Do REC Sales Mean a Solar Project Isn’t ‘Green’?
Share this post
A recent AP story called attention to the Vermont’s Attorney General recent warning to solar farm developers in Vermont that the sale of Renewable Energy Credits (RECs) generated by a solar farm transfers its “green” benefits to the buyer of the REC – meaning that the developer cannot legally also advertise those same benefits to consumers looking to buy shares of the solar farm.
So, does this argument apply to solar projects in other states? We take a look at what RECs really are and explain how they work in the complicated world of utility power and environmental regulations.
What is a REC and Why is it Worth Money?
Most of the New England states require utilities to acquire a certain percentage of their total electricity portfolio from renewable sources – called the Renewable Portfolio Standard (RPS). But since electricity follows the path of least resistance (like water), it’s generally impossible to know the source of any given electrons on the grid.
That’s where RECs come in. Renewable power plants (PV solar arrays, wind farms, etc.) are awarded 1 REC for every 1,000 kilowatt hours (1 MWH) of electricity they generate. The owners of the renewable power plant may then, if they choose, sell those RECs on the open market. Utilities with an obligation to use a certain amount of renewable power per the RPS can elect to:
- Build their own renewable power plant(s)
- Buy RECs from someone else, or
- Pay a penalty (to funds for renewable energy programs, which are often raided by state legislatures)
Purchasing RECs is a way for power companies to compensate for the dirty fuel they use in their electric generation mix. It also helps to incentivize and accelerate development of solar, wind and other clean power plants. The money earned from sale of RECs is often the last step needed to make a project financially viable. For example, where solar is installed for nonprofit organizations or municipalities, the projects are typically installed at no cost to the host institution. One reason why this is possible is because of the revenue from the sale of RECs.
REC Double Dipping – Not a Problem in Maine or New Hampshire
The Vermont AG is warning Vermont developers that if they sell RECs – which represent the “green” properties of the solar array – then it would be false advertising to also sell energy from the project to consumers as “green.” This, the AG says is double-dipping.
ReVision would first note that this problem does not apply to most solar farms and solar projects we develop in Maine and New Hampshire. In Maine, for example, each family buys their share of a solar farm outright, which means they own the RECs as well. The members of the solar farm can choose to sell their RECs or retire them – either way, there is no double counting. Our community solar farm model is an individual ownership, as opposed to investor-ownership, model.
ReVision also builds many solar Power Purchase Agreements (PPAs) for local towns, schools and non-profits. In a PPA, the host buys the power from the array, but not the array itself. In those cases, the host institution always has the first option to buy the RECs at market rates. Many do. If not, the RECs are sold in the market. That revenue helps pay off the system and makes it more affordable for the host to buy it out in later years. It is the client’s choice.
Is Selling Someone Power from a Solar Project, While Selling RECs to Someone Else, Still “Green”?
Though the Vermont AG’s concern does not really apply to any projects built by ReVision Energy, the question is worth asking. Is it in fact misleading to suggest that solar-generated electricity is still ‘green’ if the RECs have been sold to other parties?
We absolutely agree that full disclosure about the sale of RECs is necessary, and while it can be challenging to explain the subtleties of the utility market to the layperson, we make great effort to educate our customers be they homeowners, businesses, municipalities, or institutions. In our experience, many customers know very little about things like REC markets and RPS requirements, but we consider learning a bit about how the grid works important so people can make educated decisions about solar investments. Our feeling is that once consumers understand the full complexity of the grid, and the true economic and environmental impact of a solar investment, they can feel very positive about moving forward with solar, whether that be under a rooftop ownership model, community solar farm, in the case of institutions, a solar PPA (we do not offer leases or PPAs for the residential market).
But as far as RECs are concerned, the reality is that the price of a REC does not reflect anything close to the true cost of converting from fossil fuels to renewable energy. Rather, the REC price is determined by the agency rules that set up the market. In the case of Massachusetts and New Hampshire, the Alternative Compliance Penalty (ACP) – what electric utilities pay if they do not meet their RPS requirements – sets the cap on REC prices, and the market then determines the most efficient way to meet the RPS standards at a price below the ACP cap. The ACP price is entirely a political decision — e.g., what level of incentive will society tolerate, how much can we afford, or what is the marginal incentive needed to get consumers to invest in solar: how many kW, and how fast?
The current price for Massachusetts and New Hampshire RECs, net of expenses, is about 4c/kWh (Class I RECs, not SRECs, which are only averrable to projects built in Massachusetts). Long term contracts for RECs beyond 2 years are not available in the marketplace, as the state REC programs may be repealed or expire at any time. At 2 years of REC payments, that’s equal to about 3% of the capital cost of a typical array. Selling RECs at current prices for 5 years would be equal to 7% of the capital cost.
But the future of REC programs is entirely uncertain – and it is the builder of the array, not the buyer of the RECs, that bears that risk. Which brings up the ethical question: who is in fact contributing to the fight against climate change, the investor putting up their capital and assuming all the risks, or the buyer of the RECs who is getting to call themselves ‘green’ at an arbitrary price which is capped by legislation and which has no connection to the actual cost of building a renewable energy plant?
In our view, it is both. Based on the real costs of solar, both the developer selling solar RECs and the buyer purchasing those RECs are making a meaningful and serious contribution to project development, and thus, it’s not double counting if both claim some of the credit. If the buyer of RECs paid a price equal to the real cost of going solar, then the issue of ‘double counting’ would come up. But to call solar developers profiteers, as has been suggested in Vermont, is to elevate a legal fiction over physics and economic reality.
Put another way, sale of RECs from a solar project does not magically turn the power from that project into dirty, coal-fired electricity. When a new solar project comes on line, and the project host uses that solar, as a matter of physics the host is in fact using clean power. The same is true economically. The solar developer and project host are usually also contributing far more to the project cost than the buyer of the RECs. The efforts of the developer and the host have resulted in the construction of a renewable energy plant that would not otherwise exist.
Wait, How Do *I* Sell RECs?
Finally, if you are the owner of a solar array of your own – first, congrats, and thank you – and second, yes, you may be able to sell your own RECs.
During a solar installation in markets where customers can sell RECs, ReVision Energy will install a revenue grade meter to measure production of our customers’ array, and will set said customers up with an independent REC verifier. This verifier reports the solar array’s production to the New England Power Pool and the REC seller will be paid by a power broker for the market value of RECs.
If you have any questions, contact us. While the utility policy world can sometimes get confusing, as your trusted solar professionals, ReVision Energy’s team is here to help decode industry jargon, and design, install, and service the most robust renewable energy systems in Northern New England.