What Consumers Accomplish
by Purchasing Clean Energy

Buying clean energy may seem complicated at first, with many questions. Why does clean energy cost more today? Can consumers get clean energy delivered to their home or business? What are renewable energy certificates? What is the renewable portfolio standard? Here we look at some of these questions to make your clean energy choice easier.

Why does clean energy cost more today?

Generating electricity from most renewable resources currently costs more than that generating it by burning fossils fuels. The higher costs are generally caused by the high initial cost of constructing a renewable energy facility. Consumers’ purchases of clean energy can provide project developers and owners with additional income needed to make their projects economically sound.

In the future, if the cost of fossil fuels continues to increase, electricity from renewable energy may no longer cost more. Even in the near term, some businesses and institutions that require large quantities of electricity may choose to sign long-term contracts for renewably generated electricity to guard against the risk of fossil fuel price hikes.

Can consumers get clean energy delivered to their home or business?

The electrons in the electricity generated from renewable energy sources are no different than those derived from burning fossil fuels. After electricity from renewables or any other energy source is generated, it flows into the regional power grid along with electricity from every other power plant that is online at that moment. Thus, electricity from wind turbines goes into the power pool together with electricity from coal-fired power plants, nuclear power plants, and other facilities. All consumers in the same location—regardless of whether they decide voluntarily to purchase clean energy—get the same undifferentiated electrons from the electric wires in their neighborhood. But by purchasing clean energy, consumers are helping to increase the amount of electricity from the renewable sources that goes into the grid.

What are renewable energy certificates and what Is their role in clean energy products?

When a renewable energy facility generates electricity, it makes two things: electricity and Renewable Energy Certificates (RECs). RECs represent the environmental benefits of renewable energy.

For example, producing electricity from solar panels does not create harmful air pollutants, which means a benefit for the environment and human health. One REC represents the environmental benefits of one megawatt-hour of renewable electricity. RECs are often sold separately from the electricity. These RECs are usually bought by consumers through voluntary programs or by utilities as a result of state regulatory requirements.

Renewable Energy Generators (like a wind farm or solar panel array) produce electricity and RECs. REC Suppliers purchase the certificates and resell them to customers and utilities. The Consumers still get electricity from the grid, but they can also purchase the RECs to support renewable energy.

Consumers can purchase RECs as a way of supporting renewable energy. Most consumers get their electricity from the grid, which is made up of a mix of electricity from all the generators in an area. Because the grid is a mix, consumers cannot directly purchase renewable energy through the grid. By buying RECs, consumers are insuring that renewable energy continues to be put into the grid.

Utilities in Massachusetts are required to provide customers with minimum levels of electricity generated from "new" sources (i.e. "new" is defined as renewable energy facilities built since 1997). Utilities can meet these requirements by purchasing RECs or paying a penalty.

Do consumers’ purchases of clean energy increase the supply of renewable energy?

When consumers purchase clean energy in the form of renewable energy certificates (RECs) they generally do so because they hope to increase the supply of renewable energy. But not all purchases of RECs accomplish this equally. For example, if a renewable energy facility has been in existence for a long time, has ongoing customers for its electricity, and is not in danger of shutting down because of high production costs, then buying RECs from that plant may not change anything, other than to provide the owners with more profit.

Various other REC purchases are more likely to lead to additional renewable energy generation and the construction of additional renewable energy facilities. For example, some clean energy suppliers may guarantee to add additional renewable energy facilities when they sell a certain quantity of RECs.

More generally, the 1997 Massachusetts legislation that restructured the electricity industry made it useful for consumers to purchase RECs from facilities that began operating during or after 1998. The legislation defined these facilities as “new” and set up a mechanism, called the Renewable Portfolio Standard (described below), which requires all electricity suppliers to get a gradually increasing percentage of the electricity they sell from these “new “ renewable energy facilities. For this reason, there will be a gradually increasing demand for “new” RECs. This increasing demand should lead to the construction of additional renewable energy facilities.

When a consumer purchases clean energy that includes new RECs, this further increases the demand for new RECs. Electricity suppliers can’t use these same RECs to fulfill their legal obligation under the Renewable Portfolio Standard to include new renewables in the electricity they sell. They then need to find a different facility to purchase RECs from. Theoretically, this should cause even more renewable energy facilities to be built than the Renewable Portfolio Standard requires.

Currently, because of a shortage of renewable energy generating facilities, energy suppliers are having difficulty obtaining a sufficient supply of new RECs to meet their obligations under the Renewable Portfolio Standard. In a situation like this, the Renewable Portfolio Standard law requires them to make an Alternative Compliance Payment which will be used by the Commonwealth to help develop renewable energy facilities. Because of the difficulty of siting and financing renewable energy power plants, it is hard to know how soon the situation will change and it is impossible to guarantee that additional renewable energy facilities will be built because of any consumer’s clean energy purchases. Yet, the purchase of “new” RECs remain more likely to lead to increased renewable energy generation than “old” RECs. Consumers should therefore consider the percentage of “new” RECs in the clean energy products they consider purchasing.

What Is the Renewable Portfolio Standard (RPS)?

To encourage the growth and use of renewably generated electricity, several states across the country have instituted a Renewable Portfolio Standard (RPS) for their utilities to follow. An RPS requires electricity providers to get a certain percentage of the electricity they sell from renewable energy sources.

Generally, an RPS not only requires a certain percentage of renewable energy to be part of the electricity sector’s fuel mix for one year, but mandates an increasing percentage of renewable energy be added over time.