Are RECs in South Africa a strategic tool or a stainability shortcut?

While RECs can play a valuable role in ESG strategies and decarbonisation efforts, they’re not always well understood and should not be used in insolation from other sustainability and decarbonisation mechanism.

One of the most common misconceptions is that RECs are interchangeable with the offset nature of carbon credits. In reality, the two serve very different functions. Carbon credits represent greenhouse gas (GHG) emissions that have been removed or avoided, while RECs certify that electricity has been generated from renewable energy sources and supplied to the grid. Both can support a company’s climate goals, but only if applied appropriately.

The difference between RECs and carbon credits

At its core, a RECs is a digital certificate that confirms that 1 megawatt-hour (MWh) of electricity was generated from a renewable energy source, such as solar, wind and hydro, and was fed into the grid. That certificate, detached from the physical electricity, is then bought, traded or retired by a company looking to support renewables and report greener energy use.

South Africa’s REC market dates back to a 2005 pilot programme under the Tradable Renewable Energy Certificate South Africa initiative. Today, the system is overseen by zaRECs (Pty) Ltd, underpinned by international frameworks like the I-REC Standard.

The lifecycle of a REC typical involves:  

• renewable energy generation like solar, wind and hydro is metered;
• the energy producer registers with zaRECs;
• REC is issued per MWh generated;
• RECs are purchased, traded or transferred;
• Once used, RECS are retired ensuring no double counting; then
• retired RECs support ESG disclosures and Scope 2 emission accounting.

Voluntary market

South Africa’s RECs exist in a voluntary and industry-led market. There is currently no legal obligation to purchase or retire RECs, which means the integrity of the system relies on market trust, good governance and accurate tracking.  

Strategic value if used properly

For the private sector, RECs offer a way to support renewable energy generation while improving sustainability metrics. This is especially useful for companies seeking to enhance ESG reporting credibility, demonstrate Scope 2 emissions reduction, meet investor expectations and achieve net zero ambitions without having to face logistical and infrastructural barriers of procuring renewable electricity directly.

From a renewable energy developers perspective, RECs offer a secondary revenue stream, promote localisation of green energy projects and incentivise investment in the clean energy economy beyond state procurement rounds like REIPPPP.

Risks and limitations

Although the use of RECs offers flexibility in terms of certifying renewable electricity usage, sole reliance on its benefits can present some level of risk.

RECs should not be treated as the primary or only tool in a sustainability strategy, especially not in hard-to-abate sectors like mining or heavy industry. Overreliance on RECs particularly when not supported by meaningful emissions reduction efforts, invites legitimate scepticism and criticism.

This is where concerns around greenwashing may arise, if companies use RECs to appear climate aligned while doing little to decarbonise in reality. The reputational harm of such perception is increasing, especially as stakeholders such as investors, regulators and civil society interrogate ESG claims. 

Moreover, the sourcing of RECs from outside South Africa, while technically valid under I-REC rules, can undermine local development goals or SDG alignment, especially if the local grid sees no corresponding investment or benefit.

Using RECs with integrity

RECs have a role to play in South Africa’s just energy transition, particularly if they’re used transparently and as part of a broader decarbonisation strategy. This includes improving on-site energy efficiency, procuring renewable electricity where feasible, investing in local clean energy projects, purchasing high-integrity carbon credits where appropriate and supporting innovations like green hydrogen, energy storage or grid modernisation.

Ultimately, RECs are one instrument in the climate action toolkit. Used wisely, they can channel capital into green energy markets and support credible progress. Used poorly, they risk becoming a sustainability shortcut that undermines collective decarbonisation efforts.

Co-written by Lerato Molefi and Luyanda Khanyile.