Renewable electricity certificates (RECs) are becoming increasingly popular in New Zealand as a tool for corporates to achieve their sustainability goals and to establish their climate-friendly credentials.
We expect the uptake rate may quicken in the near future as RECs are among the tools the Ministry of Business, Innovation and Employment (MBIE) is consulting on in Measures for transition to an expanded and highly renewable electricity system.
Although the consultation was initiated under the Labour Government, we expect it to be continued by the National-led Government, given National’s campaign commitment to double the amount of renewable generation in New Zealand.
We explain what RECs are, how they work, and some of the legal considerations you should keep in mind when thinking about whether to use them as part of your sustainability strategy.
What are RECs?
An REC is a tradeable instrument to track and certify the generation and consumption of renewable electricity. Typically, it will represent one megawatt hour of renewable electricity generated from a renewable energy source.
Why use RECs?
RECs are relatively simple to procure and, when used appropriately (note our comments on legal risks below), can substantiate certain claims in respect of supporting renewable energy.
MBIE, for example, has stated in its discussion document that RECs have the potential to promote investment in new generation by providing generators with an additional revenue stream. In our experience, this claim may be a bit heroic because, in New Zealand’s already highly renewable electricity market, RECs are typically sold for a nominal amount and are usually (there are some exceptions) ancillary to, or part of, a Power Purchase Agreement.
Depending on specific reporting standard rules, RECs may also be relevant to Scope 2 emissions reporting (e.g., the Greenhouse Gas Protocol).
How are RECs procured?
Generally, in New Zealand the process for procuring RECs is as follows.
- A renewable energy generator’s assets are audited to confirm the renewable attributes of the asset and the capacity. Usually this is done by an independent third party.
- Once the asset is generating, RECs are issued for each MWh of electricity produced and exported to the grid from the asset. RECs from each asset are recorded on register or database.
- RECs are purchased, tracked and traded via the register (and in accordance with the applicable scheme rules).
Choosing a provider: MBIE has cited Australia and the UK as REC success stories but in both these jurisdictions, the market is regulated – by the Clean Energy Regulator in Australia and by the Office of Gas and Electricity Markets (OFGEM) in the UK. In New Zealand by contrast, RECs are issued through commercial certification schemes, or directly from generators themselves.
In these circumstances, it will be important to conduct diligence on the REC provider and scheme rules to ensure that they meet your organisation’s specific requirements and that you understand any legal issues associated with the scheme (e.g., in term of its marketing, or its potential to offset Scope 2 emissions).
Green claims: Almost all commercial electricity generated in New Zealand is fed into the transmission grid, from which it is distributed to consumers. Most of this will be from renewable sources but there is no way to prove at any point in time that there is no fossil fuel generation in the mix. Accordingly, care must be taken not to make any claims that cannot be substantiated.
Reducing emissions: While an additional benefit from RECs is that they can be used to claim Scope 2 emissions reductions, it will be important to ensure that the specific RECs are compliant and eligible under the relevant emissions reporting standard/protocol.
Given the current focus on greenwashing from both regulators and consumer/climate activists, we strongly recommend that climate and emissions statements and disclosures referencing RECs are carefully prepared to avoid misrepresenting or overstating the role of RECs in accounting for Scope 2 emissions.
If you have any questions about procuring RECs or using them to promote your business or to claim reductions in Scope 2 emissions, please get in touch with any member of our specialist energy team.