A Free-Market Energy Blog

All You Need to Know About RECs (Renewable Energy Certificates)

By -- April 12, 2013

The government has created a market in “Renewable Energy Certificates,” also known as a “Renewable Energy Credit.” RECs are yet another way that renewable energy sources take advantage of the public’s good graces, and the propensity for some politicians to be fooled into creative ways to burden unsuspecting citizens.

As far as RECs have a public purpose, two fundamental questions are:

1) Do RECs pay for the generation of new renewable energy as claimed?

2) Do RECs offset fossil fuels as claimed?


RECs are sold in two primary markets:

1) some of the states that have RPSs (Renewable Portfolio Standards) allow part of the renewable mandate to be satisfied by the utility company purchasing RECs (instead of actually buying renewable energy electricity), and

2) businesses and individuals purchase RECs for perceived public relations benefits, or to ameliorate their conscience.

The problems are that these are completely artificial “credits,” based on flawed assumptions, and often misleadingly marketed. This can be best understood by working through an example.

Wind Power Example

Here are the basics, using wind as an example. The example is from a utility company perspective using my home state of North Carolina since it has an RPS that allows RECs to be purchased by utility companies to satisfy some of the RPS mandate. But essentially, the same realities exist for RECs sold directly to consumers and businesses… 1 REC = 1 MWH (Megawatt Hour) of renewable electricity produced…  The example below could use an in-state facility as well, but the out-of-state situation is easier to understand.

Here is a chain for analytical understanding:

a) A wind energy facility elsewhere (e.g. Idaho) generates 1 MWH of electricity, and sells that to their local utility (e.g. Idaho Power Co.).

b) There may or may not have been fossil fuel displaced by this wind energy. For example, the wind energy may replace hydro power in some cases. No one actually keeps track of what (if anything) is displaced!

c) Despite having no actual proof that they replaced any fossil fuel, the wind developer is given a REC (a piece of paper) saying that they did replace a full MWH worth of fossil fuel.

d) That fossil fuel is replaced 1:1 is another unsupported assumption, which does not take into account the fact that wind energy requires essentially full-time augmentation by a conventional source of power, which is usually gas (i.e. a fossil fuel). To be even remotely accurate, the amount of fuel used in that augmentation should be subtracted when calculating the REC, but it is not.

e) In the case where hydroelectric is replaced by wind, there is actually a net increase of fossil fuel to the system (see prior item). However, a REC is still issued, falsely claiming that fossil fuel has been offset.

f) Once the local (e.g. Idaho) wind energy sale is made, the wind developer is already (assuming best case) saving fossil fuel for production of electricity that would be consumed in Idaho.

g) When a NC utility pays for a (wind) REC, the money goes to the wind developer, as additional profit. This is likely to be a foreign owned company, already making an estimated 25%± per year.

h) When a NC utility buys a REC, they get to claim that this is a “penance” for some fossil fuel source they are currently using. In other words, it supposedly is a type of CO2 compensation that offsets the CO2 “pollution” caused by the NC utility using a conventional fossil fuel source.

i) It is clearly double-dipping (and false), to say that the wind developer saved 1 MHW of fossil fuel in Idaho and also saved 1 MHW of fossil fuel in NC. As such, to claim NC “Clean Energy” savings from buying RECs is inaccurate — but this type of misleading claim is often made.

j) The REC cost is passed onto NC business and residential ratepayers, who pay for the 1 MWH of electricity generated by a conventional NC source plus the REC. In other words this is an additional cost to NC businesses and consumers with zero proven real benefits.

k) Tracking and dealing with REC issues is another regulatory burden on NC agencies — that are paid for by taxpayers and ratepayers. (Here is an example where NC RECs were disallowed due to non-compliance.)

l) Suggested reading: “RECs are a Feel-good Scam”. This was written by Dr. Daniel Press, chair of the Environmental Studies Department at the University of California, Santa Cruz.

Wind developers typically poo-poo the RECs as not being a big deal, and state that they don’t make very much from them. That may be the case as: 1) there are several middlemen with their hand in the till taking a cut of each transaction, and 2) the market is flooded with this monopoly money, driving the price down. If that’s the case, then they ought to opt out of the whole REC system — but none have done that.

Beyond RECs and RPS

There is one benefit to RECs, and that is (where allowed) utility companies can satisfy RPSs less expensively than they could by paying for actual wind energy. However, the whole idea of an RPS makes no sense either, so justifying RECs on this basis is akin to saying two wrongs make a right.

When considering the whole situation, elimination of the contrived RECs would benefit businesses, ratepayers and taxpayers.


  1. Bob  

    Since the cost to produce renewable energy is more than coal and gas produced electricity, the RECs do add to the margin for the renewable energy company. In North Carolina I believe the utilities get the RECs, but the price paid for companies producing renewable energy electricity is often 3x a typical day-ahead or spot price. (PS thank you for your support of my income). Also, you can “sell” your renewable energy to colleges and universities. So, when your kid pays exhorbitently for that degree in Gender Studies and amasses a big student loan, part of it is going to the renewable scam.


