What on Earth are Renewable Energy Certificates (RECs)?

When you buy a solar system in Australia you can apply for 2 upfront subsidies from the government:

(note: this all changes on July 1, 2009: read about the rebate changes here)

1. The $8000 rebate (for the 1st kW) assuming your household income is under $100k

2.Renewable Energy Certificates (RECs)- works out at $600-$1200 per kW (the price changes over time)

The concept of the rebate is easy to understand – it is simply a handout from Mr Rudd to encourage solar power (can’t argue with that!).

The concept of RECs can be a bugger to get your head around. So here is my attempt at an explanation:

Imagine that you own a solar panel that pumps out $1000 of electricity every year. Imagine that this is enough to power your entire home.

Your neighbour, Fred happens to use exactly as much electricity as you, but gets his electricity from the grid, which is supplied by a filthy coal fired power station down the road.

Fred looks longingly at your shiny solar panel and after he can’t take the guilt any more, chooses to switch to ‘green power’ from his electric company. He signs up on the power company’s website to buy $1000 per year of green electricity.

Fred’s power company now has 2 options to honour their contract with Fred:

a) build a renewable energy generator that produces Fred’s $1000 of green electricity per year and feed it into the grid to make up for the energy that Fred uses

b) not bother with all that pesky green electrickery engineering stuff, and buy the $1000 worth of green electricity from someone who already has a renewable energy generator (like your rooftop solar panel)

If they plump for the lazy option and they want to buy YOUR green electricity from your solar panel, they could theoretically knock on your door, sit down at your kitchen table  and hammer out a contract whereby they buy $1000 of your shiny green electricity from you every year.

A REC is simply a ‘voucher’ that you sell that allows anyone to buy your green electrcity from you at market rates and without having the administration nightmare of creating an individul contract for each renewable generator owner.

So your $1000 of RECs happens to be bought by Fred’s power company.

Think about what this would mean.

It means that they don’t have to change anything about the way they generate Fred’s share of their electricity generation, but Fred can now claim that his electricity is coming from your solar panel!

And the logical conclusion to that is that your household’s electricity is now coming from the dirty power station!

Funny things those RECS.

The solar rebate will soon be replaced with the Solar Credits scheme which comes in in July 2009. In this scheme the government subsidises your installation by giving you 5 times the RECS that your system will actually generate.In the above example that means that you could sell your green energy to Fred and 4 other neighbours so they could all claim green power even though you were only generating enough energy to power Fred’s house. What The?!

The flipside of the argument is that RECs encourage renewable generation to be built that wouldn’t otherwise see the light of day.

You’ll have to make your own mind up!

There’s also a great article from the ATA here: ‘Don’t Wreck Those RECS’.