Introduction
Buying Electric Energy Basics of electric service
How is Green Energy different? What is it?
How did today's Green Energy generation get there? History
So what's the problem? The strange twists of electric generation
Certification schemes How to read them
What does that mean for the consumer? Go here if you want to cut to the chase.
Naming names The major marketers
My take on things A personal note

 

Introduction      Index

I have been asked by friends what the significance of Green Energy is, and whether the marketing pitches can be trusted. I have, through my work, come across enough information to be able to fomulate an opinion.

Green Energy is one of many energy product categories. While some companies actually are committed to developing only Green Energy Products, most marketers simply add Green Energy products to their overall service product line. Green Energy as a category includes various specific products, which are differentiated along lines that are not always clear. This discussion serves as a bit of a primer on the new energy markets, and specifically Green Energy, from the consumer perspective. Those familiar with these topics may notice that I completely avoid certain topics, such as CTC, that would entail long-winded explanations and technicalities. While the result may include an occasional technical imprecision, I think the overview remains fair and accurate.

 

Buying Electric Energy      Index

Buying electricity seems straightforward - buy the power produced by a generator, and run your home with it. There are several problems with this:

Your home is not directly connected to the generator. There is a huge network (the grid) between you and the plant. The juice that comes from your outlet is the product of all the power plants (regardless of the fuel) and all the equipment in the grid (switchyards, transformers, power lines, condensers and other equipment).

The plant managers won't make a deal with each home. The "load," or power needs of one home, is far too small, and there are too many other services to procure in order for you to get electricity at your home.

There are many services that add up to deliver electricity to your home. For most businesses and residential homes, there is a long list of services that are a basic necessity and that are always assumed to be part of the product. This includes billing, meter reading, storm repairs on the wires, backup power in case the generator needs maintenance or breaks down, etc.

The marketers package these services as energy products. Marketers gather together enough homes and businesses to be able to go to generators and buy power. However, they also arrange for all the other services. In fact, even the marketers buy many of these services already packaged from what are usually monopoly providers:

Distribution service (includes the wires to your homes, repair of local outages, the lower voltage portion of the grid, etc.), which can be PG&E, SCE or SDG&E. This is a "natural" monopoly since it would be undesirable and expensive to have multiple sets of wires running to your home.

Transmission service (includes the high voltage grid, management of the generators on a minute-to-minute basis, voltage control, management of generation outages, management of the big transmission lines that import and export power, etc.), which in California is an obscure organization called the Independent System Operator. This is also a monopoly since the reliability of the whole system requires central coordination.

Billing service (includes customer support, printing of bills, account management, etc.) is usually still handled by the same company that handles the distribution. However, other companies will start up in competition to offer innovative services, such as using the internet and offering credit card transactions.

Metering service (includes meter reading, accuracy verification, communication of meter data, etc.) is already competitive, with CellNet and other companies providing innovations such as wireless meters, load profiling meters, residential interval meters, etc.

Generation (injection of power into the grid approximately equal to the "load" of all the marketer's customers) is the most competitive area of the business now. However, when it comes to special types of generation (as for Green Energy), there are still some distortions in this market that are due to the transition from an integrated, regulated system. I'll get into this later.

 

How is Green Energy different?      Index

The property that makes Green Energy different is its source. Now, the energy from a renewable resource generator enters the grid just like the energy from any other plant, and they are all "mixed" together. Getting the particular electrons pushed and pulled by a particular generator is like getting the water in your pipe in San Fransisco to come from the snow on a particular meadow in Yosemite: although it melts and flows into Hetch Hetchy and through the aquaduct to the Bay Area, its impossible to distinguish the molecules.

This means that the only way Green Energy can be bought is to pay a renewable generator to put energy into the grid equivalent to the energy that you take out of the grid. The purpose of paying a little more for Green Energy is to allow the generation of otherwise unaffordable renewable energy, and to encourage the development of new renewable generation in order to displace conventional generation technologies. There are three ways to do this:

Direct Contract: Write a direct contract with the generator spelling out how much the generator should inject, in exchange for payment by the marketer. The contract proves that the energy the marketer resells is Green Energy.

Special Green Markets: A market operator provides a market place to which only renewable generators are permited to sell, and anyone can buy. The billing through this market prove that the marketer is reselling Green Energy.

Green Tickets: For each unit of energy (measured in Megawatt-hours, or MWh) the generator generates and injects into the grid, it produces a corresponding "Green Ticket." While it sells the energy on the regular energy market as it is generated, it also sells the Green Tickets to marketers who are reselling Green Energy. The price of the tickets then reflect only the "green premium," which is the extra value the renewable generator creates by generating the energy INSTEAD of a non-renewable generator. While the customers of the marketer may not take electricity out of the grid at the same time as the renewable generator produces it, the purchase of Green Tickets allows the generator to get paid its green premium anyway. Green Tickets are not implemented yet, but promises to be a standard that could be applied nationwide.

