Myth Buster: Renewable Energy Claims Not What They Seem

A number of retail energy suppliers claim to provide “green” energy to their customers.  Some carry premium prices.   Some of these “green content” claims may be valid but none of them are verified by third parties.  Moreover, customers would be surprised if they learned what was often behind them.

Here are some sample descriptions of these products, pulled from the internet, supplier websites and utility “shop and compare” pages:

  • “Save money with our 100% green fixed electricity rates.”
  • “By subscribing to [green power supply, our company] purchases Renewable Energy Credits on your behalf to ensure that the equivalent of up to 100% of the power used in your home is generated from renewable power sources such as hydro, solar and wind power. This is tied to your home electricity usage.”
  • “With the purchase of the [—-] electricity product, you are supporting cleaner electricity by offsetting 100% of your annual paid electricity usage with an equivalent amount of energy produced by the renewable energy sources indicated above.”

Many utilities already purchase renewable energy for a significant portion of their energy supply.  They are required to do so by law, under so-called Renewable Portfolio Standards adopted in most states.  The RPS standards are similar to the CAFÉ standards for automobile emissions:  Just as the CAFÉ standards set minimum fuel efficiency levels, in order to reduce smog-producing pollutants from car engines,  RPS standards set a minimum for the amount of renewable energy that must be supplied by any utility or retail energy marketer as a percentage of overall deliveries.

The RPS standards range from 10-30% and are intended to scale upward over time, just like the CAFÉ standards.   Suppliers meet the RPS standards by building renewable power plants such as wind and solar and delivering that power into the utility grids.   Alternatively, suppliers can purchase from third parties energy certificates that represent the so-called environmental attributes reflected by renewable production.  The most common RECs are WRECs or Wind Renewable Energy Certificates or SRECs for Solar Renewable Energy Certificates.  (Connecticut for some reason refers to solar RECs as Z-RECs.  Go figure.)

A wide variety of renewable energy sources are eligible for RECs.  Solar and wind are always considered renewable.   In many states hydro-electric production is usually not considered renewable although large hydro may qualify as distinct from small run of the river hydro.  In Ohio nuclear energy is considered a renewable energy resource although this is highly controversial.  Some states will only give RECs to new renewable sources; existing facilities such as solar will not be eligible in order to encourage new projects.

An on-line marketplace has developed for RECs.  Several brokerage platforms have evolved that facilitate the sale by projects owners and the purchase by utilities and other energy suppliers for these certificates.

The price of RECs is set by supply and demand forces.  If there is a shortage of renewable energy that meets the state RPS requirements, prices will go up as suppliers compete the purchase the RECs needed to meet the RPS.  Likewise, if renewable production increases the price will probably come down.  Over the past few years SRECs have experienced wide price ranges in states like New Jersey where supply and demand have changed periodically.

Most suppliers purchase the bare minimum amount of RECs required to meet their RPS requirements.   Where suppliers wish to sell their customers electricity with a higher minimum than legally required they can purchase more in the marketplace.   Since the price of renewable energy is often higher than conventional sources the retail price will likely rise with the percentage of renewable energy sold.

When customers pay a premium for “green” products they probably intend to contribute to the overall supply of renewable energy in their state.  Otherwise why would they knowingly pay a premium?

These green customers might be surprised to learn a few facts:

  • They may pay a premium for a green product that contains, say, 25% renewable energy when the RPS standard is already 25% and all suppliers are required to include 25% renewables in their supply portfolio. In other words, they are paying a premium that is adding no renewable energy production.
  • A green customer who buys a 50% renewable product may think that the supplier has purchased 50% of renewables for them but in fact the supplier only needs to purchase the difference between 50% and the minimum RPS requirement.
  • They may pay a premium thinking that they are adding to renewable energy production in their state. But most green energy in the Northeast, for example, is backed by WRECs from Texas wind farms, NOT renewable energy in the Northeast.
  • Customers may think that they are helping to support new renewables when, in fact, most states treat old renewables as eligible for RECs. So
  • Ohio customers probably think that renewable energy means solar or wind when Ohio regulators allow nuclear energy to be included as a renewable energy resource.

Renewable energy claims are on the verge of being a renewable energy scam.  Customers probably think that regulators are watching out for them.   They probably assume that if electricity marketers were making false claims about renewable energy content they would be required to back them up with third party verifications.

Regulators are not overseeing claims of renewable energy content.  They are not prosecuting retail electricity scams.   Don’t blame them for this:  They simply don’t have the resources or manpower to police these claims.  The electricity marketplace must police itself, through vigilance, due diligence and articles such as this.