Renewable energy certificates (RECs) are a tool for implementing Renewable Portfolio Standards (RPS) in Massachusetts. Each megawatt-hour (MWh) of clean energy produced is allocated one REC. These RECs are monitored and traded through the New England Generation Information System (NE-GIS).
RECs and RPS Compliance Standards
A Renewable Energy Certificate represents one megawatt hour generated by a renewable energy source, as defined by the RPS. Electricity providers may purchase these certificates from generators, allowing them to directly support the renewable market without having to directly supply clean energy. This system is maintained and tracked through the NE-GIS.
Each certificate purchased by a supplier counts as one credit towards the amount of renewable energy credits required for compliance with the Renewable Energy Portfolio Standard.
A retail electricity supplier can maintain RPS compliance in three ways:
- Through standard compliance- A supplier buys and holds RECs from qualified facilities equivalent to the required percentage of its total sales for a given year. For example, a supplier selling 1,000,000 MWh in 2005-when the RPS requirement was 2%-was required to purchase and hold 20,000 RPS-eligible RECs.
- Through banked compliance- A supplier may count toward the current year any RECs generated within the previous 2 years above the minimum percentage required for those years. This banked amount cannot exceed 30% of RPS quota for the current year.
- Through alternative compliance- A supplier may choose to make alternative compliance payments (ACPs) if not enough RECs are available in the market. After a supplier determines the number of RECs required for compliance, it makes ACPs at a rate of $50/MWh (in 2003 dollars, adjusted for the Consumer Price Index) for Class I -- or $25/MWh for Class II Renewable and $10/MWh for Class II Waste Energy (both in 2009 dollars, adjusted for the CPI) -- and is given alternative compliance credits by the DOER. The use of these payments is overseen by the DOER, primarily to further the commercial development of facilities that will generate more Class I RECs.
Any electricity supplier that continually fails to comply with the RPS is subject to punitive action by the DOER, up to and including suspension and revocation of the supplier's license. However, with three different methods of compliance and reasonable goals, the RPS is intended to provide a pragmatic way to expand the supply of renewable energy.
New England Generation Information System
To monitor RPS compliance, the DOER requires licensed suppliers to submit annual reports certifying that they have purchased a sufficient number of RECs of the appropriate class produced by qualified generating facilities. RECs are based on the environmental attributes of generated electricity, as tracked by the New England Generation Information System (NE-GIS). This system, adopted in 2002, is maintained by NEPOOL.
The NE-GIS currently tracks almost 50 different attributes for generating units that produce power within and deliver power to the New England electricity marketplace. Key attributes include type of generation technology, date of operation, and fuel sources, as well as CO2, SOx, and NOx emissions.
For each megawatt-hour of electricity generated by individual units, the NE-GIS assigns a certificate that records the attributes of the power. These certificates are then used by electricity suppliers to differentiate their products for consumers, to provide the information required on energy disclosure labels, and to comply with state and regional RPS and emissions performance standards. Green power brokers, for example, sell products based on RECs, giving consumers the opportunity to offset purchases of electricity generated by fossil fuels and other sources.
Unlike other energy tracking systems used around the country, the NE-GIS assigns certificates to all electricity produced, regardless of fuel source, making it the most comprehensive such system in the United States. Generators are not required to provide information-but if they opt not to report attributes, they are assigned default certificates based on data from the highest-emitting coal-firing units. The market for certificates generated by such facilities is nonexistent.
By contrast, RECs represent a valuable commodity-and the RECs generated by RPS-eligible facilities are in particularly high demand, due to both RPS requirements and consumer preferences. Each REC from a qualified facility purchased and held by a licensed retail supplier counts toward the amount required for compliance. Consumers who purchase green power products based at least in part on RPS-eligible RECs help tighten the supply of certificates available for RPS compliance, sending market signals for additional renewables development.