You probably know how renewable energy works, and you certainly know the environmental benefits of using renewable energy. What you may not know is how we account for renewable energy on the grid, and why that's somewhat complicated.

Most people think of the electric grid as a pipeline: Electricity flows in from various sources and is removed by households and businesses at the other end. But electricity doesn't exactly flow anywhere, or even move for that matter. It's more or less electrons bumping into each other fast enough to create a charge that you can access by plugging in.

So kilowatt-hours—a means by which we measure electricity generation—are indistinguishable from one another. No matter where the electricity comes from, once delivered to the grid it has the same result for the end user. This wasn't a problem before renewable energy because most electricity came from carbon-generating sources like coal or natural gas, which have no intangible, marketable by-product.

Renewable generation does have a marketable by-product that represents its non-power attributes. Because it doesn't produce additional carbon from its generation, sourcing renewable energy decreases the environmental impacts associated with your electricity usage. Companies and individuals who want to eliminate their environmental impacts desire that by-product—either because they have sustainability initiatives or because they don't want to feel guilty.

There's no way to know whether the electricity you use comes from solar and wind, or coal and natural gas because all energy is indistinguishable on the grid. This is where Renewable Energy Credits (RECs) enter the picture. Each REC represents the intangible environmental attributes of 1,000 kWh of renewable energy that's been delivered to the grid. This allows utilities to sell the avoided emissions from that renewable energy and the social benefits of using renewable energy compared to the alternative. Companies and people can decrease associated impacts by purchasing those RECs to own those environmental attributes.

RECs are so important because they are a direct analog to how much renewable energy is being produced and represent the demand for the environmental attributes of that energy. They also act as the mechanism for claiming renewable energy. If you sell RECs for what you generate from solar panels attached to your home, you're selling the rights to claim that your house is powered by renewable energy. The buyer now owns the social and environmental claims.

We use RECs as one product in our Sustainability as a Service platform. Consumers can purchase them to avoid the impact of an equivalent amount of emissions from their deliveries and transportation-related emissions. RECs also serve a larger role in improving the economics of solar and wind installations. When a developer considers the return on their investment, RECs let them sell the environmental by-product of the green energy. Selling RECs in addition to the power makes the development of renewable energy a more attractive investment. One of our primary goals is to increase the demand for RECs so the price rises and more renewables are developed.

RECs represent an important part of the energy sector's transition to carbon neutral generation. Few know about them, but many celebrate their benefits.