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Do Texas renewable energy plans deliver what they promise?

For business

Renewable energy certificates allow consumers to support green energy

The energy market has come up with a way to get around the problem that consumers can’t choose which type of energy directly supplies their home or business. It’s called renewable energy certificates or renewable energy credits (RECs for short).

RECs are what you buy when you purchase a renewable energy power plan. A REC gives you ownership of one megawatt-hour (equal to 1,000 Kilowatt-hours) of power generated by wind or solar farms. A REC can only be sold one time. And, an energy generator can only sell the number of RECs that account for the green energy they produce. For example, if a wind farm produces 100 megawatts of clean energy, the generator could sell 100 RECs.

In the Texas energy market, your retail electricity provider is responsible for buying the RECs. So when you buy a renewable electricity plan, your provider has to buy RECs from a power generator to cover the amount of energy you use. The Electric Reliability Council of Texas (ERCOT) manages the buying and selling of RECs.

The idea is that the more people buy renewable electricity plans, the greater the demand for RECs will be. This increased demand will increase the cost of RECs, providing generators with more financial resources to build solar and wind projects. Industry experts describe this process as RECs creating more “additionality” for power generators.

Are RECs effective?

However, some industry analysts question how effective RECs are. They note that buying RECs doesn’t necessarily result in more clean energy being produced. That’s because power generators don’t have to spend the money they receive from selling RECs on new energy capacity. A related problem is that RECs are relatively easy to come by. The sales price of a REC is often a fraction of what it costs to produce one megawatt-hour of electricity. The end result is that even if an energy generator relied on its earnings from RECs alone to expand its clean energy production, it wouldn’t have the money to do so. In other words, RECs don’t currently provide enough additionality to power generators.

Increased demand for RECs may help solve this problem. According to SP Global, REC trading has risen dramatically in the US over recent years. In 2010, RECs accounting for 19.8 million megawatt-hours were sold. By 2019, that figure increased to 68.7 million megawatt-hours.

Big companies buy the largest portion of RECs to offset their use of fossil fuels. Matthew Brander, a lecturer at Edinburgh University, feels this approach is problematic. Companies can claim they use 100 percent clean energy by purchasing enough RECs to match their energy use. However, they continue to get their power from coal or natural gas plants.

Some companies reject RECs, preferring instead to invest more directly in renewables. “We do not have confidence that offsetting instruments alone are sufficient to drive new renewable projects, as opposed to simply shifting around ownership of existing renewable electrons,” Walmart notes in a document on its renewable energy policy.

What does this mean for me?

Understanding the role played by RECs can help you make an informed choice about purchasing a renewable energy electricity plan. RECs act as a revenue stream for renewable energy producers. That means you’ll support the solar or wind sector by buying a renewable electricity plan.

However, the funds you spend on a renewable plan won’t necessarily help create new green energy facilities. Energy producers can spend the revenue they get from RECs on anything they like. There’s no direct link between buying RECs and reducing the use of fossil fuels.

What your purchase will do is help boost demand for RECs. If more consumers follow your example, REC prices will likely go up over the longer term. This price increase could encourage generators to build new solar and wind farms. As Rebecca Bridges, a chief marketing officer in the energy sector, puts it, “The more the people put their dollars towards renewable energy, that really sends a signal to the market that says we want more renewable energy in Texas.”

Jordan Smith is a writer and researcher with expertise in renewable energy and deregulated energy markets. Jordan has written extensively on the deregulated energy market in Texas and the challenges confronted in the clean energy transition, and conducted research projects within the energy industry. Further articles by Jordan can be found at ChooseEnergy.com or SaveOnEnergy.com.

 

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