The Role of Renewable Energy Certificates in Decarbonizing the Grid
Nirinder Johl,Founder & Chief Executive Officer @ AsiaCarbonxChange | Professional Engineer
Marso 26, 2025
As Malaysia and ASEAN transition towards a low-carbon energy future, Renewable Energy Certificates (RECs) play a critical role in bridging the gap between renewable energy generation and corporate sustainability commitments. RECs provide a market-based mechanism that allows companies to claim the environmental benefits of renewable energy, thereby reducing their Scope 2 emissions in compliance with international standards.
In Malaysia, the government’s National Energy Transition Roadmap (NETR) and Renewable Energy Roadmap (MyRER) are driving increased renewable adoption, with initiatives like bundled hybrid RECs from Green Electricity Tariff (GET) and unbundled RECs from technology based RE Generation like biomass, Biogas , Small hydro , REC Arbitrage and Solar under the various NEM schemes , offering businesses ways to procure clean energy. Across ASEAN, the ASEAN Power Grid (APG) presents opportunities for cross-border energy trading and usage of the country based UNDFCC Grid Emission Factor (GEF) could present a unique ASEAN way to harmonization of the REC market
Despite its benefits, RECs face challenges such as misconceptions around additionality, regulatory fragmentation, and possible double counting risks. However, innovations such as blockchain-based REC tracking, bundled and unbundled RECs with / without PPAs, and ASEAN-wide REC registries are shaping the future of the market. Stronger policy frameworks, regional collaboration, and corporate adoption will be key to ensuring that RECs drive meaningful decarbonization of the grid.
Indonesia has introduced MEMR Regulation No. 5 of 2025 (MEMR 5/2025), setting new guidelines for renewable energy Power Purchase Agreements (PPAs). This replaces the older MEMR 10/2017, which applied to all power projects, including coal and gas. The new rules aim to boost renewable energy development and align with recent practices.
Key Changes
1. Development Model
The Build, Own, Operate (BOO) model is now the default for renewable projects, replacing the older BOOT (Build, Own, Operate, Transfer) scheme.
2. Carbon Credits
IPPs and PLN can now negotiate how carbon credits and environmental benefits are shared, offering more flexibility than before.
3. PPA Duration
PPAs can last up to 30 years, with possible extensions based on project feasibility. Previously, extensions were only allowed in force majeure cases.
4. Share Transfers
Lenders can now transfer shares in an IPP before the project starts operating, subject to PLN’s approval. This eases financing challenges.
5.Tariff Adjustments
Tariffs can be adjusted for changes in law (e.g., taxes), but adjustments above a set benchmark require government approval.
6. Grid Risk
PLN’s responsibility for grid issues is limited to “emergency conditions,” which may increase risks for IPPs.
7. Energy Storage
Co-located renewable and storage projects are now explicitly covered. IPPs must replace storage systems at the end of their lifespan.
8.Performance Penalties
Penalties for underperformance (e.g., solar, wind) are now assessed annually, not monthly, allowing for smoother evaluations.
9. Force Majeure
Includes events like natural disasters, pandemics, and war, with room for additional events to be recognized.
10. Refinancing
Refinancing is allowed to reduce costs, but PLN may seek to share the benefits.
What It Means
MEMR 5/2025 simplifies and clarifies rules for renewable energy projects, supporting Indonesia’s energy transition. Key improvements include flexible carbon credit sharing, longer PPAs, and easier share transfers. However, some issues, like grid risk and tariff adjustments, need further clarity.
Overall, the regulation is a positive step, showing Indonesia’s commitment to renewable energy despite global uncertainties.
REC trading starts 26 December 2024 with the full operationalization of REM
Beginning Thursday, 26 December 2024, the trading of Renewable Energy Certificates (RECs) will officially commence, marking a significant milestone with the full commercial operation of the Renewable Energy Market (REM). These Certificates are market-based instruments representing one (1) megawatt-hour (MWh) of electricity generated from eligible renewable energy facilities, such as solar, wind, hydro, geothermal, and biomass. The REM provides a platform for trading these certificates, enabling participants to meet their renewable energy compliance obligations under the Renewable Portfolio Standards (RPS).
The REM is a cornerstone mechanism under the Renewable Energy Act of 2008, designed to drive the development of renewable power projects and bolster the country’s transition to clean energy. The initiative aligns with the government’s ambitious renewable energy targets of achieving at least 35 percent in the power generation mix by 2030 and 50 percent by 2040.
“The full commercial operation of the REM is pivotal in advancing the country’s clean energy transition,” said Energy Secretary Raphael P.M. Lotilla. “It supports compliance with the RPS, fosters investment in renewable energy, and ensures a robust framework for sustainable energy trading.”
The RPS is a market-based policy requiring Mandated Participants, such as distribution utilities (DUs), to source a portion of their energy supply from eligible renewable energy facilities. In 2023, the annual incremental RPS requirement for grid-connected areas was increased from 1 percent to 2.5 percent. For 2024, renewable energy is projected to supply 11.4 percent of the total power demand, underscoring the critical role of the REM in achieving compliance.