 

How did today's Green Energy generation get there?      Index

Before the 70's, the vertically integrated monopoly utilities owned all the generators, along with all the rest of the system. Various types of generation were an effect of technological evolution and strategic fuel diversity; there was little incentive to develop renewable generation on a commercial scale, since these technologies were expensive. This was because their development was driven by specialized off-the-grid markets, essentially a cottage industry.

A huge exception to this generalization are the hydro-power systems that were built all over the West as part of the development effort of the New Deal, and later continuation of dam-building that lasted into the sixties. In most cases, their construction was funded by federal funds. These dams are a renewable resource of electricity, and are the staple in the Northwest, where the entire Columbia River system hosts an enormous generation capacity. The cost of such generation is lower, not higher than conventional generation, so that by economics alone, every possible kilowatt of hydro-power is squeezed out of the system already. For the utilities with this kind of generation, their existence means that other forms of conventional generation are not as necessary. These dams are a normal part of the utilities' portfolio, and help reduce their cost of energy.

In the late 70's, the oil embargo and a new environmentalism combined to create political pressure for renewable generation. Since the realities of nuclear generation was turning out to be a financial debacle for utilities, they balked at implementing expensive renewable generation themselves. Regulators could not politically justify forcing the utilities into activity that would increase rates even more. Instead, a contractual framework was created in the early 80's which forced utilities to purchase energy at a fair price from independent generators. The utilities purchased all these generators' output through long-term contracts, which were usually constructed to pay the going rate for wholesale power, increasing over the years at the rate of inflation, which seemed fair at the time.

Many of these independent generation companies were pioneers in renewable energy on an industrial scale, and much of today's significant renewable generation is owned by them. The technologies consist mostly of geothermal energy, landfill gas, biomass plants, some small hydro-dams, and windfarms. Many others harnessed waste energy from existing large industrial processes, effectively reducing their cost of fuel. Only in isolated cases, such as some solar and wind experiments, was renewable energy generation built by the utilities themselves.

In the early 90's it became apparent that the cost of fuel for the utilities was increasing at a far lower rate than inflation for the entire economy. The factors for this were macro economic:

Nukes - the strategic success of nuclear generation, which decreased the demand for oil;
Cars - the success of automobile efficiency requirements, which triggered a revolution in automotive technology and doubled the fuel efficiency of cars;
Gas - the boom of the natural gas industry, and the early deregulation of this industry, which lowered the final cost of natural gas by an order of magnitude and increased supplies beyond all expectations and forecasts. Many oil-burning generators were converted to gas;
Recession - the domestic recession, which caused energy demand to grow more slowly, while also causing overall inflation to rise.

As a result, the price of energy under the long-term contracts, which were tied to inflation, began to exceed the cost of fuel by a good margin. In some jurisdictions, a flood of new independent generation projects appeared in order to take advantage of this window. The regulators and the utilities balked, and restructuring proceedings were undertaken to change the way these generators were paid. Existing contracts were renegotiated, often shortening the length of the contract. Today, the generators are paid based on some measure of the market price for energy, instead of an inflation adjustment.

However, in that same time period, and in part in response to these regulatory troubles, deregulation of the utility industry was undertaken across the country. The gas industry lead the way, and the electric industry is currently following suit. Forward-looking independent generation companies structured their long-term contracts to end, in order to be able to participate in the new wholesale energy markets.

As a result, some of the renewable generators, many of which belonged to this group of independent generation companies, are now able to offer their energy on the open market. They can use Direct Contracts, special Green Markets, and Green Tickets to sell their output.

However, most of the independent generation remains under contract to the utilities, giving rise to a strange twist I'll get into next.

 

So what's the problem?      Index

SOURCES - At this point in the story we've got several kinds of generators:

1) Non-renewable utility generation, fueled mostly by nuclear fuel, coal and natural gas;
2) Large hydro-dam utility generation, federally funded and low-cost;
3) Independent non-renewable generators under contract to the utilities;
4) Renewable utility-controlled generation, including independent renewable generators under contract to the utilities;
5) Independent non-renewable generators in the open market;
6) Independent renewable generators in the open market.

For Green Energy, only 2) , 4) , and 6)  are candidate suppliers. Let's see what happens when each begins to participate in the burgeoning Green Energy market.

