Buying renewable energy isn’t what you think it is

Imagine that you want to act ecologically. You go to a utility company and say you want to buy energy – energy that comes specifically from a solar or wind farm, energy that doesn’t involve sky-high carbon dioxide emissions or harmful air pollution. Your home uses about 10 megawatt hours of electricity per year, so you buy that amount of solar and wind power.

Congratulations! You’ve just wiped out all the greenhouse gas emissions associated with electricity consumption. Normal?

NO . . . Exactly. Across the country and the world, thousands of companies, households and cities are purchasing renewable energy credits to meet their climate goals and strengthen their sustainability claims. There’s just one problem: it turns out that purchasing these credits doesn’t mean you’re actually using renewable energy sources. Actually, it doesn’t mean that at all.

“I’m going to claim I’m using all renewable energy” if I buy credit, said Michael Macrae, senior manager at the World Resources Institute. – Physically now, right? Not necessarily.

Experts say that once upon a time, purchasing renewable energy credits could help launch struggling wind and solar farms. But now, with renewable energy prices plummeting and solar farms popping up from California to Texas, it looks more like a way for companies to claim they’re cleaning up their act without much effort — or cost.

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The reason has to do with grid science and a very strange product known as “renewable energy credit.”

Why buying electricity is weird

Buying electricity comes with a few problems that, for example, buying a toaster doesn’t have.

“Electricity is just a weird thing,” said Michael Gillenwater, executive director and co-founder of the Greenhouse Gas Management Institute.

First, electricity must be used when it is generated; therefore, grid operators are constantly trying to balance all their different energy sources. And once electricity is produced – by the spinning of a wind turbine or by the combustion of a coal-fired power plant – it cannot be traced to its source. When you turn on a light switch or plug in an electric car, it is impossible to tell whether the energy was generated by a solar panel or by a natural gas installation.

Mark Dyson, managing director of zero-emission electricity at energy consultancy RMI, says the energy grid is a bit like a giant swimming pool. When different types of power plants produce electricity, it can be compared to pouring water from different colored glasses into a swimming pool – they look different from the outside, but once they are in the pool, the water cannot be separated. A person or power user sitting at the other end of the pool and sucking the water through a straw cannot tell where it came from.

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That’s why renewable energy credits, also known as renewable energy certificates or RECs, were invented. These credits are a kind of electric shell game. Suppose a wind farm in Texas produces thousands of megawatt hours of electricity in a given year. This wind farm can make money in two ways: first, by selling this energy to a local utility, or second, by selling the “greenness” or “renewability” of this energy to companies and individuals – in the form of credits.

When a company says it is purchasing renewable energy, in most cases it means it is purchasing renewable credits, not the electricity itself.

Some revolving loans are sold to comply with state or federal regulations – they are usually more expensive and, experts say, more reasonable. But other loans are sold to companies or people who simply want to look greener.

These inscriptions can cause strange contradictions. The West Virginia-based company may use 25 megawatt hours of electricity per year, mostly from coal. However, a company could buy revolving credits from a Texas wind farm and claim that the electricity it produces is completely pollution-free.

That company “could publicly report that its emissions have gone to zero,” Macrae said. “But is the Earth seeing fewer emissions?”

Case study

Take, for example, a wind farm in Iowa. It generates electricity and sends it to the local grid, which powers homes and businesses.

In addition to energy, the same wind farm in Iowa produces revolving credits for every unit of electricity generated.

These credits are sold to consumers and businesses in other places, such as New Jersey, to prove they are using renewable electricity.

However, the actual electricity comes from New Jersey’s grid – powered primarily by natural gas, fossil fuels and nuclear energy, which does not use fossil fuels.

No clear climate benefits

The idea behind revolving credits is that if companies and individuals buy them, it will provide more money that can help wind and solar developers get started. But critics say there is no evidence that the money from such loans actually helps develop wind and solar energy.

“There is no research to show that this is the case,” Gillenwater said.

For example, a 2013 study showed that the ability to sell revolving credits is unlikely to change a wind farm developer’s decision, even if the credits become much more expensive. Often, revolving credits cost less than $1 per megawatt hour; sometimes they reached about $5 per megawatt hour. Experts say the loans would have to cost around $20 to $40 to provide a real incentive to build renewables.

Gillenwater says there are several issues that undermine the true impact of the credits. First, loans are not reliable for long periods of time. A company may purchase revolving credit facilities one year and then surrender them the following year, making it difficult for a revolving developer to use them as a revenue source. But the bigger problem, he said, is that there are plenty of revolving credits.

“Even if a decent number of people buy teaspoons of soil, it won’t be the case that there will be a shortage of teaspoons of soil,” he said. “The price will always be quite low.”

Homeowners or renters who buy “renewable electricity” directly from their utility and who don’t pay a high price are likely buying credits produced by wind and solar farms in completely different parts of the country, Gillenwater explained.

There is also growing evidence that such credits help companies inflate their green credentials. Another study, published last year, analyzed the climate goals of 115 companies with and without revolving credit facilities. Analyzing the energy mix in which these companies operated, researchers calculated that they reduced their electricity emissions by 10 percent, falling short of the climate goals of the Paris Agreement. However, when revolving credits are taken into account, these companies found that they reduced their carbon emissions by an average of about 31 percent.

“A large part of the reported reductions are not real,” said Anders Bjorn, lead author of the study and a postdoctoral fellow at the Technical University of Denmark.

Possible fixes?

Can companies and individuals buy renewable energy in such a way that it actually makes a difference?

Some say yes. The Greenhouse Gas Protocol, a group that provides standards for companies to report their emissions, is examining proposals to make reductions in electricity use more “realistic.”

One possible proposal is called “24/7 clean energy.” The biggest problem with renewable loans is that the renewable energy in question may be generated hundreds (or even thousands) of miles from where the person or company uses the electricity. Energy can also be produced at a completely different time than when it is used. For example, a company in Maryland that operates a factory at night may receive loans from a solar farm in California that only operates during the middle of the day.

Dyson says this is a problem because California already has a lot of solar panels. Every solar panel added to the country’s grid doesn’t make a huge difference when it comes to moving the country away from fossil fuels.

Under a 24/7 clean energy system endorsed by companies like Google and Microsoft, companies would still purchase revolving credits, but those credits would be tied more closely to the electricity the company actually uses. In this system, companies would have to buy credits for every hour of operation and on their own network – there would no longer be a need to purchase renewable energy sources in Texas for a company in West Virginia. This has received support from the federal government, and energy modelers have evidence that it could help clean up the grid.

Other solutions include trying to track the actual emissions avoided by purchasing green energy or simply requiring companies to report the emissions of electricity used in their area.

For now, it is unclear which strategy will win. But experts say there is an urgent need to align renewable credits with grid needs to ensure that buying electricity from renewable sources is not just trading spoons of dirt.

“There is no evidence that they ever moved the needle,” Gillenwater said. “There’s some magical thinking here.”

– Shannon Osaka and Hailey Haymond, Washington Post.