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Renewable portfolio standards (RPS) obligate retail sellers of electricity (e.g., regulated utilities and direct access suppliers) to obtain a certain percentage or amount of their power supply from renewable energy sources. In most states, RPS requirements may be met by obtaining renewable energy credits (RECs) that provide evidence that power has been generated by a qualifying renewable resource, although states may have alternative methods of demonstrating compliance.
Terms analogous to RECs include alternative energy credits, renewable energy certificates, green tags, tradable renewable certificates, and renewable energy attributes. Although the terminology for RECs varies, ultimately, each program requires similar accounting considerations. The term RECs has been used throughout this guide to refer to all similar products.
To assist reporting entities in accounting for their REC activities, this chapter is organized as follows:
Accounting policy: Inventory versus intangible asset
Accounting policy: Classification of RECs as output
Generation of RECs
REC sales
REC purchases
Reporting entities subject to RPS requirements should also address the accounting for compliance (see UP 7.7).
The accounting for RECs is an evolving area and, similar to emission allowances, there is no authoritative guidance on RECs within U.S. GAAP. The FASB’s most recent project on accounting for emission trading schemes was also intended to address the accounting for RECs. However, the project was removed from the FASB’s agenda and no guidance was issued.

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