Getting all of your electricity from windmills, solar panels and the like may sound good, but what does it mean?
Our electricity comes from a grid. Suppliers put energy in and consumers take energy out. Since the grid mixes all of that energy together, regardless of source — solar, wind, coal, nuclear and natural gas, among others — there’s really no way to purchase electricity from a particular source.
“You can’t color electrons,” says Frank Wolak, who studies the effects of competition on energy and other commodities at Stanford University. “Consumers get the same electrons from the system regardless of supplier. The rest is simply financial transactions.”
Green revenue streams
These transactions are important to the environment, and they’re also complicated. Let’s first look at the system from the supply side.
Green energy suppliers have three sources of revenue. First, they sell the energy itself, just as coal plants do. Second, they receive a direct subsidy from the government, known as a production tax credit. Third, they sell renewable energy certificates, or RECs, to less-green utilities.
In a sense, RECs are creations of the government. They have value because many states mandate that a percentage of the electricity that utilities sell come from renewable sources. The requirement is known as the renewable portfolio standard.
In Maryland, for example, around 7.5 percent of the energy that a utility sells must be green, a figure that is set to rise to 20 percent by 2022. If a utility produces little or no green energy on its own, it can buy RECs to satisfy the quota. The RECs are a significant revenue source for windmills and other suppliers of renewable energy.
If you choose to purchase from a green energy retailer, it’s helpful to keep these revenue streams in mind. Consider Clean Currents, a Rockville company selling wind power via two options.
In one, when a customer orders a kilowatt-hour of energy, Clean Currents buys that energy from local wind farms and from solar farms, along with the corresponding RECs that the producer earned for generating it. In other words, you’re paying into two of the green energy producer’s revenue streams.
In the second program, Clean Currents buys energy from the same suppliers that provide electricity to your regular power company — which means it’s generated by a combination of coal, natural gas, nuclear and some renewables — along with RECs from a wind producer. In this case, you’re paying into only one of the windmills’ revenue streams, the RECs. While this is cheaper for customers than the local program, it also means that less of your money goes to green producers.