Tradable Renewable Energy Certificates
Renewable energy certificates (RECs) represent the environmental attributes associated with one megawatt-hour (MWh) of electricity production. RECs can be traded, bought and sold separately from commodity electricity. In cases where a renewable electricity standard (RES) is in place, compliance can be demonstrated by the use of RECs. RECs can be bundled with the electricity generation itself or unbundled and sold separately, with one entity purchasing the electricity generation itself and the other purchasing the renewable characteristic of the generation (Brown and Muller 2011). Effectively designed REC systems support robust, accurate, and efficient tracking and accounting of renewable energy generation (nrel.gov). REC systems can support a market-based and flexible approach to expand RE investment.
(Adapted from https://cleanenergysolutions.org/policy-briefs/res and Cox et al. 2015)
Establish a Robust Higher-level Policy Framework to Support Effective REC Markets and Programs
Renewable electricity targets and standards can provide a strong foundation for development of REC markets. Renewable electricity standards are regulatory mandates that require a specified amount of electricity that is sold or generated within a given area to come from eligible renewable resources. RECs can be linked with renewable electricity standards and provide a mechanism to support compliance. Using unbundled RECs can reduce costs associated with RES compliance, as renewable resources can be sited in areas with the highest resource. Using RECs as a way to prove RES compliance may also lower administration and verification costs (Hurlbut 2008, Leon 2012, Heeter et al. 2014). REC markets can also be established to support voluntary green power purchase programs. At a minimum, RECs can be designed to allow for simple tracking and verification of renewable energy projects in jurisdictions where REC markets may not exist (Bird et al. 2010).
Support Longer-term Contractual Agreements
As noted above, RECs can be established as a compliance mechanism for renewable electricity standards (Wiser et al 2010). In markets where RECs are primarily traded on a short-term basis, policymakers can consider encouraging or mandating longer-term REC contracts. In addition, policymakers can consider developing longer-term alternative compliance payment schedules for complying entities. (Bird et al. 2011, Cox et al. 2015).
Consider Unbundled RECs to Support Policy Flexibility
As noted above, RECs can be unbundled allowing different entities to separately purchase the electricity generation associated with the REC and the renewable characteristics of the generation (Brown and Muller 2011). Unbundling can allow for increased flexibility to support policy implementation and related transactions. (Wiser & Barbose, 2008).
Increase Investor Certainty
In cases where RECs are traded in short term or spot markets, establishing a minimum price floor for RECs can reduce investor uncertainty and potential increases in cost of capital that could stymie upfront investment. (Bird et al. 2011, Couture at al. 2015, Cox et al. 2015).
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