How Does Renewable Energy Certificate Trading Work?

By trading REC over long distances, REC trading can support the growth of renewable energy in states that do not have strong renewable energy resources. No longer will the benefits of renewable energy be restricted to the state where the energy was produced.

Renewable energy certificates can be produced by large energy companies or by individuals who install renewable energy sources in their homes. RECs can be bought by corporations or individuals for a variety of reasons relating to renewable energy. Some buyers have a broker or REC wholesaler to assist them in the trading of RECs. Other buyers deal directly with the REC producers.

Pricing RECs

Many factors go into the pricing of RECs. Based upon the location and states’ legal requirements, the availability of RECs may increase or decrease based upon energy demand. Some states may allow for energy companies to meet legal requirements by buying RECs from other energy companies.

In some states, governments have set up legal requirements for utilities to include some form of renewable energy into their electrical output. This may make the price of RECs very high. In other areas, where there are not legal renewable energy incentives or requirements, or where renewable energy sources are more prevalent, the price of RECs goes down.

Energy Across Distances

Producing renewable energy can often cause financial difficulties for energy producers. Some renewable energy producing sites, like wind turbines or solar farms, can be located far away from dense population centers. The smaller towns closer to these renewable energy centers may not be able to pay a premium price for renewable energy. Transmitting energy across long distances costs money. (All electricity is the same on the grid, however; “green energy” flows into the grid and becomes indistinguishable from other types of “regular energy”). RECs allow energy producers to solve the problem of moving renewable green energy from where it is generated to where it is used. By dividing the output into the actual energy and into RECs, they can send the energy to the small town as “regular energy.” The benefits of the REC can then be sold to the big city, where there is a market to pay for the premium cost of renewable energy.

By trading REC over long distances, REC trading can support the growth of renewable energy in states that do not have strong renewable energy resources. No longer will the benefits of renewable energy be restricted to the state where the energy was produced.