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.