Currently, around 285 participants, including generators, distribution utilities, and end-users, are anticipated to register with the REM. The DOE projects that REC trading will significantly contribute to meeting RPS requirements and stimulate growth in renewable energy capacity.
Secretary Lotilla expressed his appreciation to the Energy Regulatory Commission, the Independent Electricity Market Operator of the Philippines, the Philippine Electricity Market Corporation, and private stakeholders for their collaborative efforts with the DOE in ensuring the readiness and operationalization of the REM. He noted that the trading and usage of RECs are expected to become more frequent as renewable energy demand continues to grow.
The launch of REC trading represents a major step forward in the Philippines’ commitment to energy security, economic growth, and environmental sustainability. With the REM now fully operational, the country is poised to harness the power of renewable energy for a cleaner and greener future. ###
Based on the article of Nirinder Singh Johl entitled “ Accelerating sustainable energy transition”.
Building a Better Energy Market
Although strides have been made to improve the energy market, there is still a need to establish a balanced and competitive market that promotes innovation, protects consumers, and achieves our climate objectives. The following are key areas of focus to achieve genuine transformation in the energy market:
1. Empowering the Market through Education and Fair Competition
Building capacity by educating all sectors is crucial. Investing in comprehensive training programs for regulators, utilities, and market participants will enhance their understanding of market dynamics, renewable energy (RE) integration, and advanced grid management techniques.
Ensuring fair competition is equally important. Transparent and clear trading rules must be developed and applied equally to all participants, including monopolistic entities. Ideally, these entities should focus on transmission and distribution, with a fair, performance-based rate of return to incentivize efficiency.
2. Harnessing the Power of Market-Based Instruments
To drive down costs and encourage innovation, we must promote the use of market-based instruments such as virtual power purchase agreements and third-party access for RE procurement. These tools can encourage creativity within the renewable energy marketplace, potentially leading to new models like “storage as a service.”
For developing markets, using unbundled renewable energy certificates (RECs) can significantly expand the market. Instead of directly buying and selling RECs themselves, electricity companies should allow third parties to use their billing systems to bundle these RECs together. This makes it easier for more players to participate in the renewable energy market.
3. Utilities in the Energy Transition: A New Vision
Regulations must be designed to enhance market efficiency and protect consumers’ interests while remaining free from industry and government influence. Governments should demonstrate political will as well as thought leadership on this matter. Most importantly, regulators must not shy away from taking controversial positions because these are often necessary for enabling successful energy transitions.
4. Reimagining the Role of Utilities in the Energy Transition
Utilities have to change from their traditional monopolistic role to enable innovation and foster market development. This encompasses grid modernization investments, facilitation of renewable energy integration, support of distributed generation and adoption of new technologies. Thus, utilities should invest on smart grid technologies and develop standards that make it easier for linking renewable projects to the grid.
5. Protecting Consumers in a Changing Energy Landscape
Consumer protection is essential in the energy transition. This includes ensuring affordable access to electricity, implementing transparent billing practices, and providing clear information about energy usage and costs. Educational programs can enhance consumers’ understanding of energy usage, conservation, and billing, empowering them to make decisions that reduce their energy costs and environmental impact.
6. Aligning Energy Policies with Sustainable Development Goals
Safeguarding consumer interests is crucial during the energy transition. This entails making sure that power is accessible at a reasonable price, putting in place honest billing procedures, and giving consumers clear information regarding the prices and consumption of energy. Consumers can make decisions that lower their energy expenses and lessen their impact on the environment by participating in educational programs that improve their awareness of energy usage, conservation, and billing.
A Call to Action
In the ASEAN region, the energy transition brings along both challenges and opportunities. When we focus on these key areas like capacity building, fair competition, consumer protection and sustainable development, then we can create a more competitive, efficient and fair electricity market.
This means that everyone must work together in order to successfully navigate this transition. Governments, regulators, utilities, private sector participants and consumers each have a key part in shaping our energy future. If we foster cooperation with all stakeholders and embrace these changes, it is possible for us to develop an energy system that is cleaner, more efficient, just and able to withstand shocks. Therefore, the time has come for us to act as soon as possible so as not lose this opportunity of creating a sustainable energy future for the ASEAN region and beyond.
Read more here: https://www.thestar.com.my/business/insight/2024/07/11/accelerating-sustainable-energy-transition
Understanding Renewable Energy Certificates (RECs)
serve as validation for the generation of Renewable Energy. Essentially, they represent the environmental benefits associated with Renewable Energy production, such as the reduction of greenhouse gas emissions.
Functionality of RECs
RECs function independently from the actual electricity generated. When renewable energy is produced and introduced into the power grid, RECs are issued to account for the environmental attributes of that energy. These certificates can then be purchased separately from the electricity itself.
Significance of RECs
RECs play a crucial role in supporting Renewable Energy projects. By purchasing RECs, individuals and businesses demonstrate their commitment to sustainable practices and contribute to the growth and development of Renewable Energy infrastructure. This financial support helps drive the transition towards cleaner energy sources on a broader scale.
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