People like to talk about “green” power. Some even like to talk about green electrons. Of course, all electrons are the same. The difference is the environmental impacts created – or not created — by the generation of those electrons.
Up until the late 1990s, renewable energy developers weren’t able to monetize the environmental benefits of the electrons they generated. When they went to market their renewable energy, utilities and regulators responded alike: “All electrons are the same. Why should we pay more for yours?” As a result, very few renewable energy projects were built. This perception defied the underlying reality: There were plenty of renewable energy developers ready to deliver renewable energy and there were plenty of residential, commercial and institutional customers ready to buy renewable energy. The power sector establishment’s “business as usual” attitude prevented customers from buying the renewable energy they wanted. It was a broken market rich with untapped potential.
That is a Convenient Opportunity.
Enter the Green Tag
The energy from a wind farm or a coal plant or any other power plant simply goes where it is most needed, like water running down hill. A Green Tag (Renewable Energy Certificate, or REC) is a contract that articulates the environmental benefits and characteristics of renewable energy and separates them from the underlying power. Those environmental benefits can then be sold to a buyer, whose economic support allows the renewable power to out compete traditional (polluting) power on the electric grid. This allows anyone, anywhere to support as much renewable energy as they want to, regardless of where the electrons go.
The flexibility provided by Green Tags allowed the voluntary green power market to scale, because it gave all the stakeholders what they want:
- Renewable energy developers have a way to monetize the environmental value they create. They can find the highest value in the marketplace for those benefits, rather than being forced to deliver those environmental benefits to the utility buying the raw energy.
- Utilities have a way to buy energy without paying the (sometimes) higher cost of renewable energy. This is very useful, because utilities are generally in the business of buying the least expensive energy they can buy, regardless of its environmental attributes.
- Regulators can support utility contracts that create more renewable energy without raising utility rates, because the utilities are simply buying the underlying energy, not the environmental benefits.
- Everyone interested in supporting renewable energy and/or “greening” their energy use has a way to support a specific amount of renewable energy, regardless of what his or her electric utility offers.
All stakeholders win.