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You may now have the option of buying so-called "Green Electricity"
from your electric provider, or from an alternative provider. If you
are wondering how they do this, you are not alone.
Here is a rough description of how Green Electricity works. We
will assume that the "green" resource is wind, because that is the
most common, though it might come from solar, or in some cases
hydro or landfill gas.
First, here is what it is not:
- The electric company does not install install a wind turbine
on your house.
- They do not run special wires from a wind turbine somewhere
else, to your house.
- They don't generally make some special arrangement that at
a given time, there is enough wind-based power generated to
meet the instantaneous demands of the customers who sign up for
green energy.
OK, then what DO they do?
The answer lies in some accounting, and a thing called a Renewable
Energy Certificate (sometimes called Renewable Energy Credit (REC), a Green
Tag, or a Tradeable Renewable Certificate(TRC)). The system also relies on
some legislation that defines how RECs get issued and retired.
Many states these days have enacted what is called a "Renewable
Portfolio Standard", which is law that requires that some amount of
renewable energy be included in the total electricity mix. Rather
than just require every producer to produce a particular amount of
renewable energy, they have concocted a clever REC trading system that
allows the renewable energy to be generated by anyone.
The general theme is this: A REC is a certification that a particular
unit of electricity (say, a megawatt hour) was generated by some renewable
energy producer, and
it is given to the entity that generated the energy. For a unit of energy
that was generated, there can be only one REC. In Texas, RECs are issued
by ERCOT (Electric Reliability Council Of Texas), which oversees most
electricity production and distribution in the state.
Entities that sell electricity to customers are required
to turn in a certain number of RECs to ERCOT each year, this number being
related to the amount of electricity that they sell. They may buy these, or
they may generate the green energy themselves, and be granted the RECs.
The requirement to turn in RECs causes the construction and
operation of renewable energy facilities. The number of RECs that are
required to be turned in is calculated based on the amount of renewable
energy that legislators determine they want in the energy mix.
RECs are not the same as energy. When RECs are traded, all that is
traded is the certification that some green energy was generated, not
the energy itself. What gives RECs value is the fact that certain
entities must turn some in each year.
Anyone can trade RECs. There are brokers who deal in them, and
they can be bought and sold like any other commodity. Who might
buy RECs?
- A company that is required to turn some in, to satisfy
the law.
- A party who wishes to speculate on the possible appreciation
of REC value.
- A Green Electricity producer that does not have their own
green generation capacity.
- Parties wishing to increase the amount of renewable generation
capacity for altruistic reasons.
Let's explore the second two of these.
Companies that sell green electricity may do the third,
buying electricity wherever they can get it cheapest, to satisfy
the needs of their customers. They can then buy enough RECs to cover
the electricity that they have sold. An important point is that
they are not allowed to sell these RECs. If they did, then the
renewable energy corresponding to the REC would be claimed by
more than one party.
An individual might choose to sign up with a green electricity
provider. They might also choose to buy enough RECs to cover their
electricity consumption, and then buy electricity from their old
supplier. They might even choose to buy more RECs than are required
to cover their own consumption.
The last two options share the fact that they do not resell the
RECs that they buy. RECs that are not resold are unavailable to those
parties that are required by law to buy them. The effect of this is
that the amount of renewable energy capacity is increased beyond what
the law mandates. Large groups of concerned citizens could increase
the renewable energy generation base simply by buying and not reselling
RECs. Or a concerned environmental organization might collect funds to buy
and retire RECs.
While it is complex, the REC trading system has multiple benefits:
- allows anyone to claim credits for their renewable energy generation,
- satisfies the need to increase renewables as a percentage of the
mix,
- and allows well-meaning people or groups of people to increase the
amount of renewable energy capacity beyond the legal requirement, by
buying and retiring RECs.
- Allows anyone to claim service of green electricity, whether or
not they are served by a company that offers it.
A conscious electricity customer who wishes to use green electricity
should not only check into the availability of "green" service, they should
consider simply buying RECs in addition to a standard service, preferrably
one with a low percentage of coal and nuclear in their fuel mix.
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