Energy & Environment

Corporate demand for green power grows, but what will increased supply look like?

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It’s never been more popular to buy green power.

The Environmental Protection Agency’s (EPA) tallies 780 “100% Green Power Users” — everything from local florists and breweries to Microsoft and Intel — that obtain all their electricity from renewables. Dozens of global companies like Google and Nike have joined the RE100 pledge to do so in the near future.

{mosads}How will this growing demand for green power translate into more renewable supply being built? The answer depends not just on how much renewable electricity these companies use, but also on how they get it.

The EPA and RE100 both let companies choose among several paths to reach renewable electricity targets.

The most direct path is to build new renewable capacity. IKEAWal-mart and Tesla are among the many companies installing solar panels on their stores and factories.

Others like Apple are building solar or wind farms off-site. That lets them capitalize on economies of scale and choose sites with especially sunny or windy conditions.

Power purchase agreements (PPAs) provide an alternate path to green power. These agreements allow companies to purchase renewable electricity directly from a producer.

If signed upfront, long-term PPAs can provide the stability needed to finance a new project. That’s the approach that HP and Google have taken in contracting with wind producers to power their data center operations. On the other hand, PPAs with existing solar or wind farms may not stimulate new supply to be built.

Impacts become fuzzier if targets are met solely by purchasing renewable energy certificates (RECs). To see why, we must first understand just what is a REC.

One REC is created for each megawatt-hour (MWh) of certified renewable electricity supplied to the grid. Each certificate has a unique identification number and can be traded on open markets.

These certificates have become the primary way for tracking green power supply in the U.S. Even when companies generate their own renewable electricity, the EPA requires that they retain the RECs in order to make a green power claim. That prevents double counting from reselling the certificates.

More often, though, companies simply buy RECs rather than generating their own green power. The certificates can be purchased directly, or bundled together with grid electricity on their electric bills. Either way, the purchase qualifies as “buying green power.”

Figuring out the impact of these purchases gets tricky because certificates come in two forms: mandatory and voluntary.

Mandatory RECs are used by utilities to meet renewable portfolio standards in states that mandate the percent of electricity that must come from renewables. Prices of mandatory RECs vary widely with the stringency of these standards, but typically range from $10 to $50/MWh. That’s comparable to the wholesale price of electricity, and thus provides a powerful incentive for green power. Purchasing and retiring mandatory RECs can spur utilities to generate more green power to meet their mandates.

Voluntary RECs, on the other hand, are purchased voluntarily rather than to meet state standards. As their abundance has grown, prices have plummeted to less than $1/MWh.

That’s made voluntary RECs the cheapest way for companies to “buy green power,” and for utilities to market “green power plans.” But such cheap prices provide scant revenue to green power producers.

Two studies by the Greenhouse Gas Management Institute showed that voluntary RECs fail to add green power to the grid. As David Roberts from Vox puts it, the certificates are “so cheap they have become all but irrelevant to the financing and investment decisions of the power industry.”

The Obama administration appeared to recognize this dilemma as it directed federal agencies to seek 20 percent renewable electricity by 2020. The memorandum specifically prioritized installing new capacity over purchasing certificates.

Some companies are rethinking their approaches as well. Wal-mart, Whole Foods and PepsiCo are shifting away from RECs to focus on directly installing wind and solar. Companies like Google are emphasizing “additionality” — ensuring that their actions actually add renewable energy onto the grid rather than shift it from other buyers.

None of these companies make the EPA’s list of 100% Green Power Users. Meanwhile, the list is dominated by companies obtaining most of their green power from RECs.

This raises the question of what it means to go green. Companies with targeted efforts may do more to boost green supply than those taking simpler paths to 100 percent renewables. It could even be asked whether the cheap simplicity of buying certificates is diminishing the impetus for more tangible efforts.

In the end, success should be measured not by megawatt-hours purchased but by emissions avoided as more wind, solar and water power are added to the grid. That progress is a vital component of efforts to improve air quality and curb climate change.

Cohan is associate professor of civil and environmental engineering at Rice University.

The views expressed by contributors are their own and not the views of The Hill.


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