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Renewable Energy Credits (REC)’s

Written By: Adam Cain

Last Updated: 08/28/2023

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According to the U.S. Energy Information Association, energy generated from renewable sources (solar, wind, geothermal etc.) is expected to surpass traditional coal and nuclear power generation by 2021.

Renewable Energy Credits (REC’s) are one of the biggest drivers making the expansion of green energy production possible. They work by allowing individuals and businesses to purchase credits that are used to produce more renewable energy that enters the electricity grid.

Signing up for a renewable electricity plan that leverages REC’s to support renewable energy is oftentimes a much more viable option than installing costly solar panels on your roof.

Here is a graphic that shows how signing up for a 100% renewable energy plan works.

Renewable Energy Credits. Infographic explaining how renewable energy credits work.

What Are Renewable Energy Credits?

A renewable energy credit represents one megawatt-hour of renewable energy that has entered the electricity grid. A renewable energy generator (i.e. a wind farm, solar farm, etc.) will produce a REC when it has generated a megawatt-hour of electricity that it delivers to the grid. That generator can then sell that REC to support its operations.

Each REC has its own unique ID so renewable energy generators can only sell it once. This helps keep track of how much renewable energy is in the electric grid and who is supporting its growth.

Why Are Renewable Energy Credits Necessary?

A wide range of resources generate the electricity that's delivered to your home. Since it all comes through the same wires, there's no way for you to get electricity that is only generated by renewable resources.

REC’s purchased on your behalf offset your energy usage and ensure more of the energy entering the grid is 100% renewable.

For example, say you live in an Energy Choice state and switch to a renewable electricity plan. The money you spend on electricity supply at the end of each month would go to purchase RECs from a renewable energy generator. It ensures that if you used 950 kWh of electricity that month, 950 kWh of renewable electricity went into the electric grid.

Compliance Markets vs Voluntary Markets

Individuals are not the only ones using renewable energy credits to offset their usage. States, cities and companies can use them too. However, why they use them can be different depending on whether they are in a compliance market or voluntary market.

Compliance Markets

Compliance markets have mandates on how much electricity generated must come from renewable energy. Usually, a city or state sets these mandates.

For example, if California mandates that utility companies must supply 50% of their electricity from renewable energy, utility companies must purchase the equivalent in RECs.

It's not only utility companies either. Sometimes states mandate that certain corporations ensure a percentage of the electricity they use comes from renewable resources as well.

Voluntary Markets

In voluntary markets – individuals and companies can purchase renewable energy, but there are no mandates on how much they must use.

For instance, many companies today want to emphasize that they are environmentally conscious. If they purchase renewable energy through RECs, they can market themselves as a green company.

How To Purchase Renewable Energy Credits

Most businesses and individuals don't purchase RECs directly from a renewable energy generator. Instead, they usually purchase them through their utility company or through a third-party retail electricity provider.

Retail electricity providers (REPs) purchase RECs on your behalf from a renewable energy generator. There are some REPs that specialize in renewable energy, like Tomorrow Energy. However, many other leading providers like Direct Energy and Constellation also offer renewable options that leverage REC’s.

To get started with renewable energy, enter your ZIP Code in the free Rate Comparison Tool at the top of the page and look for the “100% renewable sources” label on electricity plans in your area.