Exploring the affordable appeal of Texas RECs: Are corporates paying attention?

Key Takeaways

• The pricing of Texas’ RECs stands out as it is significantly lower than that of other regions, with an average price of approximately $2.50 per REC for Texas vintage 2023, compared to $30 or more in PJM states.
• In 2022, Texas generated over 130 million RECs certificates, 36 million of which were green-e certified RECs. These hold high credibility among corporates across the USA due to their rigorous verification process.
• Challenges arise from International Renewable Energy Certificates (I-RECs) and the reluctance of corporates to purchase RECs from other grids, indicating a preference for Texas RECs due to their cost-effectiveness and reliability.

Renewable Energy Certificates (RECs) play a vital role in advancing sustainability goals by enabling businesses and individuals to support renewable energy generation and reduce their scope 2 emissions. Among the various REC markets in the United States, Texas stands out as a beacon of affordability. With average pricing for Texas vintage 2023 RECs hovering around $2.50 per certificate, it offers a stark contrast to the higher price tags seen in other regions, such as the PJM area where RECs can range from $30 to $35 per certificate. This significant price disparity has caught the attention of corporates and sustainability-minded organizations seeking cost-effective ways to reduce their carbon footprint. In this article, we delve into the affordable appeal of Texas RECs, examine the pricing benefits of Texas RECs, reasons behind the low costs, and the trends in the use of these REC.

Texas RECs are orders of magnitudes cheaper than other US states

The pricing comparison analysis reveals interesting insights into the cost of RECs in different regions. In Texas, specifically for vintage 2023, the average pricing for RECs falls within the range of $2.50 to $3 per certificate. This is regardless of whether they are compliance or voluntary RECs under the NAR and Green- e programs, indicating that there is minimal price disparity between compliance and voluntary RECs in Texas. In contrast, the PJM region’s RECs are priced significantly higher, ranging between $30 and $35 per certificate. This substantial price difference highlights the affordability of Texas RECs in relation to PJM REC. Turning our attention to California, the California CA PCC 3 REC is priced at approximately $7.66 per megawatt-hour (MWh) in 2023. This pricing information provides additional context for the comparative analysis. The reason for the low prices of Texas RECs is a result of:

• Low Compliance REC obligation of Texas utility (Low RPS standard)
• High wind capacity over the years has been contributing to cheap RECs
• The boom in solar capacity addition in recent years – given the abundance of warm and sunny climatic conditions.
• Less regulation on addition of new renewable capacity to the grid

Overall, the findings demonstrate that Texas RECs offer a cost-effective option for both compliance and voluntary purposes, showcasing their competitive pricing in the REC market.

Texas REC market is highly Liquid, with a lot of Green-E certified RECs

In 2022, Texas saw the generation of over 130 million REC certificates. Among them, more than 28% (36 million) were certified by the Green-E certificate program. The Texas Solar CRS Rec, Texas Wind CRS Rec, and NAR green-e CRS Rec are popular RECs used by corporates in Texas and across the state’s borders. Texas holds a significant share of 39% in the total certificates within the Green-E renewable energy supply. This notable presence plays a crucial role in meeting the demand for voluntary Renewable Energy Certificates (RECs) in both local and interstate markets. The abundant supply of Green-E RECs from Texas signifies that a substantial number of corporates are utilizing these cost-effective yet high-quality RECs to fulfill their sustainability goals. By leveraging the Texas REC market, these corporates can achieve their environmental objectives at an affordable price, ensuring the integration of renewable energy sources into their operations while driving sustainable practices.

Corporates prefer Green-E certified RECs

The Green-E certification program ensures the rigorous verification of RECs through comprehensive processes. These include verification of the renewable energy source, ensuring transparency and tracking of the REC chain-of-custody, and ensuring compliance with program requirements. Such meticulous scrutiny and transparency instill confidence and trust among corporates and stakeholders in the authenticity and integrity of Green-E certified RECs. Corporates that aim to showcase their dedication to renewable energy and carbon footprint reduction often turn to Green-E certified RECs as a means to achieve their sustainability objectives. The Green-E program offers a reliable and credible framework for sourcing RECs that actively support renewable energy generation, thereby contributing to a cleaner and more sustainable energy future. According to the CRS Green-E program, REC sales through the program have been instrumental in driving the majority of certified sales. These sales encompass standalone RECs, as well as those obtained through power purchase agreements (PPAs) or virtual power purchase agreements (VPPAs). Notably, in 2021 alone, the program certified 111 million certificates from various US states. Among these, an impressive 84% (93 million) were voluntary RECs, encompassing RECs, PPAs, and VPPAs, highlighting the strong demand and commitment to sustainable energy practices. These statistics underline the significant growth of the Green-E program, with REC sales increasing by 26% year-on-year in 2021. The program’s success further underscores its effectiveness in facilitating the adoption of renewable energy and encouraging voluntary market participation across the United States.

75% of Texas RECs voluntarily retired

In 2022, the voluntary retirement of Texas RECs has reached an impressive milestone of 104 million RECs, accounting for nearly 75% of the total RECs generated in Texas. Corporates and utilities across the country have been voluntarily retiring RECs, and this trend is only going to increase in the coming years.

Challenges to Texas RECs

• Competition from I-RECs

The availability of even cheaper RECs through the International Renewable Energy Certificates (I-RECs) presents an alternative for corporates seeking cost-effective ways to decarbonize their Scope 2 emissions. I-RECs are often priced below $1, making them an attractive option for companies aiming to reduce their environmental impact at a lower cost. Recognizing the demand for international RECs, Xpansive, a prominent player in the renewable energy market, has recently launched a spot exchange for iRECs in North America. This platform provides corporates with access to RECs from various regions, including Latin America, Africa, the Middle East, and Asia. The introduction of this spot exchange expands the options available to corporates looking for affordable and diverse sources of RECs to meet their sustainability goals.

• Corporates prefer to use RECs from the same grid 

Many corporates have a preference for using Renewable Energy Certificates (RECs) that are generated from the same grid from which they are purchasing their power. This inclination stems from a desire to ensure that the RECs align closely with the geographical location of their operations. Consequently, many companies choose to utilize Texas RECs specifically to offset their Scope 2 emissions that were generated within the state.

Conclusion

Texas’s renewable energy sector is experiencing remarkable growth, paving the way for increased generation of voluntary RECs. This presents an opportunity for these RECs to be exported to corporate organizations across the US. The affordable pricing of Texas RECs makes them an attractive choice for corporates to voluntarily retire, aligning with their sustainability goals. Texas remains at the forefront of RECs generation, particularly in wind energy. The pricing dynamics in Texas demonstrate a significant disparity compared to other regions, impacting the market and the voluntary retirement of these certificates. The affordability and abundant supply of Texas RECs position the state as a key player in driving renewable energy adoption and supporting corporate sustainability efforts. If you are interested to know more, you may be interested in our upcoming webinar on Voluntary RECs in North America

The voluntary Renewable Energy Certificate (REC) market has been growing rapidly in recent years as more individuals and organizations seek to support renewable energy development and reduce their carbon footprint. Join us as we demystify the VREC market and see who is producing them and who is using them. We will size the VREC market: how it has evolved and where it could reach.

Analyst Contact: 

• Nishant Kumar Upadhyay (nkupadhyay@ckinetics.com)
• Craig Rocha (cmrocha@ckinetics.com)