A company can announce that its electricity is “100% renewable” while the electrons arriving at its facilities are physically identical to every other electron on the grid. The reason is renewable energy certificates — explained simply, they are accounting instruments that separate the environmental attributes from the physical energy. This accounting mechanism, not any physical delivery, is what allows a company to make that claim.
The Accounting Problem Certificates Were Designed to Solve
Electricity is physically indistinguishable by source. Once renewable generation enters a transmission or distribution network, those electrons mix with electrons from natural gas, coal, nuclear and other facilities. No physical mechanism can direct a particular set of electrons to a particular buyer. This creates a problem for any company that wants to claim its consumption is renewable.
A renewable energy certificate (REC) solves this by separating the electricity commodity from the characteristics of its generation. One certificate represents the environmental and social attributes associated with one megawatt-hour of electricity generated by an eligible renewable source. The underlying energy is sold separately, either through a power purchase agreement or into the wholesale market. The certificate can travel independently to a buyer that never receives the electrons.
This separation emerged from renewable portfolio standards and voluntary green power markets in the late 1990s and early 2000s as a practical way to track renewable attributes on shared grids. Without such an instrument, every renewable energy claim would require a dedicated physical line, which would make corporate procurement nearly impossible.
What a Certificate Actually Contains
A certificate is not a unit of energy and not a unit of carbon. It is a registry entry that confirms a specific quantity of renewable electricity was generated and injected into a shared grid. Typical certificate data includes the generator’s location, fuel type, vintage, and a unique serial number. Registry systems issue, transfer and retire certificates to prevent double counting.
However, the certificate does not prove several things buyers often assume it proves. It does not prove additionality — that the renewable generation would not have happened without the certificate purchase. It does not prove temporal matching — that renewable electricity was generated at the same time the buyer used electricity. It does not prove local delivery — that the renewable generation is physically deliverable to the buyer’s location.
A certificate issued to a floating solar installation on a reservoir represents the same one-megawatt-hour attribute as a certificate issued to a ground-mounted array, provided the project meets registry eligibility rules. That uniformity makes certificates comparable across technologies but also strips away locational and temporal detail unless those elements are recorded separately.
How Certificates Are Bought, Traded and Retired
In a typical transaction, a renewable generator produces electricity and the associated certificates. The electricity may be sold through a long-term contract or into the spot market. The certificates can be sold with the electricity, in which case they are bundled, or separately, in which case they are unbundled. Corporate buyers often purchase unbundled certificates from projects located in other regions because the certificates are cheaper and easier to acquire at scale.
Once a buyer decides to use a certificate for a renewable energy claim, the buyer must retire it in the registry from which it was issued. Retirement removes the certificate from circulation, ensuring that no other party can claim the same megawatt-hour of renewable attributes. This is the point at which the certificate becomes an accounting claim rather than a tradeable instrument.
The same megawatt-hour of renewable electricity appears in two marketplaces at once: as commodity energy on the wholesale market and as a certificate in a separate market. This deliberate architecture allows renewable attributes to be tracked even when physical electrons cannot be traced, and it underpins the voluntary renewable energy market.
Voluntary and Compliance Markets Operate Under Different Logic
Voluntary certificates are bought by companies, governments and individuals that want to claim renewable electricity use. The price of these certificates is driven by corporate demand, the availability of eligible generation, and the stringency of registry standards. In some regions, voluntary certificates trade for a small fraction of the underlying electricity price. In other regions, scarcity or eligibility restrictions push prices higher.
Compliance certificates serve a different purpose. They are created under renewable portfolio standards or similar mandates that require electricity suppliers to procure a minimum share of renewable energy. Because the obligation is legal, compliance certificate prices can rise to reflect the penalty for noncompliance or the cost of new renewable capacity. The two markets overlap in some regions, though they operate under different obligations and price drivers.
For example, a hydro project in a jurisdiction with a generous renewable portfolio standard may produce compliance certificates that are in high demand. The same project in a voluntary-only market may see its certificates trade at much lower prices because there is no regulatory obligation driving demand. This regional variation explains why the same certificate concept can appear either as a meaningful revenue stream or as a low-cost paper instrument depending on where it is issued.
What Corporate Buyers Are Actually Purchasing
When a company states that it used one hundred percent renewable electricity, the claim almost always means that the company retired certificates equal to its total annual consumption. It does not mean the company’s facilities received renewable electrons. At any given hour, the electricity at the company’s meter comes from the physical grid mix. The renewable generation that produced those certificates may be hundreds of kilometres away and may have generated at a different time.
Accounting standards distinguish between location-based and market-based approaches to scope 2 emissions from purchased electricity. The location-based method uses the average emissions intensity of the grid where consumption occurs. The market-based method allows a company to reflect the emissions associated with its contractual purchases, including certificates. This is why a company can report lower scope 2 emissions even if its local grid remains carbon-intensive.
For most buyers, this is a legitimate reporting choice under current standards. It is a statement about contractual matching rather than physical energy flows. The two concepts operate on different planes. Buyers that confuse them risk making claims that are technically accurate under market-based rules but misleading to external audiences.
The Limits That Matter for Serious Buyers
The main limitation is additionality. Many voluntary certificates trade at a price far below the levelized cost of building new renewable capacity. When a company purchases low-cost certificates from an existing hydro facility, it supports that facility’s operating revenue but may not cause any new renewable capacity to be built. This is why some corporate buyers view cheap unbundled certificates as a weak instrument for supporting the energy transition.
Temporal matching is a second limitation. A buyer that uses certificates from summer solar generation to cover winter electricity consumption has balanced its annual volumes on paper but has not matched its actual consumption profile. Newer approaches such as 24/7 carbon-free energy procurement attempt to align renewable generation and consumption on an hourly basis, but these require more granular tracking than conventional annual certificates provide.
Buyers that want to support new capacity often combine certificates with power purchase agreements for specific projects. A long-term contract with a new floating solar project, for example, can provide both electricity and bundled certificates, linking the buyer’s claim more directly to additional renewable capacity. Even then, the claim remains contractual rather than physical unless the project is electrically connected to the buyer’s load in a meaningful way.
Why Certificates Remain Useful Despite Their Limits
Certificates provide a standardized, scalable mechanism for tracking renewable attributes across large, interconnected grids. They enable voluntary markets that allow companies to express demand for renewable electricity without being constrained by the physical location of their facilities. Renewable projects such as floating solar can sell certificates in these markets, creating an additional revenue stream that can improve project economics.
Compliance markets use the same underlying concept, often with stricter rules. Renewable portfolio standards in many jurisdictions require load-serving entities to procure certificates or renewable electricity in proportion to their sales. These mandates have driven renewable deployment at scale, particularly where certificate prices reflect the cost of new capacity.
The direction of travel in voluntary markets points toward more granular, time-stamped certificates and stronger locational signals. Some buyers already seek time-matched certificates or hourly renewable energy products. Whether these become the standard depends on registry infrastructure, buyer willingness to pay, and the evolution of scope 2 accounting guidance. The underlying principle remains unchanged: a certificate is a tracking instrument, not a physical claim.
References
- IEA — Renewables market reports, for renewable electricity generation and corporate procurement context.
- IRENA — Renewable energy statistics, for comparisons of certificate systems and renewable capacity deployment.
- Greenhouse Gas Protocol — Scope 2 Guidance, for the distinction between location-based and market-based scope 2 accounting methods.
