Revenue from RECs
Over the past decade, agricultural operations across California have installed hundreds of megawatts of solar to help offset or hedge against California’s rising energy costs. The state’s regulations have long supported the development of renewable energy projects, making these endeavors economically lucrative through favorable utility rates and incentives, which often result in projects paying for themselves in less than than five years, and then providing nearly free energy for decades to come.
A combination of solar panels creates a solar array. Renewable energy credits (RECs) are the virtual representation of the renewable – or “green” – energy produced by a solar array, and can also be generated from hydro, wind, geothermal or dairy digester generation units. As a result of some recent regulatory changes, there is now an opportunity for solar customers to generate additional cash flow from solar arrays by realizing and selling RECs that are associated with the generation.
One megawatt hour equals one REC. A typical 1-megawatt (MW) array will produce about 1,600 RECs from a fixed tilt system; a tracking system will produce about 2,000 RECs per year.
One component of AB 32, a sweeping piece of legislation designed to reduce carbon emissions in California, is the Low Carbon Fuel Standards (LCFS) program, which aims to reduce transportation-related carbon emissions by setting up an LCFS credit trading system. In 2019, the California Air Resources Board (CARB) adopted new rules that increased the demand for RECs generated in California by allowing RECs to be used to further reduce the carbon intensity of LCFS fuels.
While RECs have been around for over a decade and were once used as a symbolic instrument, CARB now allows regulated parties, such as oil refiners, to purchase RECs for compliance purposes to “decarbonize” the fuel that they sell in California. With this change, RECs have dramatically increased in value from $2 or less per REC to upwards of $15 per REC at times, creating an opportunity for another revenue stream from a solar project.
Other REC buyers are EV fleet owners who can create more LCFS credits if they purchase green energy or RECs rather than using grid or “brown” energy to power their fleets. A logistics company that has switched to EV forklifts could be a potential buyer, or even Tesla, who supplies energy to drivers who use their Supercharger network. CARB and California regulators are incentivizing the creation of zero carbon intensive energy and its use as a transportation fuel which creates no greenhouse gas.
While most solar owners have the right to sell RECs, there are some regulatory processes and hurdles that must be cleared for RECs to be issued and sold. Metering, monitoring and registering a solar array – or “generation unit” – to make RECs available for sale is a complex process. Additionally, the REC market is still somewhat new, opaque, and not overly liquid, so most solar owners face challenges finding buyers unless their arrays are aggregated into a larger portfolio.
To help meet the newly increased demand for RECs in the market, a startup company based in California’s Central Valley, SunHarvest Partners, co-founded by Jeremiah Seng, Kevin Flanagan and myself, is consulting with agricultural clients who installed large solar arrays in order to realize this revenue opportunity.
The market for RECs has changed dramatically in the past two years, and our typical agricultural client who has a 1-MW system can realize an additional $25,000 in solar-related savings annually by selling their RECs. However, growers, packing houses and food processors need to be aware that when RECs are sold, the grower or organization gives up the “green claim” to their solar energy generation, so their marketing must be tailored to reflect this while their RECs are being sold.
What confuses most people when initially approached is that they still keep their energy offset with the utility, so it is viewed as a “double benefit” and too good to be true. The Federal Trade Commission regulates the public marketing around green claims. Most agricultural operations procured solar to save money or hedge against rate increases and not to make the green claim, so selling their RECs is viewed as an opportunity to earn additional money. Some creative growers profit from selling their RECs and giving up their green claim to their solar, but can put the REC proceeds to use in another green program, which can be marketed, so they can still realize a net reduction in carbon creation.
Since most agricultural customers install solar to save money on their utility bills, giving up the green marketing claim is not a paramount concern. Some growers have reached out saying they were thankful to be able to purchase additional water during this drought year with the proceeds they are receiving from their RECs.
With all the challenges that farmers are facing in California, an additional source of income is helpful, and while it may not be enough to offset the rising cost of labor, equipment or water, any extra revenues are usually appreciated.
Photos: SunHarvest Partners