Renewable Energy Credits (REC) are market-based instruments that represent the property rights to the environmental, social, and other non-power attributes of renewable electricity generation. RECs are issued when one megawatt-hour of electricity is generated and delivered to the electricity grid from a renewable energy resource.
RECs are designed to incentivize renewable energy buildout, but sometimes the way they are used in a process called “unbundling” can compromise that goal.
Take utility Georgia Power, for example, which recently expanded its renewable energy plans for 2035 to 9 GW, purchases only the null energy output from some renewable generating facilities that have contracted to sell that energy to them. Ownership of the associated renewable energy credits (RECs) is specified in each respective power purchase agreement. The party that owns the RECs retains the right to use them.
S&P Global said in a report that this type of purchase of RECs can be problematic as they make it appear that credit purchaser has invested in the physical buildout of renewables, when in reality they have not. Many corporations flaunt that they are switching to renewable energy and reduced emissions, but physically they have not made any changes.
The purchase of unbundled credits “can make it look as if a company’s electricity emissions have become zero, when they haven’t,” says Matthew Brander, senior lecturer of carbon accounting at the University of Edinburgh.
The sale of unbundled RECs is booming; today they are the most common form of green-power procurement in the voluntary market, said S&P. Some of the largest buyers are corporations, many of which celebrate their progress towards “net-zero” goals, but which may not be contributing as much to the energy transition as it appears.
Using RECs also allows a company to say it has reduced its scope 2 emissions simply by writing a check, while it can continue to put out greenhouse gases as before, said S&P.
“The reaction when you tell companies about this is mixed,” said Brander,” Some corporates are horrified when they find out about non-additionality. Others ignore it, saying they’ll keep buying unbundled RECs as long as existing standards allow them to do it, and as long as their peers do it.”
“We recommend members source more directly, through on-site generation or long-term agreements when possible,” said RE100 on a report on RECs.
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