solar, wind, geothermal, hydro, bioenergy, etc.) produces 1 MWh of electricity, one REC is created. That REC can then be:
* retained by the generator to claim the renewable use,
* sold to utilities, businesses, or brokers, or
* retired (used) to substantiate a renewable energy claim or compliance obligation.

RECs generally have a limited lifespan and expire if not claimed within a set period after generation.

Regulatory context

Many jurisdictions set RPS requirements that mandate a percentage of electricity sold originate from renewable sources. Some include solar-specific carve-outs requiring utilities to source a minimum share from solar. Utilities can meet these standards by generating renewables themselves or by purchasing RECs from third parties. Where compliance falls short, regulators often allow an alternative compliance payment, which influences REC market prices.

Buying, selling and marketplaces

RECs are traded in bilateral transactions, through brokers, or on third-party marketplaces that track and transfer certificates. Market participants include utilities, corporations seeking to meet sustainability goals, renewable project owners, and traders.

Recent initiatives by major utilities and corporate buyers aim to create more granular REC products with detailed time and location metadata. These “granular certificates” provide clearer information about when and where renewable energy was generated, helping buyers match supply to demand more precisely and giving developers better signals about where new projects are needed.

Solar Renewable Energy Certificates (SRECs)

SRECs are RECs specifically from solar generation. Some jurisdictions treat solar separately to accelerate solar adoption, requiring utilities to procure or retire a set number of SRECs. This creates a distinct market and price dynamics for solar attributes.

Examples of jurisdictions that maintain distinct SREC programs include:
* Connecticut
* Delaware
* Illinois
* Maryland
* New Jersey
* Ohio
* Pennsylvania
* Washington, D.C.

(Program details and availability vary by jurisdiction.)

REC arbitrage and trading strategies

REC arbitrage involves buying and selling RECs across markets or compliance areas where price differences exist. Prices can vary by state or region because of differing RPS targets, supply conditions, and policy incentives. Brokers and intermediaries often facilitate cross-market trades that exploit these disparities.

Ownership, claims and practical implications

• Retaining the REC: If you keep the REC generated by your onsite solar system, you retain the right to claim the associated renewable electricity.
• Selling the REC: If you sell the REC, the purchaser holds the renewable attribute and can claim the environmental benefit; you lose the right to claim the electricity you used was renewable.
• Expiration: RECs typically expire if not used within a specified timeframe after generation; check local registry rules for the exact retention period.

Benefits and criticisms

Benefits:
* Provide a market-based revenue stream for renewable generators, improving project economics.
* Allow businesses and utilities to meet renewable energy targets and demonstrate sustainability claims.
* Help channel capital to renewable projects when compliance or voluntary demand exists.

Criticisms:
* Some analyses suggest RECs alone may not drive as much new renewable capacity as other policy tools (e.g., targeted incentives, feed-in tariffs, or carbon pricing).
* Without granular data, standard RECs can obscure when and where renewable generation occurred, complicating efforts to match clean energy supply with specific demand.

Conclusion

RECs are a foundational tool in the transition to cleaner power: they monetize the environmental attributes of renewable generation, enable compliance with regulatory standards, and allow organizations to meet voluntary sustainability goals. Ongoing market improvements—particularly toward more granular, time- and location-specific certificates—aim to increase transparency and better align renewable development with buyer needs.