I'll go green once I understand it.
September 24, 2013 5:44 AM Subscribe
I'm interested in purchasing electricity that comes 100 percent from renewables. I need to understand the costs, but I'm confused. Help me understand the cost of purchasing electricity from renewable sources.
I'm in the Cleveland, Ohio area and I’m interested in buying electricity from renewable sources. I’m willing to pay more for this, but I’d like to understand how much more.
The websites I’ve read make it sound simple: compare the “price to compare” of the supplier I’m considering buying from and compare it to my current supplier’s price to compare. My current supplier’s price to compare is $0.0703 per KWH. The renewables program I'm interested in signing up for is the second plan in the table on this page: http://www.puco.ohio.gov/puco/index.cfm/apples-to-apples/first-energy-electric-apples-to-apples-chart/, which says their price is $0.0593 per kWh guaranteed through May of 2014.
What's confusing is: I don’t believe this could be real. How can a program that uses 100% renewables be cheaper than my current service, which is not guaranteed to be from renewable sources? Basically, my question is: Am I not considering something when thinking about this switch? I guess the catch is when May comes the rate will rise, but if they rise too sharply couldn't I switch to another supplier? What am I missing here?
Bonus: it’s probably impossible to know what rates will be in the future. But is there a way to estimate how much more expensive electricity from renewable sources is to a consumer like me than electricity from traditional sources? It would be nice to have an idea of what the premium for green energy will be once the introductory rate ends. That seems to be the big missing piece of information.
I'm in the Cleveland, Ohio area and I’m interested in buying electricity from renewable sources. I’m willing to pay more for this, but I’d like to understand how much more.
The websites I’ve read make it sound simple: compare the “price to compare” of the supplier I’m considering buying from and compare it to my current supplier’s price to compare. My current supplier’s price to compare is $0.0703 per KWH. The renewables program I'm interested in signing up for is the second plan in the table on this page: http://www.puco.ohio.gov/puco/index.cfm/apples-to-apples/first-energy-electric-apples-to-apples-chart/, which says their price is $0.0593 per kWh guaranteed through May of 2014.
What's confusing is: I don’t believe this could be real. How can a program that uses 100% renewables be cheaper than my current service, which is not guaranteed to be from renewable sources? Basically, my question is: Am I not considering something when thinking about this switch? I guess the catch is when May comes the rate will rise, but if they rise too sharply couldn't I switch to another supplier? What am I missing here?
Bonus: it’s probably impossible to know what rates will be in the future. But is there a way to estimate how much more expensive electricity from renewable sources is to a consumer like me than electricity from traditional sources? It would be nice to have an idea of what the premium for green energy will be once the introductory rate ends. That seems to be the big missing piece of information.
Its basically impossible to predict the future premia - as the cost of renewables is basically a function of the capital costs which have been declining over time, and exogenous factors like renewable portfolio standards that essentially encourage incumbent power producers to invest in renewables. In the long-run they'll probably be priced off of natural gas just like everything else.
And yeah - its mostly because its winter power when the midwest is a summer peak market. Also its possible they just have a better structure than AEP or First Energy which is stuck with some older coal plants that they have to run, whereas the green energy supplier might be buying their backup power from new gas turbines running off of cheap shale gas.
No matter what I would encourage you to avail yourself of you local utilities programs to reduce consumption before you worry about switiching to renewables. Not to veer off topic, but demand is essentially demand.
posted by JPD at 7:01 AM on September 24, 2013 [1 favorite]
And yeah - its mostly because its winter power when the midwest is a summer peak market. Also its possible they just have a better structure than AEP or First Energy which is stuck with some older coal plants that they have to run, whereas the green energy supplier might be buying their backup power from new gas turbines running off of cheap shale gas.
No matter what I would encourage you to avail yourself of you local utilities programs to reduce consumption before you worry about switiching to renewables. Not to veer off topic, but demand is essentially demand.
posted by JPD at 7:01 AM on September 24, 2013 [1 favorite]
Understand that whatever electricity you wind up consuming is probably not going to come from a renewable source. That's not how electrical utilities work. Transporting electrical current involves losses due to resistance. If you live five miles from a coal plant, I'm sorry, that's where your electricity is coming from.
What we're talking about here is the fact that the electrical grid is interconnected and that electrical power, once it hits the grid, is basically fungible. What this sort of "consumer choice" deal is about is letting you "buy" power from companies that use particular energy sources. But what really happens is that you go right on using the same electrical source you always did, only now you're paying the renewables company three counties over instead of the coal company two doors down. The renewables company produces that much extra power, none of which may actually reach your house, but which does extend their footprint just that little bit extra, and which represents that little bit of extra revenue for them--and vice versa for the coal company!
But you can't do this over arbitrary distances. If you live in Ohio, renewables companies in New Mexico and California are far enough away that there's no efficient way for your demand to be adequately met by increasing their supply. But if we're talking about something in the next state, it'd be more like two neighboring plants keeping the same aggregate output by one ramping up and the other slowing down.
