Pricing Renewable Energy Certificates in ERCOT

There are many reasons you might need to forecast the cost of Renewable Energy Certificates (RECs) into the future.  You might want to sign a customer to a one-year electricity "green energy" supply contract.  Or you might want to forecast how much your solar panels will make by selling RECs.  In these situations, your best bet is to either buy REC future contracts or to forecast future REC prices using REC futures.

Forecasting REC costs is simpler than forecasting energy prices because REC prices don't vary based on when or where the associated energy was produced or consumed.  For that reason, if we have monthly REC forward curves based on transactions in REC futures markets, we can just multiply monthly volumes by monthly prices to arrive at a final cost.

As an example, ERCOT's REC forward curve looks like this:

If we have usage that looks like this:

Then we can multiply them to derive a price that looks like this:

REC future contracts are typically higher than the cost of RECs right now.  This is because future markets incorporate the idea of risk.  The risk of buying RECs in the future is always higher than the risk of buying them now.

If you need to make accurate REC cost forecasts, you will need accurate REC forward curves.  Check out ours!