  2. JohnInMA  

    My thoughts: It seems to be a reasonable assumption that for every kWh of electricity from a wind farm there is some practical cost and emissions offset from the convential systems within the specific region or balancing area. However, every situation would have a very unique offset calculation based not only on the actual generation mix within the network (how reserves are configured, for example), but also the real- time conditions for any period. Spinning AND non-spinning reserves to some degree are commonly used in networks with significant wind energy feeds. Load-following and regulating reserves could be scheduled through a combination of plans that are different within days or months. Increasing a spinning reserve within a 1 hour period is very different than bringing an idling plant online for 2 hours, for example. Every locale has a unique cost on average and at any particular time. Each also has a unique emissions total based on the actual generation profile for any period. To your point, there is practically no effort to asisgn true costs to those reserves much less calculate actual emissions, or offsets.

    For me the most serious problem is they way real and hypothetical values are combined in a mishmash for a purpose that seems disingenuous. The premise is to trade on the “cost of carbon”, which gets a lot of support from economists, some of whom aren’t fully bought into the climate catastrophe themes. Of course, there is valid opposition, too. Yet, the REC scheme as constructed has little to do with putting a valid cost on carbon if there is no effort to be accurate in the carbon quantity, even if through a reliable and reasonable approximation. To simply assume any unit of wind production is equivalent to another, anywhere and at any time without any decent analysis suggests that pricing carbon is not the true goal.

    As you say: Providing another income stream wind farm operators and penalizing power producers for some arbitrary level of ‘conventional’ production seems to be all that is accomplished. At least the governments and agencies who structure the systems should be accurate in their explanation. Utilities are made to supplement a random amount of renewable energy production in random regions without any real benefit to the utility’s local ratepayers and without any true accounting of carbon cost offsets, if any.


  3. R. L. Hails Sr. P. E.  

    Thieves and idiots created this suicidally rigged game. If they revise black jack to 25, when the pot is full, some one gets ripped big time. That some one is the person who flips their own light switch.

    At some point, the grid will collapse and there will be no juice, at any price. When I hear some big shot mouth about the environment, I grab my wallet before he does.

    Green energy is breaking America.


  4. Bob G  

    Remember, the utilities are all for this. Mainly because they can stick the consumers with the costs of “environmental” good things.


  5. Andrew  

    Hi, I live in Singapore and received a call from a London-based broker offering US REC’s as an investment. I can understand an American electricity consumer purchasing them as a way of feeling good about renewable energy etc, but for a broker in London to be offering them to me i Singapore as an investment?? there is no link to the U.S. at all. Is it a scam? Do these RECs have a secondary market, are they a trade-able commodity? Are they designed to be an investment? If there is a market, is it liquid? Do people profit from trading these RECs?

    Tks and regards,



  6. JohnInMA  

    I thought this was worth adding to the thread. Even organizations (and sites) dedicated to environmental ‘management’ recognize the disadvantages of the current schemes. Of course, they will probably never use words like “scam” or even admit outwardly the market is essentially artificial. After all, aren’t the values of most currencies themselves even somewhat artificially set?

    But at least some are not hiding the fact that trading becomes another complex bureaucratic project requiring constant vigilance for it to ‘work’ >>

    As a side point, note that the vote tally including abstentions passes 700. Talk about a top heavy EU government! And that is in addition to all the local headcounts in each country, and each country’s divisions (many have states).


  7. John  

    Your assumptions are flawed. RECs are not designed as a replacement for carbon-based power production; they are designed as an incentive for institutions to support clean energy production. The prices of RECs also have no related to power prices, no more than a stock price bears any relation to the marginal revenue of a traded company. It’s entirely a secondary market. Before setting up an elaborate strawman discussion of RECs, at least, try to get the assumptions correct.


    • Michael  

      Thank you finally posting a reality based comment. The REC I was offered made roof top solar affordable. Now my house is off the grid for about 9 months a year. Fossil fuels not wasted, a tiny bit less filth belched into the sky.
      RECs are not a magic bullet just a simple incentive.


  8. Jessie  

    The REC and the actual energy are unbundled when they are sold the way you described. So there is no double dipping. It is like if I sold ice cream to one person and sprinkles to another, or I just sold one person ice cream with sprinkles on top. The sprinkles and the ice cream cost the same regardless of the type of transaction.

    Get your facts straight.


    • Roger Donway  

      Thank you for your comment.

      What the article is saying is that the electricity is sold to one source. Wind energy electricity is claimed to be an inherently lower CO2 source, so the buyer of that electricity is already achieving CO2 savings — which they claim when they report their annual energy information.

      Then the REC is “unbundled” and sold separately. For the wind developer to sell a second “credit” for CO2 “savings” to another party is a clear duplication.


  9. What Degree Do You Need For Renewable Energy | Omikaka3  

    […] All You Need to Know About RECs (Renewable Energy … – All You Need to Know About RECs (Renewable Energy Certificates) … when your kid pays exhorbitently for that degree in Gender Studies and amasses a big student … […]


  10. Matt  

    This article is misleading. The REC credits are not ‘double-dipping’. They are a way to separate the electricity generation from the type of generation. i.e. if electricity is generated using coal power, that electricity costs the same as electricity generated by wind power. The RECs are an additional item on top of the electricity itself and represent the additional value of generating power using renewable sources to the general public. Whether their monetary value is equivalent to their actual value is questionable, and in fact, it may be impossible to fully valuate the importance of renewable generation. However, they do provide some value in providing a market signal to generate more renewable energy and a way for governments, companies, and individuals to track the amount of renewable energy they ‘support’.

    I’ve found this vox article to be a much better source of information: https://www.vox.com/2015/11/9/9696820/renewable-energy-certificates


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