how recs work
recs are a way to track solar wind and other green energies as they flow into the power grid since electricity generated from renewable energy sources is indistinguishable from what s produced by different sources some form of tracking is required 7 companies use them to offset their carbon emissions 2batteries for storing electricity generated from solar and other renewable sources are still quite costly especially for homeowners and small businesses so much renewable generated power such as from a home s solar system is fed back into the power grid for use by the utility for other customers since it has nowhere else to go if there s no battery on site the renewable electricity provider such as a homeowner with rooftop solar panels might receive a payment for each rec these certificates can be sold but are typically used as a credit toward their power usage later on for example when the solar panels on the roof don t produce enough power for the home and the house has to draw power from the electricity grid recs expire at the end of the fifth calendar year following the year they were generated 8requirements for recsmany states require power utilities to buy or generate renewable solar power often called solar carve outs in addition 30 u s states plus the district of columbia have renewable portfolio standards rps that require power utilities to use a certain amount of renewable power 9 these rps requirements are behind the trading of recs a power company can purchase these certificates from homeowners and others to meet the state s renewable requirements 10while state laws vary on the use and sale of recs the certificates are recognized by many state and local governments regional electricity transmission authorities nongovernment organizations and trade groups as a measure of a company s commitment to sustainability besides solar and wind generated power recs are issued for energy produced from geothermal hydropower without dams biofuels and hydrogen fuel cells buying and selling recsutilities and other businesses buy recs for a few reasons one is to meet legal requirements many states require utility companies to produce a minimum amount of renewable energy buying recs allows companies to get credit for renewable production to meet these standards for example in 2020 massachusetts began requiring all electricity suppliers to produce or purchase recs amounting to 15 of the electricity they provided to the state 11typically these laws have an alternative compliance payment that allow companies to pay a fee if they don t purchase enough recs the price of these payments along with supply and demand help set the market value of recs 12recs are typically traded by power companies and people who own residential energy systems such as solar panels they can be bought or sold directly but some third party companies have created marketplaces to aid these transactions for example srectrade helps residential solar owners track their recs and sell them to utility companies and other buyers 13in late 2023 aes corporation aes constellation energy corporation ceg and tech giants google and microsoft msft partnered with energy marketplace administrator levelten energy to form the granular certificate trading alliance 14 the alliance is set to form a new rec trading marketplace that would include detailed information on the time and location of renewable energy generation this would be far more detailed than what s available now and also be on a far wider scale than rec marketplaces now these granular certificates would also be a step forward for recs since they have typically lacked any specificity about the actual origins of renewable energy this information could be quite attractive to corporate and utility energy buyers looking to meet their clean energy goals day and night while also being able to be far more specific with the public and customers about how they are sourcing their energy needs the new trading platform slated to go live in 2024 could thus increase transparency and accessibility in the rec market this in turn could provide clearer signals to renewable energy developers about where new projects are most needed potentially influencing the location and development of future renewable energy installations 14solar renewable energy certificatesssolar renewable energy certificates srecs are for electricity produced by solar panels these are found in these states which differentiate them from other energy sources 15example of a recrec arbitrage is also called a rec swap 16 these trades involve the near simultaneous buying and selling of recs with differing prices traders try to profit from the disparity in prices to sell them for more than they bought them 7for example suppose state a has higher rps requirements and solar carve outs than state b the higher requirement drives demand for the price of recs in state a the state a provider who must meet the higher requirements would have a reason to buy less expensive state b certificates the provider can then use these credits to meet their requirements recs all represent 1 mwh of electricity wherever it s produced however the price may vary because of supply and demand in practice brokers are used to make rec arbitrage possible 