Trying to Understand Renewable Energy Credits (RECs)


We are definitely going solar. We put our deposit down on our system last week and in 2 months we’ll be generating power (barring any unforeseen circumstances) Not just any power but clean, renewable energy that will help offset the carbon dioxide, sulfur dioxide and nitrogen oxides that are not being generated from using fossil fuels to generate electricity. That makes me feel good. It makes me feel even better when I think about the money involved. I know that sounds backwards, but the reality is if you’re thinking about installing a renewable energy system, now is the time to do it. Yes, it is expensive, and yes, you must pay for it upfront. However, the federal tax credit gives you 30% of those costs back when you file your 2010 taxes. That’s non-taxed money. Currently in Pennsylvania, there is a Solar Rebate that you’ll get approximately 3-4 months after installation that is also about 30%. That is taxable but still a good chunk of change. At the end of the day, we’ll pay less than ½ of the total cost to put in this system.

The money doesn’t end there. Our hope is to pay little if any electricity costs. Any extra power that we produce and put back into the grid will be paid for by our electric company at the end of the year. That means they’ll pay us for giving them power. The goal is to break even on electricity costs at the end of the year, which means that we’ll pay nothing in electricity. Lastly, we will be generating SRECs – Solar Renewable Energy Credits. This is where things get confusing.

I have been trying to understand what these SRECs really are and what their potential value is. Essentially, Renewable Energy Credits can be generated for every mega watt of power produced by any renewable energy system. Every REC is a tradable commodity. That means that it has a market-determined value (I haven’t figured out how that value is determined yet) and you can sell your REC for money. That seems pretty straightforward. What I struggle with is who and why are these people buying RECs?

Google has provided me a lot of information. People and business buy RECs as an opportunity to support renewable energy. The money is a motivator for people to install and use renewable energy systems. The money used to buy these RECs is frequently used to further invest in renewable energy sources. Basically, any individual person can buy a REC. Why would you do that? To support a green environment. Essentially, for you and me, it’s like donating money to charity. You’re funding an effort to make the world a little greener without having to make a significant investment such as installing a solar energy system.

What stumps me is why are businesses buying so many RECs? I’ve listed multiple links below to articles about different companies purchasing RECs. Every article cites the company’s commitment to green initiatives as one of the reasons for these purchases. Wells Fargo says that supporting the development of renewable energy is good for the strengthening the economy. I buy that. PPL says that buying the RECs will help in “reducing compliance costs and demonstrating good corporate citizenship.” I can’t figure out what “reducing compliance costs.” I’m really struggling with the “good corporate citizenship” line. Corporations must be getting something for buying RECs. Is it tax breaks? Do owning RECs offset a business’s federal requirements for emissions output? If anybody knows, please enlighten me. I may have exhausted Google in my research the last couple of days and am still not confident that I understand what is motivating businesses. Maybe I’m too jaded about corporate America, but I have a hard time believing that business are spending the money to buy RECs out of the goodness of their hearts.

Now that I am starting to understand what RECs are, I need to figure out what to do with them when I actually get them. Google – get ready.

What other businesses are buying RECs? Some of these articles are old but the information is still pertinent.
http://www.istockanalyst.com/article/viewiStockNews/articleid/4035283
http://www.environmentalleader.com/2009/02/06/lockheed-martin-buys-recs/
http://www.blog.thesietch.org/2007/05/01/greening-up-the-sugar-water-industry-pepsi-buys-a-billion-kwhs-worth-of-renewable-energy-credits/
http://energypriorities.com/entries/2005/06/starbucks.php

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3 responses to this post.

  1. Great way to support renewable energy, many companies are doing it.

    Reply

  2. Wikipedia to the rescue:
    “Compliance markets are created by a policy that exists in 30 U.S. states, plus the District of Columbia, called Renewable Portfolio Standard. In these states, the electric companies are required to supply a certain percent of their electricity from renewable generators by a specified year. For example, in California the law is 33% renewable by 2020, whereas New York has a 24% requirement by 2013.[2]. Electric utilities in these states demonstrate compliance with their requirements by purchasing RECs; in the California example, the electric companies would need to hold RECs equivalent to 33% of their electricity sales.”
    As PPL is an electric company, “reducing compliance costs” can be explained in this way.

    I think “demonstrating good corporate citizenship” just means trying to have a good/green public image.

    Hope this helps!

    http://www.optimisticengineer.wordpress.com

    Reply

  3. That’s an interesting point on electric companies buying RECs to meet their requirements for a percentage of their energy to be renewable. Works for me as a solar energy generator. Thanks!

    Reply

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