When a renewable energy resource, such as a wind turbine or a solar panel, generates a megawatt-hour (MWh) of energy, it creates two sources of revenue -- electricity, and a Renewable Energy Certificate (REC). The electricity can be sold to the local grid, and the RECs, which authenticate that electricity is generated with no emissions, can be sold as well. A REC is effectively a certificate of “green-ness,” and those who own it can claim to be clean for 1 MWh.
RECs were established so that utilities could meet state mandates, called the Renewable Portfolio Standard (RPS), which forced utilities to derive some percentage of their electricity from renewable energy. Utilities would buy these RECs from suppliers because if they didn’t meet their state goal, they would be penalized. But because the RPS goals were set too low, most utilities were easily able to meet their RPS requirements. As supply continued to grow as more renewables were built, but demand dropped as utilities met their quotas and stopped buying RECs, the value of the REC plummeted. Today, RECs are so oversupplied that they don’t supply the additional source of revenue that renewable projects used to get. They’re practically worthless to the renewable energy industry until states begin to demand higher RPSs.
Recently, companies also began to tap into REC markets in order to make “green” claims. By purchasing RECs (which represent 1 MWh of clean energy) equivalent to the amount of energy they use, companies claim to “go clean.”
But because RECs are so cheap, a lot of this is just marketing speak (“greenwashing”).
In order for RECs to mean anything, they must be bundled. ‘‘Bundled’’ RECs refer to certificates that are bought with the electricity, while ‘‘unbundled’’ RECs refer to the certificate without the electricity. This distinction is important because the revenue from unbundled RECs only represents a tiny fraction of the actual cost of the renewable energy project. Buying unbundled RECs is like buying the cherry on top without the ice-cream. Renewable energy projects can’t be built without a secured, creditworthy off-taker like a utility or corporation buying the entire output of the project. Bundled RECs, as a commitment to buy the entire value of the electricity, is thus necessary to finance, develop, and add renewable energy to the grid.
If companies want to actually claim that they are supporting clean energy, they need to be making Power Purchase Agreements (PPAs), renewable energy asset purchases, or equity investments. They shouldn’t be buying unbundled RECs.
But there isn’t a well-established methodology by which companies have to report whether their RECs are bundled or unbundled, and a lot of companies take shortcuts for marketing purposes. In fact, in 2015, unbundled RECs accounted for 85% of the total renewable electricity obtained in the US.
Many of the companies that you see claiming to go clean, really aren’t. Check out our company rankings to explore their actual impact.