Green tags: making sense of the REC-age.

AuthorBarcott, Bruce
PositionRenewable Energy Certificate

On a grassy sandhill in eastern Colorado, Wray School District Superintendent Ron Howard parks his truck and points to the spot where his district's new wind turbine will stand. "Right there, top of the hill," he says. "The wind comes from the north, funnels through the canyon, then shoots up over this rise." We get out and take the air. "Feel it?" he says. A persistent breeze combs over the hill, strong enough to make a street sign tremble.

[ILLUSTRATION OMITTED]

Howard rattles off the specs. "It'll be 335 feet high to the top of the propeller. Put out 900 kilowatts, enough to power the school district and most of the town, too," he says, pointing behind him to the farm town of Wray, population 2,100, about 16 kilometers from the Colorado-Nebraska border. "You come back this time next year, it'll be here turning."

The Wray turbine will be turning thanks in part to renewable energy certificates--also known as RECs or green tags--which helped finance the project. When a renewable power source like a wind turbine generates a megawatthour (MWh) of electricity, it also produces a 1-MWh REC, which is an electronic financial instrument representing the green attributes of renewable energy (mainly, the fact that little or no carbon dioxide or other pollutants were released during its generation). Customers buy the electricity, of course, because it's the most flexible and useful form of energy ever harnessed and can do myriad jobs that once required muscle power. But the RECs are worth something too--anywhere from US$1.50 to $20 per MWh on the retail market. Sold separately, they offer a way for individuals or companies to support renewable energy even if they cannot buy it directly from their local electric utility--plus they create a separate income stream for the power generators producing the renewable energy.

RECs were invented in the late 1990s as an offshoot of "green pricing" programs. With green pricing, customers paid an extra 1-5 cents per kilowatthour (kWh, or 1/1000th of a MWh) to buy energy from renewable sources, mostly wind, biomass, geothermal, and solar. (The same sources, especially wind, supply the REC markets; see chart, page 16). Not all utilities offered green pricing, though, and some didn't have nearby renewable sources from which to buy. By splitting the product of a renewable power source into two commodities--the electricity and its renewable attribute--RECs gave utilities and consumers the ability to support green energy generation without actually hooking up to a green power source. The hope and assumption is that RECs will encourage increased investment in renewable generating capacity.

RECs remained little-known instruments until 2004, when big companies discovered them as a convenient way to "green up" their power. Thanks partly to huge purchases by corporations like Wells Fargo, Whole Foods, Vail Resorts, and Starbucks, REC sales more than doubled between 2004 and 2005, from 1.6 million MWh to 3.8 million MWh. REC retailers estimate they sold more than 6 million MWh last year. Officials who track green energy markets at the U.S. Department of Energy's National Renewable Energy Lab (NREL) in Golden, Colorado, expect yearly REC sales to hit 20 million MWh in 2010. Earlier this year the National Football League bought RECs to make Super Bowl XLI the first NFL championship game to use 100 percent renewable energy. Shoppers can now buy RECs at the checkout line at Whole Foods.

"We've seen explosive growth in the last two years," says Blair Swezey, NREL's principal policy advisor for green energy markets. "Larger companies are using RECs to green up their power company-wide, doing it with one national buy rather than negotiating utility-by-utility. Those huge deals are really driving the market."

RECs have become so convenient and popular, in fact, that some green energy leaders are now having second thoughts. Are RECs really bringing new wind farms and solar arrays online? Are green tags too cheap and convenient? Do people really know what they're buying in a REC?

Debate

The debate began in 2006, fueled in part by the clamor for carbon neutralization. Companies and individuals snapped up RECs as a way to "offset" the...

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