Renewable Energy Certificates

Image of a red balloon reading 'Electricity' plus a green balloon reading 'REC' equals a purple balloon reading 'Renewable Power'

Components of a Renewable Energy Certificate

Two separate products exist from electricity produced by renewable energy projects that can be sold together or treated separately. One is the actual electrons produced, which can either be transferred through the power grid to provide power to utility customers or used off-grid or at a customer site. Although they are not common in the market, Federal renewable energy policy recognizes renewable energy certificates (RECs) from thermal renewable energy projects. For thermal RECs the energy product is British thermal units (BTU).

The second product is the environmental benefits of the renewable energy, typically referred to as a renewable energy certificate, renewable energy credit, or simply by the acronym REC. This applies to both electric and thermal renewable energy.

Some RECs have more value than others, which is dependent on the market terms created by various state and local policies. For example, a solar REC is often worth more than a REC produced from landfill gas. Location, supply, demand, and technology type play an important role in the value of a REC.

This section provides information on using RECs to meet various Federal requirements. The degree to which they will count depends upon the specifics of the project and the requirement. This section also evaluates scenarios focused on actual renewable energy generation, building applications, renewable energy purchases, and RECs.

FEMP has created a Quick Guide to Renewable Energy Certificates for Federal agencies.

Energy Policy Act of 2005 and Executive Order 13423

Renewable energy requirements set in the Energy Policy Act of 2005 (EPAct 2005) and Executive Order (E.O.) 13423 allow REC purchases to represent the equivalent of purchasing and consuming renewable energy. Therefore, RECs can be counted toward renewable energy goals.

Details on how agencies must meet Federal renewable energy requirements is set forth in guidance officially issued by the Secretary of Energy as directed in EPAct 2005. Developed by the Renewable Energy Working Group, this guidance has specific details on how RECs can be used to meet compliance goals. A summary of the REC-specific guidance includes:

  • Purchasing renewable energy certificates is equivalent to purchasing and consuming renewable energy and does count toward these requirements.
  • RECs from a project must be retained (not claimed by the developer or any other party) by the agency to count toward EPAct 2005 goals. If RECs are not retained by the agency, it cannot claim to be using renewable energy because the right to that claim is transferred to the owner of the RECs.
  • The EPAct 2005 bonus for renewable energy from a project on Federal or Native American land is only available if an agency retains the RECs associated with the generation from the project. However, agencies can trade/swap RECs purchased from another source to replace RECs sold to finance an on-site project and still receive the bonus.
  • Renewable energy certificates from thermal sources of renewable energy can be counted toward the E.O. 13423 50% new requirement.

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Trading and Swapping Renewable Energy Certificates

Trading and swapping of RECs can be considered for projects on Federal or Indian land as it is a method to maximize REC value while still claiming the on-site bonus under EPAct 2005. RECs generated by projects at an agency facility must be retained for an on-site project to count toward a renewable energy goal and receive the on-site bonus, but this does not preclude trading or swapping the project's RECs.

An agency may allow the sale or transfer of RECs from an on-site renewable project to other parties. The agency can then arrange for the purchase of less expensive RECs from other locations and/or renewable resources to replace the RECs from the on-site project. This is considered a REC trade. Since different RECs have different values, a REC trade from a project with high-value RECs can produce a good revenue stream that will increase project cost effectiveness. For example, if a solar REC is sold for $200 per megawatt hour (MWh) and a wind REC is purchased for $15 per MWh, the agency effectively replaced the REC sold and improved project cost effectiveness by $185/MWh. REC sales by an agency are considered disposal of government property, which can be involve a quite complex and time consuming process. Generally agencies that want to benefit from a REC swap allow the developer to retain ownership and dispose of the RECs from a project without the agency ever taking possession. In return the agency can expect the developer to offer a better price just as they would after taking advantage of Federal, state, or local incentives unavailable to the agency directly. Because of the complexities involved in an agency selling RECs, they should consult their attorneys before taking ownership and moving forward with a sale of RECs from a renewable project.

Agencies can also swap RECs between renewable energy projects as long as they stay within the purview of the reporting agency. These swaps do not have to be formally documented. FEMP automatically calculates bonus adjustments if an agency reports enough RECs to swap for the output from renewable energy projects that did not retain RECs. This allows an agency to use RECs purchased from another entity to cover the renewable energy production for an on-site project even when the RECs for the project were not retained. Swaps are not allowed between reporting agencies.

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Meeting Greenhouse Gas Reduction Goals

Renewable energy certificates can be used to meet the above Federal requirements and to offset Scope 2 greenhouse gas emissions (GHG). Considered indirect emissions, Scope 2 emissions include those resulting from electricity, heat, or steam purchased by a Federal agency usually from an offsite location. The emissions are considered indirect because they are a consequence of activities occurring within the boundaries of the agency, but are actually emitted by sources owned or controlled by another party.

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Calculating and Reporting Renewable Energy Certificates

Agencies must report specific information for them to be RECs applied to offset scope 2 emissions and progress toward the renewable energy goal. The reporting method for GHG calculations is complex, and specific guidance has been developed to assist agencies with accounting and reporting procedures. Agencies must provide the following information on all RECs being applied:

  • Type of REC, including renewable energy technology
  • Zip Code or eGrid sub-region of the energy generation project producing the REC
  • Amount of renewable energy associated with the REC (MWh or BBtu)
  • Whether the generator is located on Federal or Indian land
  • Whether the generator is grid-connected or off-grid
  • The percentage of renewable energy output covered by RECs (always 100% for REC purchases)

The GHG emissions benefit resulting from a REC purchase can be calculated using eGrid. This dataset divides the electric grid into 26 sub-regions with unique emission factors based on the regional electricity generation mix. The location and renewable energy source are important accounting factors. Biomass is assumed to be carbon neutral for purposes of agency GHG reduction targets. The carbon emissions from biomass are reported separately but are not counted against agency emission targets. Nitrous oxide and methane emissions from biomass are a by-product of combustion, so they are considered anthropogenic and are subject to GHG reduction targets. It is important to know the type of biomass used in a project selling RECs and if possible the amount of fuel used by the project because they impact the emission factors. If the amount of fuel is unknown it can be estimated based on typical conversion efficiencies, built into the reporting tool.

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