What Are Renewable Energy Certificates?

Renewable energy certificates (RECs) are paper certificates that represent power created by a renewable source, and they can be bought or traded between individual owners or businesses. The certificate itself represents the energy equivalent of 1 megawatt hour (MWh), and the owner of the certificate can use the power however he desires. A certified renewable energy plant makes energy and feeds that energy into the electrical grid, where the certificate owner can use it. Commonly, renewable energy certificates are purchased by power plants and businesses, because there are laws stating that a percentage of their overall power must be renewable or because they want to increase public appreciation for the establishment. Certified renewable energy plants gather energy from wind, solar panels, hydrogen fuel cells and biofuel.

When a renewable energy plant creates energy, renewable energy certificates are printed, with each one representing 1 MWh of power. Just as with stocks and bonds, the certificates are labeled with a unique serial number. After being printed, the certificate can be purchased and used later or traded.

While renewable energy certificates can be traded, owners commonly use them. To allow owners to use the energy, the renewable energy plant feeds the energy into the electrical grid after it is produced. The power waits in the electrical grid until the owner claims the right to use the energy. The energy is then siphoned to wherever the owner needs it.

The two largest renewable energy certificate customers are electrical companies and general businesses. Electrical companies tend to buy RECs because most countries have laws stating that these companies must sell a certain amount of renewable energy to customers; the amount depends on the area. Another reason to use renewable energy is that it makes businesses look more responsible, which can lead to more sales. RECs may be cheaper than non-renewable energy, but RECs prices fluctuate often, so this may or may not be true at any given time.

Any power company can store energy in the electrical grid, but only certain power companies can produce renewable energy. Non-renewable power companies can store energy, but they cannot sell renewable energy certificates. The types of renewable energy that do not have any stipulations as of 2011 include solar energy, geothermal energy, biofuel and wind. Some energy types have stipulations. Hydropower, for example, is only viable from small facilities that do not affect water flow, and fuel cells are only considered renewable if they run on hydrogen obtained from another renewable energy source.