California REC FAQs

What is a REC?

A Renewable Energy Credit (or Certificate) represents the renewable and environmental attributes from one MWh of electricity generation from a renewable energy Generating Unit.  The (CPUC) California Public Utilities Commission definition specifically defines a REC as “a certificate of proof, issued through the Western Renewable Generation Information System (WREGIS), that one megawatt-hour of electricity was generated by an RPS-eligible renewable energy resource”.

Another way to think about it is that a solar system has dual outputs:

1. It produces commodity electricity or electrons which are delivered to the grid.  Once on the ‘grid’ these electrons become generic electricity and mix with electrons from other generating sources including coal, natural gas, and nuclear plants.
2. It also produces RECs, which are the environmental and social benefits of producing clean renewable energy.  These “green attributes” or credits can be unbundled from the commodity electricity and sold separately.

Renewable Energy = Commodity Electricity + Renewable Energy Credits.

What are “Environmental Benefits or Green Attributes”?

The green attributes of a REC include the “goodness” of renewable energy production i.e. all the  positive social and ecological benefits, and avoided emissions of pollutants. The CPUC definition states that a REC includes:

“all renewable and environmental attributes associated with the production of electricity from eligible renewable energy resource, including any avoided emission of pollutants to the air, soil or water; any avoided emissions of carbon dioxide, methane, nitrous oxide, hydroflouorocarbons, perfluorocarbons, sulfur hexafluoride, or any other greenhouse gases that have been determined by the United Nations Intergovernmental Panel on Climate Change, or otherwise by law, to contribute to the actual or potential threat of global climate change.”

How many RECs does my system produce?

1 REC = 1MWh (or 1,000 kWh) of electricity generation.  The number of RECs that your system generates is dependent on how big your system is, and also design specifications like panel orientation, tilt angle, and shading constraints.  The table below shows the average kWh production for a given size system in San Diego, CA

What is a Renewable Portfolio Standard (RPS), aka Renewable Energy Standard (RES)?

An RPS is a regulation that requires increased production of energy from renewable sources, such as solar, wind or geothermal. Normally an RPS obligates a state or utility to produce a certain percentage of their electricity from renewable energy sources that they sell to customers each year. California has a very aggressive RPS, calling for 20% of electricity to come from renewable sources by 2010 and stepping up to 33% by 2020. Currently about 30 states have RPS requirements in place, with a wide variation in rules, minimum requirements and implementation timing.

A state or utility can meet their RPS requirement in one of three ways. They can: (1) build renewable energy production themselves, (2) buy the energy from 3rd party renewable facilities connected to their grid, often called “bundled transactions”, or (3) purchase unbundled RECs from renewable generators. It is believed that purchasing unbundled RECs is the lowest cost and most flexible option utilities have for satisfying their RPS requirement.

Can I sell my RECs now, so CA utilities can satisfy their RPS?

As of January 13, 2011 the California Public Utilities Commission (CPUC) has officially reauthorized the use of RECs for California utilities to satisfy a portion of their RPS requirement.  We have seen a number of bilateral transactions executed for CA RECs.  However, RECs produced by distributed generation (DG) facilities, which includes the vast majority of residential and commercial solar systems, have not yet been certified by the California Energy Commission (CEC) as RPS-eligible.   So while DG system owners are free to negotiate a price,  any deal they enter into would be contingent upon their future eligibility.  However, the CEC’s proposed decision on this matter does classify DG solar as RPS eligible and an official ruling  is expected by early January, 2012.

How much are RECs going to be worth?

We wrote a detailed article entitled “How much are California TRECs worth?” that can be found in our News & Blog section.

Pricing in other regional and state REC markets varies dramatically.  The highest value REC prices nationwide are found in Solar Renewable Energy Credit (SREC) programs that:

(1) Have an aggressive RPS and a solar specific carve-out, which creates demand for SRECs or solar RECs (e.g. New Jersey utilities are required to specifically purchase NJ solar RECs for a certain percentage of their RPS requirement).

(2) The state must allow RECs to be unbundled and traded separately from the commodity electricity (i.e. California formally approved this in the 1/13/11 CPUC decision).

(3) Utilities have a fine or penalty for non-compliance. When a utility does not hit their RPS requirement in a given year, they are subject to an Alternative Compliance Payment (ACP). The ACP effectively sets the price ceiling in a given REC market.

January 2011 SREC price indications:

What is WREGIS?

The Western Renewable Generation Information System (WREGIS) is a registry and tracking system that receives data on renewable energy generation, creates Renewable Energy Certificates, and accounts for the transfer and retirement of these RECs. WREGIS covers the Western Interconnection region, which includes California, 13 other Western states, 2 Canadian provinces, and Baja California. WREGIS is not a trading system, but rather more like a banking system that verifies and creates certificates, accounts for REC transactions and protects against double-counting.

WREGIS was created by the California Energy Commission, the Western Governors’ Association, and the Western Regional Air Partnership. All applicable renewable generating systems (e.g. solar, wind, biomass, geothermal, etc.) must register their ‘Generating Unit’ with WREGIS for their RECs to be created.

What is a voluntary REC market/program?

Voluntary REC markets are when by definition, REC buyers are not mandated to purchase or faced with penalties for non-compliance. Voluntary REC market buyers are motivated to support the development of renewable energy projects and to demonstrate social responsibly, not because they want to avoid an ACP penalty or meet their RPS. Generally these buyers are progressive companies, NGOs, institutions and individuals. Some of the largest voluntary REC buyers nationwide are organizations like Intel, Pepsi, Kohl’s, Whole Foods and the US Air Force. Voluntary REC transactions can happen bilaterally or through a specific certification program.

Certification programs were developed to ensure that the promised social and environmental benefits are delivered to end use customers. The ‘Green-e Energy’ certification is the most established and accredited voluntary program, having been established by the Center for Resource Solutions in 1997. Green-e Energy sets the environmental product standards, requires proper disclosure from market participants, and audits transactions and marketing claims to ensure credibility in the certification.