Inside the opaque $6 billion market for renewable energy ‘certificates,’ where dozens of companies buy and sell the right to call your electricity clean


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  • Renewable-energy certificates (RECs) are traded like gold or silver and form the backbone of the clean-energy industry.
  • Wind- and solar-power plants produce RECs for each unit of electricity they generate. Without those RECs, you can’t technically call that electricity renewable — even if the source of it is.
  • The price of RECs varies dramatically: In some markets, they cost as little as $0.50, while they’re priced at $400 or more in others.
  • Companies that say they source clean energy are often just buying RECs — and where those RECs come from matters.
  • Oddly, if you lease solar panels for your roof at home, chances are you can’t claim that your energy is renewable because the companies that lease them to you likely sell the RECs to other businesses.
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True or false: Energy that comes from a wind farm or solar plant is renewable?

Technically, it depends. 

Some energy from rooftop solar panels isn’t clean. And not all electrons churned out by wind turbines are different than those generated by coal-fired power plants — technically speaking, anyway. 

To understand why, you have to learn about a commodity that hardly anyone has heard of: a renewable energy certificate, or REC. 

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Though they are little-known, RECs form the backbone of the nation’s renewable-energy industry. They’re bought and sold like gold in a market worth an estimated $6 billion. And dozens of companies and startups backed by prominent venture-capital firms profit from their sale. 

Here’s everything you need to know about the REC industry — starting with what, exactly, a REC is. 

In renewable energy, ‘renewable’ and ‘energy’ are 2 separate commodities

When a wind turbine spins or a beam of sunlight hits a solar panel, two commodities are created: electricity, in the form of electrons, and RECs.

RECs are how we account for the production of green energy, as electrons are indistinguishable from each other once they enter the grid.

One REC is equal to 1 megawatt-hour (MWh) of power, which is a little more than the average American household uses each month. So if a wind turbine produces 1 MWh, it also produces 1 REC. 

But RECs can be sold separately from the energy that generates them. And if you don’t possess the RECs, then you can’t claim the energy is renewable, according to John Rogers, a senior energy analyst at the Union of Concerned Scientists. 

The flip side is that a business or utility doesn’t have to generate or source electrons directly from wind turbines or solar panels to claim it sources renewable energy. It just has to buy RECs. 

In fact, when businesses say they’re clean-energy companies, it often means they’ve purchased RECs equal to their energy usage, according to multiple sources Business Insider spoke with. It doesn’t affect the physical electrons flowing into their offices.

Texas has some of the country’s cheapest RECs because it has a surplus of wind energy.

Orjan F. Ellingvag/Corbis via Getty Images

What does a REC cost? 

RECs come in different varieties: Some are generated by old wind turbines, for example, while others come from new solar farms.

The cost of each, which is set by demand, varies from pennies to upward of $400.

For the most part, that demand depends on location. 

Some states have what’s called a renewable portfolio standard (RPS). That means a certain percentage of the energy that electricity providers, such as utilities, sell must come from renewable sources, and RECs are how they account for it.

The catch is that only certain kinds of RECs can count toward those clean-energy targets. They have to come from local power plants, for example, and there are usually restrictions on the type of power. 

That means in a region with an ambitious standard, RECs from local power generators are in higher demand — thus more expensive.

Washington, DC, for example, has to reach 100% renewable energy by 2032, and some of it has to come from solar energy. That is why solar RECs, or SRECs, in the region are pricey, selling for upward of $400 each, according to the research firm BloombergNEF.

Meanwhile, RECs are dirt cheap in parts of the country that have already blown past their RPS or don’t have one at all. 

Texas, for example, passed its commitment a while ago, Emily Williams, the vice president of strategy and sustainability at Edison Energy, said. Plus, there’s so much wind power in the state that the RECs it generates can cost less than $0.50.

A key takeaway is that $400 RECs in DC and $0.50 RECs in Texas are both RECs, but many people who buy them don’t know the difference.

Arcadia is among a handful of startups that offers REC-matching programs.


The multibillion-dollar businesses built around buying and selling RECs

“Just like any other commodity market — oil, currencies, whatever — there are actively traded markets for RECs,” said Scott Eidson, the vice president of environmental markets at 3Degrees, a firm that sells RECs and other services.