2) Large hydro-dam utility generation: This stuff is a staple for the utilities, since it is cheap, and is already produced as much as possible. However, because it can be resold as special Green Energy, there is an incentive for the utilities to sell it to marketers, instead of serving their own load with it.
(A) The argument states that the utility needs to make up the energy it sold, since its own load is not reduced. Since the hydro-dams already generate as much as possible, it is made up from non-renewable generation instead. This means that more "dirty" energy is generated instead of more Green. This is not a desired effect of Green Energy.
(B) The counter-argument states that actually, the utility sells it to marketers who are taking over load that used to be part of the utility. This reduces the utility's load, and no new generation is needed to make it up. The hydro-dam generation is simply being allocated to a certain portion of the load, instead of being spread over all of it.
(C)The counter-counter-argument states two things:

(C1) If it IS sold in the same utility territory, to customers that have switched away from the utility to a new Green Energy marketer, then the same customers are now paying a premium for the same stuff they got before. This means the utility is making more money on the same hydro-dam resource, and is neither increasing the use of that resource (it's already maxed out), nor increasing the number of renewable plants.
(C2) If the energy is actually being exported (from the Northwest to California marketers), then the energy DOES have to be made up from dirtier plants, as shown in argument A.

(D) There is a counter-argument to C2: energy has always been sold to California, so once again, no additional energy crosses the state line, it is just allocated differently. This has not been proven, and even if it were true, C1 would still hold.

So the bottom line on large hydro-dam generation for now is: Utilities owning large hydro-dam generation make more money delivering the same stuff, and if it leaves the state, it may have to make up the difference with dirtier plants. This is not in line with the spirit of Green Energy premiums, which is to pay for otherwise unaffordable renewable energy, and to encourage the development of new renewable generation in order to displace conventional generation technologies.
Large hydro-dam generation is also problematic for migratory fish populations and other environmental impacts from their construction and existence.

4) Renewable utility-controlled generation, including independent renewable generators under contract: The utilities own the power of these generators, and are already collecting revenues from their ratepayers to pay for it. There is however an incentive for the utilities to isolate this energy and resell it to marketers as the Green Energy that it is. In California (PG&E, SCE, SDG&E), this is not possible, since the utilities must sell all their power to another obscure organization called the California Power Exchange, and repurchase it (this rule does not apply to municipals and irrigation districts). In the process, the "green-ness" of the power gets lost. There are several happenings afoot that are trying to change this, but for now, this is not an issue. California municipal utilities and irrigation districts (Palo Alto, Alameda, Sacramento, etc.) however can take this route. The effect would be the same as for large hydro-dams: the municipal utility would make more money for energy that is already paid for. Again, this is not in line with the spirit of Green Energy premiums - to pay for otherwise unaffordable renewable energy and increase its use. The utilities may also try to formulate a Green Energy tariff for its own residential customers. Unless there are specific adjustments in the rest of the utility's revenue, this is also not in line with the spirit of Green Energy premiums.

6) Independent renewable generators in the open market: These generators are what Green Energy are actually about. They are receiving no other revenue for their energy but through the three open market mechanisms (direct contract, green markets, and green tickets). Being able to sell their Green Energy for a premium allows them to be competitive with conventional generation, and to get used more than they would be otherwise. By being profitable, it encourages new renewable generation to be built, which would automatically fall into this same category.

AUDITS - Marketers assemble a portfolio of sources, which is all the energy they buy through direct contracts or open markets. Auditability of the supply portfolio is critical in order to verify the percentage of Green Energy. There is no standard mechanism in place now that tracks green generation and green generation portfolio components. Companies are pretty much on their own to live up to their promises. The promises consist of the portfolio descriptions of the particular Green Products that are being offered.

 

Certification schemes - how to read them      Index

California Energy Commission "Eligible" Renewables - The highest California standard is the CEC's (California Energy Commission) "Eligible" Renewables, and marketers that use it will pride themselves on it and let you know. The idea is that these resources are clean enough environmentally AND in a regulatory way to receive "production incentive payments." These come from special funds generated by legislation to ensure that renewable generation weathers the transition to a fully deregulated energy industry. Marketers buying from these generators also receive incentives from these funds. This standard applies only to truly renewable in-state resources, such as solar, wind, landfill gas, biomass, and small hydro. This CEC standard excludes large hydro-dam resources, and it distinguishes independently owned resources (this does include resources owned by open-market subsidiaries of the utilities).

California Energy Commission "Registered" Renewables - This California standard is applicable to generators using the same technology as above, but usually for regulatory reasons the facility is not eligible to receive production incentive payments. This would be the case if the unit is owned by a utility, for example. It implies that the higher production costs are already covered by utility revenues charged to all its customers in the past.

green-e certified - This is an independent branding program that certifies that the energy is generated using renewable energy. It charges a sizable fee to those who wish to use it. Its Green Energy definition includes out-of-state and large hydro-dam generation, as well as renewable generation owned by or under contract to utilities. Their branding rests on sworn affidavits, and promises an auditing process, but this is not yet in place. Some marketers percieve a lack of accountability, and are boycotting the brand.

