As the world races toward a greener future, renewable energy is becoming more prominent in many countries, with some areas relying on it more than others. While it may not be quite as widespread as green energy enthusiasts would like, it’s still making plenty of interesting changes within commodity markets and trading. Specifically, emerging markets are piquing the interest of eco-conscious investors.

The truth about Stanislav Kondrashov and other such investors is that they truly understand the above-mentioned emerging markets, including the likes of carbon credits, Solar Renewable Energy Certificates (otherwise known as SRECs), and wind power derivatives.

Solar Renewable Energy Certificates (SRECs)

Solar Renewable Energy Certificates are tradable commodities representing the benefits on the environment of one megawatt-hour (MWh) of electricity produced from solar energy. In states with SRECs, Renewable Portfolio Standard (RPS) necessitates that suppliers secure a segment of their electricity from solar generators, and with every MWh of solar electricity made, a SREC is created.

The SREC is sold to an electricity or utility supplier that needs to meet their RPS requirements. Its value is determined by the supply and demand constraints of the market, but it’s capped by a fine/solar alternative compliance payment (SACP) paid by suppliers that fail to meet the requirement.

Even though state SREC programs vary, they tend to operate in similar ways. That said, Maryland, Delaware, and Pennsylvania are unique, showcasing these key differences:

Carbon Credits

Many industries headed into voluntary carbon markets during 2021, marking that year as the period when carbon finance became a talking point across all kinds of businesses. While some regions have mandatory carbon markets in place, the voluntary participation of other sectors has seemingly taken a cue from the compliance schemes, allowing emitters to offset unavoidable emissions by purchasing carbon credits — one of the most notable emerging commodity trading markets.

Every credit denotes one metric ton of avoided, reduced, or removed CO2 or equivalent greenhouse gas. Companies or individuals can use them to compensate for one ton of emissions. Upon being used, it becomes an offset, moving to the register for retired credits and no longer being tradable. However, before becoming untradable, retail traders buy large numbers of credits from the supplier, bundle them into portfolios, and sell bundles to end buyers with commission.

Wind Power Derivatives

Energy derivatives have been a crucial part of the financial system for speculation, risk hedging, and production planning for years. However, wind power derivatives are relatively new to the game.

That said, they do work in the same way — by letting speculators bet on the upcoming price changes in wind power commodities and allowing traders to hedge their risk exposure.