Article
Natural Gas & Electricity

Are REC Markets a WRECk Waiting to Happen?

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Abstract

The paper examines a weakness of renewable portfolio standards (RPS) implemented via the use of renewable energy certificates (RECs) related to the uncertainty of REC-based revenue streams for renewable projects. Since the production of RECs in any given year depends entirely on the weather (and hence supply of RECs is locked in based on the existing set of renewable resources), in practice REC supply will either fall short or exceed the required amount under an RPS. This in turn leads to a bimodal distribution of REC prices, which make renewable projects more expensive to finance.