Development: Renewable energy credits
Industry has been aided by regulations at the state level mandating use of renewable energy and by the push among corporations to offset their environmental impact by “greening” their power consumption. As with most robust, functioning markets, financial instruments develop to provide transactional ease, hedge risk, and reduce the cost of compliance. In the case of renewable energy markets, nearly all active jurisdictions have adopted the REC commodity in an effort to accurately measure, quantify and verify compliance with renewable goals. In this chapter we will define the mechanics supporting the trade and valuation of these commodities and show how they serve to quantify the often ‘higher’ value of “green” generation.