In our previous articles in this series, we provided a basic overview of Renewable Energy Certificates (RECs), weighed the pros and cons of various options to acquire RECs, and explored why virtual power purchase agreements are a popular option to get RECs. In this article, we'll cover how, exactly, you can apply RECs toward specific sustainability goals, such as "using 100% renewable energy" or accomplishing a "50% reduction in Scope 2 emissions."
Taking Credit for Renewable Energy with RECs
As previously mentioned in our "Introduction to RECs" article, RECs verify that a given megawatt hour of electricity came from a renewable source. There are four main ways for corporations to acquire RECs, but no matter which way they choose - even with solar panels on their roof or a physical PPA - the electricity is not flowing directly from the clean energy source into their power outlets. If that were the case, a corporation that was "100% renewable" couldn't turn on their lights at night or when the wind isn't blowing. A "100% renewable" corporation still gets its energy from the grid, which is supplied by a variety of renewable and fossil fuel generators.
When a corporation purchases a REC, it is essentially taking credit for one megawatt hour of renewable energy existing somewhere on the grid. This is why RECs are often referred to as "renewable energy credits". RECs are a renewable energy accounting mechanism that enables corporations to make certain claims. So how does that work exactly?
Using RECs to Make Renewable Energy Usage Claims
To be "100% renewable," a corporation must acquire - and retire - one REC for every megawatt hour of energy that they purchased. To be eligible for retirement, RECs must be certified to meet certain criteria to ensure their validity. However, once certified, RECs can be used flexibly. For example a REC could be purchased in one area of the country and applied to a facility in an entirely different area of the country.
Retiring RECs
"Retiring" a REC means that you retain ownership of it forever; it cannot be sold to someone else. This needs to be registered through the REC's tracking system. There are different tracking systems in different regions of the U.S.: for example, the North American Renewables Registry (NAR) covers the Southeast, while the Western Renewable Energy Generation Information System (WREGIS) covers the West. Any REC you purchase should be tied to a tracking system to prevent double-counting. Some tracking systems will charge you a small fee per REC to retire it.
Timeframe for Acquiring RECs
It's important to pay attention to when the REC was generated in order to be able to use them in your reporting. For example, to claim that you used renewable energy in 2019, the RECs must have been generated during the 2019 calendar year, or during the 6 months immediately preceding 2019 (July-Dec. 2018), or 3 months immediately following 2019 (Jan.-March 2020). This equates to a 21-month eligibility period.
Unbundled RECs can be purchased in large batches at any time, while bundled RECs from power purchase agreements (PPAs) will come to you throughout the year as the project generates and sells its electricity. Keep that in mind when setting a target date for reaching your renewable energy goal.
As long as you've retired enough RECs (that were generated within the appropriate window of time) to cover the number of megawatt hours you purchased, then you can make renewable energy usage claims. The percentage, "50% renewable", "25% renewable," etc., merely depends on the ratio of purchased megawatt hours to retired RECs.
But how do RECs reduce your emissions? That's a little more complicated.
Using RECs to Make Carbon Emission Claims
A REC essentially allows you to replace a megawatt hour of emissions-causing electricity with a megawatt hour of zero-emissions-causing electricity to reach your goal. It's important to note that RECs can only be used to reduce Scope 2 emissions (those caused by purchasing electricity) and not Scope 1 emissions (those directly caused by your company) or Scope 3 emissions (those caused by your suppliers or consumers).
The Greenhouse Gas (GHG) Protocol offers a wealth of information on this subject, and should be your go-to resource for details on GHG accounting methods. We'll give you the highlights here.
Calculating Scope 2 Emissions
First, you need to determine where to apply your RECs.The EPA recommends that RECs be distributed evenly across all facilities proportional to their electricity consumption, so that each facility has the same percentage of their consumption met by the REC.Then, you'll need to calculate the emissions for any megawatt hours that can not be wiped clean with a REC. This takes three steps:
1. Determine the amount of electricity you purchased. Your utility bills will likely be your main source of information on how many megawatt hours you've purchased. If you do on-site generation or purchase commodity electricity, the EPA offers additional guidelines.
2. Determine the emissions factors for the energy you purchased, using a location-based method and a market-based method:
a.) Location-based method: This is based on where the electricity was purchased. It is calculated using average energy generation emission factors for defined geographic locations. In the United States, the emissions factors are identified using the Emissions & Generation Resource Integrated Database (eGRID). In Europe, they are calculated using data from the IEA. If you moved your facilities to an area with a "cleaner" grid, the location-based accounting method would reveal a reduction in emissions.
b.) Market-based method: This is based on the source of the electricity. Your energy supplier will calculate an emissions factor for the electricity you purchased from them. Each REC will have an emissions factor, and it's typically zero, since renewable projects don't produce emissions (all Green-e certified RECs are zero). If you acquire and retire RECs, the market-based method would reveal a reduction in emissions.
3. Calculate emissions:
- Multiply activity data (megawatt hours purchased) by the emission factor for that activity for each applicable greenhouse gas. Some electricity emission factor sets may include emission rates for CO2, CH4, and N2O; others may only provide CO2 emission rates.
- Multiply global warming potential (GWP) values by the GHG emissions totals to calculate total emissions in CO2 equivalent (CO2e).
- Report final Scope 2 emissions in metric tons of CO2e.
RECs are used to reduce emissions under the market-based accounting method, not the location-based method, even though it is recommended that you use both methods of accounting in your reports.
Here is a simplified example:
It's possible for a company to acquire enough RECs to account for all of their purchased electricity, enabling them to claim that they're "100% renewable," and have eliminated their Scope 2 emissions on the path to carbon neutrality. But companies should be careful not to deceive consumers with invalid claims. In an upcoming article, we'll cover the marketing claims you can make, and marketing best practices for renewable energy investments.
Making an Impact with "Additionality"
Any REC can be used to reach your goals on paper. But it is important to recognize that not all RECs are created equal. There are two types:
- "Bundled RECs": These are "bundled" with the energy. For example, when you enter into a power purchase agreement (PPA) with the developer of a renewable energy project that hasn't been built yet, they can take that PPA to the bank and get the financing they need to build the project. Once built, they'll receive a REC for every megawatt hour of energy they sell, and then they'll pass those RECs on to you. That means purchasing bundled RECs directly results in a new clean energy project that wouldn't have come online if it weren't for your investment, and therefore allows you to make claims of "additionality" - more on that later.
- "Unbundled RECs": You can also purchase what are referred to as "unbundled RECs," which are certificates from existing projects; they're not tied to the energy. Unbundled RECs can be purchased from a variety of REC retailers.
Some companies may choose to invest in renewable energy just for the marketing value, but most go into it with a long-term point of view: they want to reduce global warming by reducing their carbon footprint. While purchasing unbundled RECs will - on paper - enable a corporation to reach its goals, the impact on emissions is debatable because that clean energy project would have likely sold its energy to someone else. Your REC purchase wasn't critical to its existence. RECs are not a major source of revenue for most existing projects.
In the renewable energy world, the term "additionality" means that your investment resulted in adding a new project onto the grid that wouldn't have been added anyways. Additionality is important to environmental organizations, investors, employees, consumers and board members who care that your investments are truly making your company more sustainable in the long term. With a PPA, you can point to a project that was constructed as a direct result of your actions: your impact is clear.
The majority of LevelTen's clients are considering a PPA not only because it's an economical way to acquire RECs, but also because it has an obvious impact on the environment.
Ready to fight global warming with a PPA? Contact us to schedule a consultation with LevelTen Energy advisor.
To learn more about renewable energy certificates, check out our other articles in this series:
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