Editor’s Note: The is a guest contribution by Edward Fenster, CEO and co-founder of SunRun. This is the fifth post in a series from the CEO’s of major solar companies. You can follow the complete series here.

As solar power and other renewable energy sources grow, so does awareness and debate about the role of renewable energy certificates (RECs). As the CEO of SunRun, which is the nation’s largest provider of solar electricity to homeowners and a recipient of RECs, I strongly support the value that RECs bring to our industry.

RECs are issued by the government to any company that generates renewable electricity, at the rate of one REC per every megawatt-hour (mWh) of electricity produced. Rather than punish companies that produce brown electricity, RECs reward companies that produce green electricity.

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RECs have real monetary value in regional markets. As the renewable energy sector grows, it’s likely that we’ll see markets for RECs nationwide in the near future, along with an increased focus on how RECs work, and whether they are a good incentive for the renewable energy industry.

There are two markets for RECs: compliance, which serves to help utilities meet renewable portfolio standard (RPS) minimums, and voluntary, where individuals and companies can purchase RECs as a substitute to purchasing renewable electricity directly. In most compliance markets, the value of a REC is determined by the “alternative compliance payment,” or tax, that a utility would need to pay the government if it could not purchase enough RECs to meet its mandated green energy goals.

The voluntary market is an easy and efficient way for companies and individuals to contribute to the building of renewable energy. In particular, companies have seized on the opportunity to advertise a strong commitment to the environment by purchasing RECs. But these companies often make no changes to their energy consumption. The claims by these companies are only true if the RECs they have purchased lead to future development of green energy and reduction of pollution. However, RECs by design reward projects that have already been built and are producing electricity. Is this a fatal flaw in the design of the REC system? Not so fast.

RECs reward companies that deliver clean electricity successfully to market at competitive prices. Companies include the future value of the RECs when they do the financial analysis to decide whether to pursue developing a renewable energy project. Without RECs, many of the existing projects would not have been built. Additionally, many solar companies use RECs to lower the price of solar power to become competitive with grid pricing. Since the key to mass market adoption of solar is grid parity, this has the impact of increasing demand for and supply of additional solar power. Lastly, as more renewable energy is created, the market value of RECs will decline. Over time, only the most efficient projects (or those requiring the smallest subsidies) will be built. This will in turn free up taxpayer dollars to fund more clean energy.

That’s not to say the current system for awarding RECs is perfect, and there is vigorous debate about what shape the REC markets should ultimately take. Some argue that each green technology should have its own REC market. Others argue that extra credits should be awarded for distributed generation projects, because they reduce the need for grid repairs and result in less energy being “lost” in transmission. Others still believe that extra credits should be awarded for projects that operate during peak hours because the power they replace is typically dirtier than off-peak power generation. Some have shown frustration at the slow pace of the debate, but it’s a topic that’s worthwhile for everyone who supports renewable energy to investigate.

Learn more about SunRun’s Solar Financing.

Image Credit: david.nikonvscanon via Flickr under Creative Commons license.