Why are RECs important?
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Electricity that is produced by renewable energy generators is fed into the grid where the energy it creates from the movement of electrons becomes indistinguishable from the energy generated by other sources such as traditional coal power plants. The electricity is the same no matter how it is produced.
In order to track the production of energy from renewable sources, RECs or renewable energy certificates were created. RECs are market-based instruments that are created whenever renewable energy is generated from a generator. For every MWh of energy produced, 1 REC is created. RECs can be sold on the open market to firms and consumers, and the owner of RECs can then claim to be powering their facility with the corresponding amount of renewable energy that the RECs represent, regardless of whether or not they are actually using renewable sources.
One benefit of RECs is that they count towards offsetting a firm’s carbon emissions, allowing them to decrease the value of their scope 2 emissions. It would allow firms to appear more socially responsible in the face of the growing concern about climate change. This would enhance the brand’s impression along with its reputation and it is likely to be part of a larger shift in public perception in favour of action against climate change.
Another benefit of RECs is their ability to further support the market for renewable energy. There is an increased incentive for renewable energy generators to increase production, as they could generate more revenue with the sale of additional renewable energy certificates. An increase in the amount of renewable energy produced will accelerate the shift towards a more sustainable future. Buyers of RECs can then proceed to sell them through REC arbitrage to earn a profit.
In addition, RECs increase the accessibility of renewable energy. A barrier to entry faced by numerous consumers and small firms is the large upfront cost of installing the physical factors of production, namely the capital required (solar panels, wind turbines, etc.). With RECs though, consumers and firms can own and use renewable electricity without having to face that obstacle. This would encourage many to adopt green energy as their primary energy source.
All in all, the creation of renewable energy certificates has greatly supported the shift in global perception through increased awareness and accessibility. All parties: generators, sellers and buyers can benefit from this concept.<
