Grid-interactive Buildings

What are RECs?

Each REC signifies a megawatt-hour (MWh) of electricity generated from a renewable energy source. What is important is that in referring to clean energy, a REC is the unit of “clean,” not a unit of energy. Think of an orange (or green or black) cotton T-shirt. The dye has an identity separate to the cotton; an identity that can be defined by the type, origin and total volume of pigment. Now, imagine a world in which the dye had value distinct from the T-shirt it colored. In the world of energy, that is why RECs matter: the “cleanness” of energy is a property distinct from the energy itself, and it is valuable enough to be traded in its own right. In the world of dyed cotton, the T-shirt comes inseparable from its color and there is no separating the two - or having a reason to try. However, in the world of energy, RECs allow users to separate and value the unit of energy as distinct from its cleanness.

RECs allow users to transport clean energy virtually. In doing so, RECs, through accounting, help match the supply of clean, renewable energy with the demand for it.

RECs fall into two categories: compliance and voluntary. The FM industry is affected primarily by the voluntary RECs.

How are RECs relevant to real estate?

The solar array at a home, office, factory or store generates clean energy. The owner of that energy has several choices:

• Use the clean energy

• Sell the clean energy

• Use the energy but sell its cleanness

The last option is how RECs are generated. While the principle holds even for a single solar panel, most RECs are generated from commercial-scale solar, wind, hydro, geo-thermal, green hydrogen, etc. assets.

On the other side, somebody has an operation they would like to power with clean energy. Similarly, they have several options:

• Produce clean energy for own use

• Buy clean energy

• Buy energy cleanness (a.k.a. RECs)

RECs are handy even with on-site generation because some days, there is a shortfall that needs topping up and other days, there is a surplus that can be sold on the free market. This makes RECs a very useful tradable commodity.

RECs are a game-changer because they can turn any clean-energy asset into a source of instantaneously liquid funds. Cashflow poor? Market price improves the ROI into a PV array or a battery? Sell the RECs. Don’t need to? They can be claimed them toward an organization’s own climate goals.

Once a REC is claimed, it is “retired” so that it cannot be double-counted.

LEED certification presents one practical application of RECs: One or two points are awarded for sourcing 50 percent or 100 percent, respectively, from “green power, RECs and/or offsets.”

Why have RECs been problematic?

First, RECs have been clunky (time consuming and not always reliable) to validate and trade. Thankfully, new trading platforms (e.g., Powerledger) remove such friction from the system.

The deeper challenge lies in the perverse outcomes.

Building on the T-shirt metaphor, RECs have been treated as if every yellow — or green, blue or white — is the same. However, the McDonalds yellow or the FedEx purple are exceptionally specific colors. If an artist painted a sign with any grocery-store acrylic, they would be fired on the spot because the precise color has deep commercial value to that brand. While any yellow is better than, say, green, just any yellow will not do when it really matters.

Similarly, not all RECs are created equal.

Generic RECs can create unintended consequences as carbon offsets have been known to do. For example, if a corporate campus in Oakland, California, USA, tries to negate its carbon emissions via RECs generated in Australia, it does not shift demand away from local peaker plants that operate when energy is in high demand or channel investment into renewable energy generation, storage or resiliency of Oaklands’s local grid.

For maximum benefit, renewable energy should be used when and where it is generated; then, there is no need for storage or transmission infrastructure (with its associated upfront investment and carbon footprint) and no transmission losses. This is, of course, how a plant functions.

Guided by this principle, the benefit of buying RECs generated at a different time of day and halfway around the world is questionable. Yet that is what a lot of RECs trading (and offsets in general) has been. While that is likely better than not paying any attention to the cleanness of consumed energy, it does not actually meet most climate action goals any better than just-any-yellow satisfies the McDonald’s brand requirements.

What is best practice where it comes to RECs?

“If we want to transition to a 100 percent renewable energy system, we need to adapt the way we are consuming energy, the way we are matching it between buyers and sellers.”

Cristina Mata Yandiola. Europe Representative at Powerledger

The best practice is matching hourly RECs to the hourly electricity consumption profile of the asset or company. In other words, if a retail store consumed electricity between 6 p.m. and 7 p.m. on a Friday night, it should buy RECs generated during that hour from renewable energy assets on its electricity grid. These spatially and temporally precise RECs are referred to as “hourly RECs” or “T-EACs” (time-based energy attribute certificates). Commitment to such matching is newly known as the 24/7 Carbon-free Energy Compact.

“In response to the urgent need to drive rapid decarbonization across the global economy, a group of energy buyers, energy suppliers, governments, system operators, solutions providers, investors and other organizations has joined together to accelerate the decarbonization of electricity grids by adopting, enabling and advancing 24/7 carbon-free energy (CFE).” Source: gocarbonfree247.com

As a market behavior, 24/7 CFE commitments help ensure that not only is the planet saving a few kilograms of CO2 each day but that it does so by phasing out coal-fired power stations where they are no longer needed while expanding local clean-energy assets. Furthermore, this creates a financial incentive for rescheduling energy-intensive activities for when clean energy is more abundant and, in turn, more affordable. The reverse also holds true: the more RECs organizations generate at the most desirable times and locations, the more cash they stand to gain while helping advance the clean-energy future.

When used well, RECs make any clean-energy asset into a source of instantaneously liquid, interest-free funds. What better way to activate self-interest in pursuit of climate goals?

With the COP26 as the most significant COP in recent history, 24/7 CFE is rapidly changing our expectations of carbon neutral because the genie is not going back into the bottle. Countless developing nations have spoken to the harm of offsets. Netting out carbon will no longer suffice. The carbon footprint must be negated when and where it is generated.

As of early November 2021, there were already 40 signatories as diverse as Google, the Government of Iceland, Johnson Controls and Powerledger; a list that by the end of COP26 grew to 51.  

Next steps for an FM

For most organizations, carbon footprint is inseparable from facilities so FMs have a big role to play.

If an organization own on-site generation, explore its potential:

• Map the generation profile throughout the day/week.

• Graph the generation against the demand to identify the delta.

• Quantify the revenue opportunity should your organization need to cash-in on hourly RECs.

If an organization buys RECs:

• Find out what criteria is currently used and if it is not 24/7 CFE, stand out by educating.

• Identify how facilities become part of the solution: Can thery reduce the demand on the grid (e.g., by becoming a grid-interactive efficient building), thus also reducing the budget for RECs that may still need to be purchased? Can they generate clean energy on site?