Before we start, it’s important to understand a key fact about our power grid. Namely, when electricity enters the grid, there’s absolutely no way to track where it goes.
Electricity, regardless of where it comes from, is made up of electrons. And electrons travel at the speed of light. In other words, if your home is connected to the grid, then your electricity could be coming from anywhere. A coal-fired power plant in Wyoming, a wind farm in California; who knows?
Having an interconnected grid is actually a great thing. It allows grid operators to balance, distribute, and deliver electricity across our country, reducing the likelihood of power outages or an electrical surge. But, it does have this particular drawback. Namely, it’s not physically possible to track electricity once it enters our grid.
That’s where Renewable Energy Certificates (RECs) come in. They were specifically created to track clean and renewable energy as it moves through our power grid. In fact, RECs are the only way to track renewable energy generation and consumption today. Anytime a company or an individual claims to be using renewable energy, they are in fact using RECs.
Specifically, when a renewable energy generator, like a wind or solar farm, produces one megawatt-hour (MWh) of electricity, exactly one REC is created. That REC can now be purchased and retired by anyone who uses a MWh of electricity. When that happens, they have officially used that renewable energy. Arcadia partners with renewable energy generators to source, verify, purchase, and, most importantly, retire RECs on your behalf. Remember, once a REC is retired, it can never be sold again, as you’ve officially consumed that renewable energy.
When you purchase RECs, you are supporting renewable energy. For existing renewable energy generators, RECs are a critical source of income and a financial advantage. For developers, they are a financial incentive to build new renewable energy farms.
Here’s how it works. Every power generator sells power into the grid at the same price. But, when the energy comes from a renewable energy source (e.g., wind, solar, hydro), a REC is also created and can be sold to an energy consumer (like you). That’s the financial advantage for renewable energy generators. This advantage also incentivizes the building of new renewable energy farms, by strengthening the financial outlook over various fossil fuel alternatives (e.g., coal, oil, natural gas). Here’s another way to think about it: while we don’t have a carbon tax in the US today, RECs are a reciprocal advantage for carbon-free energy. And that’s a very powerful thing! As history has shown, one surefire way to change the world is by aligning the financial incentives towards the outcomes we want.
Naturally, the magnitude of this financial incentive will depend on the price of a REC; the higher the price, the greater the incentive. But today, this price can vary dramatically. A single REC can cost a few pennies or a few hundred dollars. That means the most expensive RECs cost 1000x times more than the cheapest ones!
You might be wondering why that is. Well, it’s because today, the demand for RECs is far lower than the supply. And when that happens in any market, the price is set by a wide range of inconsistent criteria that individual buyers value. While some of those criteria make a lot of sense, others are arbitrary and unique to only that buyer. It’s worth noting that the primary buyers of RECs today are businesses and institutions who are seeking to meet their own renewable energy goals or targets, often based on regulatory requirements.
To date, residential consumers haven’t really participated in the REC economy. And there’s a good reason for that: it’s complicated and hard. That’s one of the reasons we started Arcadia, to make it easy for everyday people like you or me. Our bet is that once consumers start demanding RECs, supply and demand will come back to equilibrium, and economic forces will set a higher, more consistent price. And that’s a great thing for renewable energy generators and developers.
For context, a normal US household will use roughly one MWh of electricity each month. That’s equivalent to one REC. The RECs we purchase and retire for your home energy will usually cost a few bucks, and that cost is included in your Arcadia membership. While we could purchase RECs that are far cheaper (1/100th the cost), we don’t. Instead we’ve established a set of criteria for our RECs that we believe positions our members to have the largest possible impact at the most affordable price. That is, once supply and demand are rebalanced.
How we source, validate, purchase, and retire RECs (on your behalf) is really a reflection of our mission and our unique point of view about how to best achieve it.
First, our mission is to accelerate the world's transition to a 100% renewable energy future. And we want to do that as soon as possible, to avert the dire consequences of Climate instability. Second, we believe everyday people are the key to this transition. And, when given an easy and affordable choice, they will choose clean and renewable energy every time.
Those two core beliefs, impact and accessibility, inform everything we do at Arcadia, including how we source RECs. In other words, we attempt to maximize the financial incentives for renewable energy providers. And, at the same time, keep the price of membership realistic for our members, because there is strength (and change) in numbers.
In case you're curious, this is the bar we use to ensure environmental impact when sourcing RECs. First, the energy comes from US wind and solar farms that were built within the last 15 years. Second, the RECs are purchased and retired no more than 21 months after they're created. And third, the number of retired RECs match the sales of clean energy to Arcadia members. Finally, all of these criteria and claims are independently analyzed, audited and verified each year by Deloitte.