Others - Higher standards than the CEC's may develop which refuse to include any carbon oxides emissions, counting out biomass and perhaps landfill gas as well. They may also refuse utility controlled resources, since their cost is already being recovered through utility rates. Some may reject tireburning plants due to potential dioxin production, or hydro-plants because of fish impacts. I have not yet seen actual "brands" for this, but they could evolve soon.

 

What does that mean for the consumer?      Index

Marketer integrity - All the discussion above assumes that a marketer behaves with integrity. The turth is, there is no agency that enforces Green Energy claims, although green-e, the CEC and others have developed or are in the process of developing procedures to verify marketer claims. But even shy of outright scamming, there is plenty of obfuscation potential in providing Green Energy by name while completely ignoring, or even undermining Green Energy in spirit.

Green comes in shades - Since Green Energy generation technology is more expensive per kilowatt, Green Energy products will be diluted to 10%, 50% or 100% green, or name particular generation portfolio mixes by percentages. The Green Energy product will state what percentage of the energy comes from what sources.

The price of Green - The price of 100% Green Energy is noticeably higher, because marketers are finding buyers willing to pay more for this product. However, electricity itself is only about 20% of your electric bill. The rest is for those other services (transmission, distribution, customer service, metering, billing). So even if the price of Green Energy were double that of conventional electricity, your bill should only increase about 10%.
The higher price will make some people, including businesses vying for economically aware clientele while managing costs, go toward shades of green. This is a perfectly good way to go, since the aggregate purchases of Green Energy still support a high premium, and lure new developers into the Green Energy industry. With more green resources, shades of green will become greener as it becomes cheaper, and green technology will advance and displace conventional generation.

 

Naming names      Index

Of about 300 companies that signed up to be marketers and service providers a year ago, there are only about ten left. This period has also provided some time to evaluate how Green Energy is being marketed and what the remaining hurdles are. A definitive, albeit pessimistic, report was produced by Nancy Rader of Public Citizen (see www.citizen.org) in October 1998. In it, only one marketer passed muster as delivering Green Energy products in name and spirit. All others are either close-mouthed about their sources or are clearly utilizing either large hydro-dam or utility-controlled generation.

The following list echoes the findings of this report. By the time you read this, it is probably already out of date, since marketers are scrambling to position themselves with superior products than the other guy. However, it gives you an idea of where they came from, and what kind of questions to ask. I am explicitly NOT listing information I may have about these companies as part of my work, so don't bother looking for any secrets here.

The good stuff:
cleen 'n green: green 100 - 100% open market, independent renewable generation.
cleen 'n green: green 50 - 50% open market, independent renewable generation.

The hush-hush stuff (no disclosure):
Edison Source: EarthSource 100 - Probably utility-controlled sources.
Edison Source: EarthSource 50 - Probably utility-controlled sources.
Enron: Earth Smart Power - Probably utility-controlled sources.
Keystone: EarthChoice - May be utility-controlled sources.
PG&E Energy Services: Clean Choice 20 - May be utility-controlled sources.
PG&E Energy Services: Clean Choice 50 - May be utility-controlled sources.
PG&E Energy Services: Clean Choice 100 - May be utility-controlled sources.

The contentious stuff:
cleen 'n green: cleen 100 - Large dam-hydro.
Green Mountain: Water Power - Large dam-hydro, some small hydro.
Green Mountain: 75% Renewable - Utility-controlled sources.
Green Mountain: Wind for the Future - Utility-controlled sources.
SMUD: Greenergy - Utility-controlled sources.

 

My take on things      Index

Although much more is known now about how the green energy markets actually impact the industry and the environment, the way marketers behave in response to the market (read: consumer feedback and choice) will change these findings in a short time. I expect to have to rewrite this article completely again six months from now. Especially the information that is available publicly about individual marketers and that I include above has already changed.

I recommend that if you change your energy provider and sign up with a green energy provider, you do not sign any long-term contracts. Anything longer than a year is not a good idea. Things will change dramatically in a year, and you want to be able to reevaluate your choice at that time. However, I would not delay switching to green energy, if you can afford the premium and if it aligns with your personal values. The Green Energy "movement" and industry is dependent on every individual making the choices and making the switch. Even if you initially pick what might turn out to be a dud of a supplier, your choice contributes to the growth of green energy immediately, and you can simply switch to a better supplier later.