Certified renewable

Renewable energy certificates find currency in Europe

Published: Sunday 15 April 2001

In European markets the wind b uk has become the seventh European country to agree to internet-based trading in power generated from renewable sources. Beginning April 2001, it will participate in the renewable energy certificates scheme (recs), an 18-month experiment to trade in renewable energy at market rates.

The genesis of the recs lies in the trade disputes created by the existing system. Right now, it is mandatory for all power distributors, in Europe, to buy a certain amount of electricity from plants producing renewable energy, at rates fixed by the government. To promote renewable energy, these rates have usually been kept much higher than those prevailing in the market for conventional energy. Many power distributors have raised the issue of high tariffs in European courts. They claim the government-enforced high tariff for renewable energy is the equivalent of giving 'state aid' to a particular group of competitors, a practice that is prohibited under the European Union (eu) trade rules.

To see how the certificates work, take the example of a wind energy producer in one of the seven countries. The wind turbine produces 'green electricity'. The green electricity is split into two products. One, a physical product, the electricity generated, and the other, a nominal product, the environmental benefit. The electricity is fed into the distribution grid, just like electricity from conventional sources. The environmental benefit is translated into certificates. These certificates, given to the producer of renewable energy and recorded by appointed registrars (who act like brokers), expire after a fixed period of time. Anybody who is required to or wants to consume renewable energy can, instead, buy the certificates. The market forces of demand and supply decide the price of certificates. Except for the fact that these certificates are traded on only the Internet, they are sold like any other product or commodity in the market. The green certificates can, therefore, be traded independent of the electricity produced. A customer who wants to buy renewable electricity, receives electricity from the grid and the certificates, worth the electricity he consumes, from one of the registrars. The recs certificates are not given for nuclear power.

The scheme has been launched by a group of energy producing companies and organisations in and around Europe. Trading has begun in Norway, Sweden, Finland, the Netherlands, Germany and Italy.

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