So yes, by choosing your electrical provider, you do shift the net balance of consumption away from fossil fuels and towards renewables, but you don't necessarily start getting power from a different power plant.
The only way of being entirely sure about where your electricity comes from is to generate it yourself. Otherwise, you just have to be okay participating in the general market, which does involve fossil fuels.
What's confusing is: I don’t believe this could be real. How can a program that uses 100% renewables be cheaper than my current service, which is not guaranteed to be from renewable sources?
The energy market is. . . kind of opaque. It uses complex financial arrangements like options and hedges to try and even out the utility company's costs. Sometimes these things work out, sometimes they don't, but they almost always mean that the company knows what its costs are going to be,* which is always preferable to not knowing. What this means is that utility prices (1) aren't quite as intuitive as other goods, and (2) don't change as quickly as one might expect. It's entirely possible that what you're observing is what happens when different companies lock in their hedges at different times.
is there a way to estimate how much more expensive electricity from renewable sources is to a consumer like me than electricity from traditional sources?
The person who figures that out is going to make an ungodly amount of market on hedges and derivatives.
*Unless someone has f*cked something up. A relative of mine works in the accounting department of an energy company and discovered (someone else's) massive screw up. Nine or ten figure error. Saved the company, but did result in it getting acquired by a different company. If you're familiar with the industry and do a little googling, you can probably figure out which companies were involved.
posted by valkyryn at 7:53 AM on September 24, 2013 [3 favorites]
What we're talking about here is the fact that the electrical grid is interconnected and that electrical power, once it hits the grid, is basically fungible. What this sort of "consumer choice" deal is about is letting you "buy" power from companies that use particular energy sources. But what really happens is that you go right on using the same electrical source you always did, only now you're paying the renewables company three counties over instead of the coal company two doors down. The renewables company produces that much extra power, none of which may actually reach your house, but which does extend their footprint just that little bit extra, and which represents that little bit of extra revenue for them--and vice versa for the coal company!
But you can't do this over arbitrary distances. If you live in Ohio, renewables companies in New Mexico and California are far enough away that there's no efficient way for your demand to be adequately met by increasing their supply. But if we're talking about something in the next state, it'd be more like two neighboring plants keeping the same aggregate output by one ramping up and the other slowing down.
So yes, by choosing your electrical provider, you do shift the net balance of consumption away from fossil fuels and towards renewables, but you don't necessarily start getting power from a different power plant.
The only way of being entirely sure about where your electricity comes from is to generate it yourself. Otherwise, you just have to be okay participating in the general market, which does involve fossil fuels.
What's confusing is: I don’t believe this could be real. How can a program that uses 100% renewables be cheaper than my current service, which is not guaranteed to be from renewable sources?
The energy market is. . . kind of opaque. It uses complex financial arrangements like options and hedges to try and even out the utility company's costs. Sometimes these things work out, sometimes they don't, but they almost always mean that the company knows what its costs are going to be,* which is always preferable to not knowing. What this means is that utility prices (1) aren't quite as intuitive as other goods, and (2) don't change as quickly as one might expect. It's entirely possible that what you're observing is what happens when different companies lock in their hedges at different times.
is there a way to estimate how much more expensive electricity from renewable sources is to a consumer like me than electricity from traditional sources?
The person who figures that out is going to make an ungodly amount of market on hedges and derivatives.
*Unless someone has f*cked something up. A relative of mine works in the accounting department of an energy company and discovered (someone else's) massive screw up. Nine or ten figure error. Saved the company, but did result in it getting acquired by a different company. If you're familiar with the industry and do a little googling, you can probably figure out which companies were involved.
posted by valkyryn at 7:53 AM on September 24, 2013 [3 favorites]
I can't speak to your specific case but there are a lot of odd distortions in energy markets.
For example, Ohio has a Renewable and Advanced Energy Portfolio Standard that created some interesting arbitrage opportunities. Because there were specific requirements for things like solar produced in state, the green RECs associated with in-state solar were valuable. If I built a 1MW solar array in Ohio, I could sell the associated RECs for, let's say $50/MWh, and then buy cheaper wind RECs from the Dakotas for $1/MWh. So when I sell the electricity from my solar array, I can still call it renewable. But now it's renewable wind energy, not solar. And I've made an extra $49/MWh.
posted by JackBurden at 9:13 AM on September 24, 2013 [1 favorite]
For example, Ohio has a Renewable and Advanced Energy Portfolio Standard that created some interesting arbitrage opportunities. Because there were specific requirements for things like solar produced in state, the green RECs associated with in-state solar were valuable. If I built a 1MW solar array in Ohio, I could sell the associated RECs for, let's say $50/MWh, and then buy cheaper wind RECs from the Dakotas for $1/MWh. So when I sell the electricity from my solar array, I can still call it renewable. But now it's renewable wind energy, not solar. And I've made an extra $49/MWh.
posted by JackBurden at 9:13 AM on September 24, 2013 [1 favorite]
Response by poster: Good points all around, thanks for the responses. Valkyryn, thanks for your point about the electricity I use not coming directly from wind turbines - I was aware but it's good to have that summary on the question for future readers. As you say, the point is to give demand for renewables a tiny bump. It's also to demonstrate that consumers like me will tolerate paying more if more of that electricity comes from renewables. Sure, the effect of me switching is small, but big movements are made up of many people doing small things.
