Schendler Part II: Good RECs vs. Bad RECs

In my second of three blogs (Part I here) in response to the Businessweek article about Aspen Skiing Company’s work (“Little Green Lies”) I’ll expand on the article’s discussion of renewable energy certificates (RECs).

While the article justifiably criticized many RECs, it failed to make the point that there are good and bad RECs. (A REC represents the environmental attributes of one megawatt-hour of renewable energy.) The contrast between the two is stark. Bad RECs don’t do anything to drive new renewable energy development. A bad REC costs about $2 (though the price has gone up) and comes from, say, a wind farm that has been already developed. Your purchase may be a nice bonus for the wind farm developer (and for the REC broker you bought it from) but it didn’t do anything to change carbon dioxide emissions in the world.

Good RECs, on the other hand, actually make new renewables development happen. For example, Aspen Skiing Company is currently developing 150kW of solar energy in Carbondale in partnership with the Colorado Rocky Mountain School. That project will sell RECs to our utility, Xcel, at roughly $170/mWh over 20 years. (!!! — that’s what it takes to incentivize new solar development in Colorado.) If you take away these REC sales, our project would collapse, because it would have a negative return on investment. So Xcel can rightly claim that their REC purchase created new emissions reduction through green power production.

This sort of REC is called a “forward REC,” and in my opinion, this is the only kind of REC that matters. Forward RECs tend to be expensive (for wind power they cost $8 and up) and they almost certainly need to be purchased through a long term contract. (That’s because the wind farm developer, for example, needs the commitment to work into its financial models.) Two organizations that sell these very legitimate forward RECs are Native Energy and Community Energy.


My uncle used to be the dean of the business school at the University of Alberta. As a good economist, he doesn’t understand why supply and demand isn’t doing what it should with ALL RECs, good or bad — driving their price up to a point where eventually, even bad RECs will drive new construction because developers want that money. The problem is twofold: first, I believe there is corporate demand ONLY for cheap RECs, which serve as a remarkable, and remarkably cheap, tool for brand positioning. For only a small fraction of a company’s utility bill, (1–2 %) a business can say it is buying 100% clean power. That has been a huge statement for businesses to make. But if you jack the price up from $2 to, say, 8-$10 (roughly the price needed to drive new wind development) suddenly buying RECs is much less of a bargain to the marketing department. This is a Catch 22 — as people buy RECs, the price will go up to a point that their value will actually drive new wind development. But when the price goes up, the large scale buyers go away….

The second problem has been a huge supply and backlog of existing RECs from wind farms built in the past … meaning even huge purchases didn’t, initially, dent the supply. (Though they are now beginning to, REC brokers will tell you.) Still, more supply comes online all the time, above and beyond that created by state renewable portfolio standards, which don’t feed the voluntary REC market. Maybe as all RECs go up in price due to supply and demand, they’ll start driving new wind development. But I doubt it. By the time that happens, we’ll be under government carbon regulation anyway.

A final point: businesses that buy even the crappy RECs aren’t necessarily deceitful or disingenuous. If you want to buy green power today, RECs are really the only way to go about it. And businesses should not be expected to be experts on renewable energy, like, say, the wonks reading At the same time, due diligence on RECs is critical if you want to protect corporate reputation. (For more on that, see my article in the current/October issue of Harvard Business Review — subs. req’d) What’s a way out? We need a respected third-party gold standard for RECs, not the existing Green E standard, which is the lowest possible baseline, akin to certifying hot dogs as “all beef.”

— Auden S.