Why We’re Sticking with Renewable Energy Credits (for Now)

Written by Joe Kozlowicz on Tuesday, December 30th 2014 — Categories: Green Data Center

Bloomberg Businessweek posted an article this month about the seeming decline in popularity for Renewable Energy Credits (RECs) among large companies in the United States. Citing Walmart, Safeway, Hilton, and others, the piece claims RECs have little power to spur new renewable development and don’t really eliminate the carbon emissions that companies claim.

Go Green enter key on a keyboardWe’ve covered the What and Why of RECs here on the blog before. Basically, each REC stands as a record of one megawatt-hour of renewable energy added to the general pool travelling the electric grid. When a company or individual buys an REC, they claim credit for that green energy. The income stream from REC purchases travels through brokers and on to renewable energy development companies, who use the extra funds for new projects like wind farms or solar arrays.

Where RECs get tricky is when companies use them as part of their claims to be carbon-neutral, or as strictly a marketing trick. The Bloomberg piece makes this clear when it reports a Hilton VP as stating RECs weren’t “having a major marketing impact.”

An REC alone can not cancel out a company’s energy use. It might lead to more renewable energy generation down the line, and it might allow claims for 100% green power. But we are all still drawing from a grid that is 67% powered by fossil fuels. We are supporting dirty energy production simply by using grid power.

The large companies who are withdrawing from RECs are starting to focus more on in-house solutions and reducing energy use rather than offsetting it. These are admirable goals and we applaud them—our strategy, too, has always been a combination of efficiency and RECs. For smaller organizations, however, building an on-site solar farm like Apple’s is economically unfeasible. With an enormous upfront cost, plus the fact that even a massive array will still require additional grid power (especially in energy-hungry industries like data centers), the ROI can become decades long.

RECs Are More than Funding for New Projects

RECs are also one of the only methods of trading zero-carbon energy. They are tracked regionally in order to see how much renewable energy is produced.

The REC market has grown in parallel with renewable generation. This is hardly cause and effect, but it is indicative of increased interest in purchasing and keeping tabs on “green electrons”. RECs started taking off in the mid-90s. While they might be turning towards less abstract methods now, the large corporations covered in Bloomberg got their feet wet in the green energy space through RECs. Without their use, they likely would never reach the point today where they are considering rooftop solar and other renewable energy and energy efficiency methods.

Without the success of RECs, we probably wouldn’t have Power Purchase Agreements (PPAs) today, which are long-term agreements between businesses and electric generators to purchase electricity directly.

The use of RECs is declining slightly today because companies (1) began to offset their electric use through credits, (2) examined their consumption, (3) made adjustments and bought their own generation systems, and (4) finally needed less RECs.

Prices have dropped more than 50% in the past decade, but there is still value behind each credit. Whether some cynical companies have found their marketing value lower is beside the point. Others might be able to produce a solid return on direct renewable energy generation. Indeed, Green House Data has evaluated options for onsite generation both in Cheyenne and our expansion markets, and a PPA could be an option as well. Neither would totally replace REC purchases. For many others, RECs remain a valid way to enter the renewable energy market.