A renewable energy credit, commonly called a REC, is a tradeable financial instrument that allows the owner of a renewable facility to sell the renewable attribute separately from the energy that the facility generates.
RECs are used by utilities, other load-serving entities, consumers, and other organizations to demonstrate that a certified amount of renewable energy was put on the grid on behalf of the buyer. Renewable generators provide the energy and a certification agency issues a REC, which is transferred to the buying party. In return, the buying party provides a payment to the generator. The buying party uses the REC to fulfill a regulatory requirement or an internal goal and then the REC is retired (meaning that it cannot be reused since credit has already been taken):
RECs cover only the environmental attribute associated with the renewable energy. They do not include the energy (MWh) component that can be sold to another party by the generator for additional revenues unless the buyer wishes to pay a higher price to bundle energy and RECs in one transaction.
While some of a REC’s value is created by voluntary corporate or personal individual sustainability goals, much of it is created by renewable portfolio standard (RPS) mandates. In the U.S., rules for using RECs to fulfill an RPS mandate are defined at the state level. Thus, RECs have different value in different states depending on the rules. Contracts to sell RECs are key to obtaining financing for new renewable generation projects.