Voluntary REC surge prompts questions, uncertainty

Higher prices in voluntary renewable energy certificate (REC) markets are creating difficulties and uncertainty for electricity buyers looking to go green.

The voluntary REC markets have hit record highs this year, bolstered by growing interest among companies with long-term sustainability goals.

But that "very large" and "very fast" price increase has left market watchers with "a lot of questions" and "not a lot of answers," according to Jenny Heeter, senior policy analyst at the National Renewable Energy Laboratory.

"Really what we are trying to understand is: why is this increase happening? Is it based on the fundamentals of supply or demand?" Heeter said today at the Renewable Energy Markets 2021 conference hosted by the Center for Resource Solutions.

National 2021 vintage Green-e RECs set a record high of $6.95/MWh in mid-August after starting the year at $1.67/MWh. The market has since receded, with RECs at $3.85/MWh on 24 September. Before price jumps over the past two years, the voluntary RECs had remained below $1/MWh since around 2015, according to Heeter.

But in recent years, demand for renewable electricity, and consequently RECs, has only grown stronger, especially among large corporate buyers with sustainability goals. Green-e retail sales reached 90mn MWh in 2020, up roughly 31pc from 2019, and accounted for over 2.5pc of the entire US electricity mix, the Center for Resource Solutions, which oversees the Green-e program, said today.

The jump in REC prices is prompting uncertainty in the voluntary markets, particularly in how participants will react when confronted with costs over two-to-four times those at the beginning of 2021.

"Does this price increase mean that they will look for other options?" Heeter said. "Will they look for options that are cheaper or provide more of a long-term price guarantee, or will they maybe purchase smaller quantities of unbundled RECs if they are on a fixed-budget?"

Market observers at REM 2021 have said the additional costs are making it harder for buyers to source their power use to carbon-free energy, as many are indeed working with fixed budgets. Price increases could ultimately divert incentives from newer projects as some buyers turn to older systems or cheaper hydroelectric projects, effectively hampering new renewable energy projects from entering the grid.

The market is also still dealing with the effects of the Covid-19 pandemic, which has disrupted supply chains and raised prices for steel, aluminum and polysilicon, delaying new project development across the US.

Microsoft senior director of renewable energy Adrian Anderson yesterday said it is useful to consider the larger picture when looking at the escalation in voluntary REC prices.

"It is the overall system cost and capital expenditures to build these projects due to tariffs and interconnection issues and permitting issues that are driving the REC increase," Anderson said. "Yes, the voluntary markets are going crazier, but it is not just a REC frenzy that is driving it; it is market conditions that are driving the cost of building projects up."

By Patrick Zemanek