During the recent Budget announcement in February this year, Minister of Finance Lawrence Wong stated that Singapore will aim to achieve net-zero carbon emissions by or around 2050, in line with our commitment to address the challenges of climate change.
Presently, the bulk of Singapore’s energy supply comes from natural gas, and the power sector accounts for about 40 percent of the country’s total emissions. This paired with growing environmental awareness in Singapore have started putting pressure on organisations to meet clean energy goals as investors and customers become more vocal about the importance of using green energy. This growing pressure from stakeholders has led to a rise in the use of Renewable Energy Certificates (RECs) by businesses, as a means of fulfilling their sustainability commitments and reducing their carbon footprint.
What Are RECs?
In short:
- A REC is a tradable market-based instrument that represents the legal property rights to the renewable energy generated, including the positive environmental attributes or benefits associated with that energy.
- A REC is created for every megawatt-hour (MWh) of renewable electricity generated and delivered to the grid.
- The REC typically has a unique identification number and contains information on the asset type, location and production date of renewable energy, making it possible to track and trade renewable electricity.
- RECs seek to substantiate the “renewable-ness” of electricity.
As physical electricity that enters the utility grid comes from various different sources, RECs play an essential role in accounting, tracking and assigning ownership to the attributes of renewable electricity generation and use.
However, purchasing RECs should not be confused with purchasing green electricity. Instead, purchasing RECs merely represents quantifying the clean energy attributes of the electricity generated from a renewable energy source.
How Do RECs Work?
Renewable energy generation facilities are eligible to receive RECs for each unit of electricity generated if they comply with, and are registered under internationally recognised standards, such as the International REC Standard (I-REC).
RECs are issued by internationally recognized registries through local authorised partners. The two main international REC registries recognized in Singapore are the International REC Standard Foundation and Tradable Instruments for Global Renewables.
Authorised issuers are responsible for the registration of “Registrants” (renewable energy production device owners or entities acting on production device owners’ behalf) and their respective renewable energy production devices in a country or region. They are responsible for the issuance of the RECs and are thus required to independently verify the information provided by Registrants to ensure requisite quality standards are met, before approving the issuances of RECs. For example, Singapore Power Group is currently the sole authorised I-REC issuer in Singapore.
Once issued, RECs and their associated environmental attributes can then be sold by their legal owner to anybody wishing to purchase them. Once the purchase is completed, ownership of these RECs is transferred to their new legal owner – the buyer. By redeeming these RECs under a beneficiary, the claim of renewable energy use may be made without the need to physically consume it.
RECs vs Carbon Credits
RECs are commonly compared with carbon credits, although they are fundamentally different instruments. As organisations aiming to lower their carbon footprint have various mitigation options at their disposal, it is important to understand the differences between RECs and carbon credits to help identify the best methods to achieve the respective goals.
Both RECs and carbon credits help to reduce carbon footprint, but they are different tools used for different purposes. The main differences are:
- Unit of Measurement: RECs are measured in terms of electricity units while carbon credits are units of carbon dioxide equivalent.
- Source: RECs are only derived from renewable energy sources (solar, wind, biogas, landfill gas, hydropower, or geothermal). Carbon credits are derived from any project that lowers, removes or avoids greenhouse gas emissions to the atmosphere.
- Purpose: RECs expand a consumer’s electricity choices, convey environmental benefits and support renewable energy development. Carbon credits offset greenhouse gas emissions through the support of emission reduction activities such as reforestation, forest conservation or green building projects.
In Singapore, under the Carbon Pricing Act 2018, a carbon tax is imposed on industrial facilities that emit direct greenhouse gas emissions equal to or above 25,000 tons of CO2 equivalent annually. Registered persons who have to pay carbon tax must purchase carbon credits from the National Environment Agency at a fixed price (currently S$5 per carbon credit) and surrender the carbon credits they hold to fulfil their carbon tax liability. In this way, the purchase of carbon credits by an organisation assists in reducing their carbon taxes.
There is however, no equivalent legislative regime for RECs in Singapore and purchasing RECs function more of as a means of achieving renewable energy targets and a credible means to report that the consumed energy comes from renewable energy sources.
REC Landscape in Singapore
In resource-scare Singapore, renewable energy options are limited and solar energy remains the main source for locally generated renewable energy. Even then, space constraints make it difficult for consumers to be directly connected to solar installations. Consequently, RECs (and in particular, solar RECs) have become an increasingly popular choice by many organisations looking to offset traditional electricity consumption.
To facilitate consistency for the transaction and management of RECs, the Singapore Standards Council and Enterprise Singapore, together with the National Environment Agency, and Energy Market Authority have launched the new industry standard (the new Singapore Standard (SS) 673: Code of Practice for Renewable Energy Certificates) in Singapore on 26 October 2021.
SS 637 is intended to provide a clear framework to improve the integrity of measurement, reporting and verification (MRV) requirements for the issuance and management of RECs. It covers guidelines across the lifecycle of RECs – from production, tracking, management, to the usage of the certificates for renewable energy claims in Singapore. For example, SS 637 sets out the type of renewable energy sources that may qualify to generate RECs and how renewable energy installations should be registered and verified, including validating the metering data of every installation.
While these standards remain voluntary, they indicate a clear step in the right direction for the industry to provide greater assurance on the credibility of RECs available in the marketplace.
For More Information
If you have any questions about this Alert, please contact Ramiro Rodriguez, Suilyn Yip, Priyank Srivastava, any of the attorneys in our Singapore office or the attorney in the firm with whom you are regularly in contact.
About Duane Morris & Selvam LLP
Duane Morris & Selvam LLP (DMS) is a joint law venture between international firm Duane Morris LLP (DM) and Singapore-based firm Selvam LLC. DMS runs a unique Latin American-Asian practice out of Singapore, with a team of international lawyers qualified in multiple jurisdictions including Singapore, the US, the UK, Canada, Mexico and Colombia, with substantial experience in international transactions and disputes. DMS also has a wide cooperation network with some of the best Latin American and Asian law firms.
Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm’s full disclaimer.