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Executive SummaryFor more than a decade, renewable energy certificates (RECs) have grown in use, becoming a common way to track ownership of the renewable and environmental attributes of renewable electricity generation. RECs are used widely, and are often required, to verify utility compliance with state renewable portfolio standards (RPS) and to substantiate claims made by voluntary purchasers of green power.In recent years, however, questions have risen about the role RECs play in the decision to build new renewable energy projects. Critics point to the uncertain demand for and, in some cases, low prices of RECs as evidence that RECs do not make a meaningful contribution in favor of building a new project. Others counter that any revenue source, large or small, contributes to making new projects profitable and also attracts investment to the broader industry. . Although compliance demand is subject to policy changes, it is nevertheless relatively certain, whereas voluntary demand is less certain because it is not backed by force of law-in fact, it is subject to willingness to pay extra for the renewable and environmental attributes.Information from a variety of market participants suggests that the importance of RECs in building new projects varies depending on a number of factors, including electricity market prices, the costcompetitiveness of the project, the presence or absence of public policies supportive of new projects, contract duration, and the perspective of different market participants. Electricity market prices vary over time, frequently dependent on the price of natural gas. If the expected wholesale electricity price is low, RECs are more critical to make projects economically attractive; if electricity prices are high, the additional REC revenue may be less critical.The economic feasibility of projects also depends on the quality of the renewable resource and the cost of the project. If the project is very cost-competitive, the importance of REC revenue may be diminished in the build versus no-build decision, but if the project is small, lacking economies of scale, or relies on more expensive technologies or faces other cost chal...