There are two, to be exact: the compliance market and the voluntary market.

RECs that energy providers use to meet clean-energy targets fall into the compliance market, whereas RECs that are purchased voluntarily — such as by a business that wants to say it sources clean energy — are part of the voluntary market. 

In 2018, the two markets combined had more than 400 million RECs, according to Eidson. While there’s no easy way to translate that to a dollar value, Eidson estimates that in 2020, the REC market size is about $6 billion. 

There are dozens of firms involved in REC transactions, including Schneider Electric, Edison Energy, and 3Degrees, which is one of the largest.

3Degrees helps both energy providers and companies procure RECs, often through deals worth $50,000 or more, Eidson said. In these transactions, 3Degrees is an intermediary that earns a fee.

There are also a handful of startups that sell RECs directly to energy customers, including CleanChoice Energy and Arcadia, which is backed by some of the most prominent clean-energy venture capitalists. 

Read more:Arcadia has raised $70 million on the promise it can take on ‘a massive old monopoly industry’ and slash your power bill

The pitch is simple: These companies will help you or your company source clean energy with RECs. But as you now know, not all RECs are created equal. 

‘These RECs mean nothing’ 

If a company is matching all of your electricity with cheap RECs — such as from old wind farms in Texas — that’s less likely to promote the expansion of clean energy, according to Vikram Aggarwal, the CEO of the solar marketplace EnergySage.

That’s because the “greenness” of that energy doesn’t have as much value. 

“These RECs were not the reason that these wind farms were built,” Aggarwal said. “They have zero impact on the economics of the wind farm. These RECs mean nothing.” 

But consumers often have little clue how to tell RECs apart and can end up paying a premium for a product that adds little value. 

Arcadia offers a product that matches 100% of your energy to RECs from wind farms for a premium that it says averages to about $10 a month. Those RECs come from 12 wind farms, four of which are in Texas, the company says.

In a statement, the company — which offers other avenues to source clean energy — said it was “committed to only the highest quality standards” for its RECs. They all come from recently generated energy, it said, and from farms “built or significantly upgraded within the last 15 years.”  

The other issue of upselling customers on RECs is that it broadcasts the message that clean energy is more expensive, Aggarwal said, when it isn’t. 

“They’re telling the consumers that green power is more expensive, which is not true,” he said, not speaking about a specific company. “You are promoting the idea that you have to pay extra for green, which is bad.” 

When rooftop-solar-panel companies lease panels, they typically sell the RECs.

REUTERS/Yuriko Nakao

One other REC oddity: Not all rooftop solar energy can be called renewable 

Most rooftop solar companies keep and sell the RECs produced by the panels they lease to customers, according to EnergySage. 

That means that if you lease solar panels, you can’t call the energy they generate for your home renewable. The “renewable” aspect of it will likely be claimed by someone else, perhaps across the country, when they buy the RECs.

But that’s not what some companies would have you believe. 

On the website of the nation’s largest rooftop-solar-panel installer Sunrun, for example, it says that if you lease solar panels, you’ll enjoy “clean, renewable energy.”

But Sunrun sells the RECs generated by its leased systems.

A Sunrun spokesperson said the company manages the sale of the RECs “so customers don’t have to deal with the complexity of SREC transactions,” and it passes the financial benefit on to them “in the form of lower monthly payments.” 

Jenny Heeter, a senior energy analyst at the National Renewable Energy Laboratory, said statements could be misleading if they suggest customers are getting renewable energy when they have a leased solar array.

“If the customer is not getting the RECs, it is not an accurate statement,” Heeter said. 

  • Read more:
  • Rooftop solar companies have a new pitch as they seek to grab a piece of an emerging $50 billion market: Prepare for the worst
  • Arcadia has raised $70 million on the promise it can take on ‘a massive old monopoly industry’ and slash your power billSunrun crushed Tesla in solar installations last year. A top executive reveals a key piece of the $2.2 billion company’s strategy to widen its lead.
  • How Tesla failed to maintain a huge lead in residential solar, and why Elon Musk is unlikely to win it back

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