written by Clay Bedwell, Electricity Program Director at The Energy Co-op. Clay@TheEnergy.Coop
For a lot of people, being a responsible electricity consumer involves paying bills and not having every light on in the house. For those more environmentally conscious, it also includes buying renewable electricity. While people know buying renewable electricity is the right thing to do for the environment, many are unfamiliar with how they are actually using renewable electricity. A basic understanding of how the electricity grid works will make you a savvier and more environmentally responsible consumer.
Unfortunately, The Energy Co-op can’t beam electrons from a wind farm directly to your home so instead we use renewable energy certificates (RECs). Figure A illustrates how RECs work within our current grid system. Renewable energy sources (wind and solar) and nonrenewable energy sources (nuclear, coal, natural gas, etc.) transfer power to the grid. When a renewable energy source adds power to the grid, a REC is created for every megawatt hour of power generated. This REC represents the environmental value produced by renewable power. Electricity suppliers then purchase RECs from renewable energy sources to offset their customers’ grid consumption.
Now let’s see what this means for the end user. Whenever you use electricity, you receive whatever mix of power is in the grid. If your neighbor uses PECO for their electricity supply and you are an Energy Co-op member, both of you are receiving the same electricity. However, when you buy renewable energy from The Co-op we not only pay for the power you used from the grid, but we also apply our purchased RECs to your usage.
Not only does this model allow the end user to say they use renewable energy, but it also provides a financial incentive for the development of new wind and solar generation in Pennsylvania. Renewables currently make up a slim 2.9% of Pennsylvania’s total electricity generation . The more we can encourage new installations of clean energy, the higher percentage of renewables we can put in our grid and our homes.
This would be relatively straight forward if all RECs were created equally, but they’re not; they can differ in source and location. In Pennsylvania for example, burning waste coal is a qualified source of RECs, even though it typically has a greater environmental impact than standard coal generation. Consumers can also buy RECs generated in other electricity grids. The Midwest has an ever-growing list of wind farms and this high supply has become the standard industry source for inexpensive wind RECs.
The good thing about cheap RECs is that they allow for the inexpensive retail renewable electricity. The bad thing is that cheap RECs are poor financial incentives for the development of new generation. Other than making people feel all warm and fuzzy about keeping their air conditioner at 64 degrees all summer, they don’t serve much of a purpose.
The Co-op’s desire to buy productive RECs has long been the guiding principle for our procurement practices and it is the central theme to our newest product. The Co-op has partnered with local solar installer Solar States to create Solar Leader, a 5% solar REC (SREC) offset product. Solar Leader is designed to make the installation of local solar possible by procuring SRECs from dedicated projects at fixed rates and term lengths. By simplifying project financing and mitigating SREC market risk, The Co-op and Solar States will be able to put projects in the ground that otherwise would not be possible.
So next time you’re offered a suspiciously inexpensive renewable energy product, just remember that the old adage holds true for electricity as well: you get what you pay for.