JPD, you make a good point too about reducing demand being more important than blindly switching to "green" energy. I'm tackling that side as well and may have future AskMes on that topic.
It sounds like the general answer is "energy markets are complex, so it's entirely possible that this cheaper green option exists without a significant catch - but look out for prices in Summer 2014 when the guaranteed rate disappears and electricity demand increases."
The point about winter being low season for electricity demand in the Midwest is a good one. But as you said, we can't know what the prices will be in 8-9 months. So waiting until the summer and hoping that there's another renewable plan that is cheaper than the traditional service is not a good bet. Plus, it delays my switching over, so since this is about more than prices I think I'm going to go for it now instead of hoping for a good deal next summer. And if I save $50 this winter, not bad!
posted by Tehhund at 10:05 AM on September 24, 2013
JPD, you make a good point too about reducing demand being more important than blindly switching to "green" energy. I'm tackling that side as well and may have future AskMes on that topic.
It sounds like the general answer is "energy markets are complex, so it's entirely possible that this cheaper green option exists without a significant catch - but look out for prices in Summer 2014 when the guaranteed rate disappears and electricity demand increases."
The point about winter being low season for electricity demand in the Midwest is a good one. But as you said, we can't know what the prices will be in 8-9 months. So waiting until the summer and hoping that there's another renewable plan that is cheaper than the traditional service is not a good bet. Plus, it delays my switching over, so since this is about more than prices I think I'm going to go for it now instead of hoping for a good deal next summer. And if I save $50 this winter, not bad!
posted by Tehhund at 10:05 AM on September 24, 2013
Through May 2014. Special web offer. Call them and ask what the price is for customers whose web offer has expired and/or what the standard rate is. 866-258-3782
posted by theora55 at 10:43 AM on September 24, 2013 [1 favorite]
posted by theora55 at 10:43 AM on September 24, 2013 [1 favorite]
yeah - but the point is that you may or may not be giving the demand for renewables a bump.
posted by JPD at 11:00 AM on September 24, 2013 [1 favorite]
posted by JPD at 11:00 AM on September 24, 2013 [1 favorite]
Best answer: needs more explaining. Ohio has a renewable portfolio standard. Every company that retails power in Ohio must generate a certain % from alternatives and renewables - with a certain % of that generated in Ohio and a certain % of that from Solar (and a certain % of Ohio Solar). The way you "prove" that you achieved those standards is by buying Credits from the third party generators. But those credits are fungible and tradeable and have an economic value. What someone like an incumbent provider does is enter into agreements to buy the credits from the energy producer and then the energy producer sells their power into the pool at market. (sometimes they'll sell it bilaterally to the same PUC, but economically that's the same thing as you'd index the price to what ever the marginal source of traditional power is)
Rationally the incumbents will only buy up to the number required by the state - and the producers will only produce up the level that supplies the required demand.
So in this instance - you are buying from AEP - well AEP probably isn't going to buy any more certificates because you have agreed to pay a different price for "wind-only" they are still only going to fulfill the requirements of the RPS - which is calculated across their entire pool of customers.
See Page 11 here its not an accident that they all hit exactly the required level.
posted by JPD at 11:19 AM on September 24, 2013 [2 favorites]
Rationally the incumbents will only buy up to the number required by the state - and the producers will only produce up the level that supplies the required demand.
So in this instance - you are buying from AEP - well AEP probably isn't going to buy any more certificates because you have agreed to pay a different price for "wind-only" they are still only going to fulfill the requirements of the RPS - which is calculated across their entire pool of customers.
See Page 11 here its not an accident that they all hit exactly the required level.
posted by JPD at 11:19 AM on September 24, 2013 [2 favorites]
Best answer: Just to make JPD's point crystal clear, if you agree to pay extra money to your energy company to get green energy and they are subject to an RPS then what they charge you will only offset the costs that they are obligated to meet anyway. It won't lead to any more renewable energy, but it will make the energy company slightly better off than it would have been. Its an unintended consequence of using an RPS mechanism, the same doesn't happen with other RE funding mechanisms.
posted by biffa at 12:53 PM on September 24, 2013 [2 favorites]
posted by biffa at 12:53 PM on September 24, 2013 [2 favorites]
This thread is closed to new comments.
posted by jon1270 at 6:40 AM on September 24, 2013 [1 favorite]