Are RECs any good?

Adapted from a letter to a former student who asked whether RECs were any good.

Dear Susie:

You wanted advice on whether or not to purchase “green” electricity through one of the several companies allowed to sell it to you via your Versant delivery system. The specific example was Ambit.

These companies use “deregulated” electricity markets. Basically, deregulation meant that local electricity companies like Bangor Hydro (as Versant used to be known) has to disaggregate their electricity sales business from their electricity delivery business. They were now required by government to “deliver” electricity from other producers when previously they both produced and delivered their own electricity  This is a “free market" way of regulating "natural monopoly".

What this means is that Bangor Hydro no longer exclusively sells electricity from the many hydro dams it used to own on the Penobscot and other rivers. Good for salmon and alewives, bad for the atmosphere if that electricity is replaced by electricity from coal or gas. They now must sell you electricity from any producer on the national grid who wants to sell it to you.

The problem is the physics. You may remember from class that electricity finds the shortest path to ground. If you short out a 110V circuit with your finger, and don’t have proper PPE footwear, you’ll BE that shortest path, and get a “belt”. Usually this doesn’t kill you, unless you’re ready to drop dead anyway. But you’d notice.

So super clean wind turbine electricity produced in Minnesota and run into the grid there will find its way to ground through the nearest fridge or baseboard to the turbine. It’s not physically possible, unless every intervening draw is switched off along the transmission and distribution lines, for that electricity to arrive at your home in Maine.

So to account for this and allow for a “free” or freer market in power, we create a “free market” fiction. We let the wind power company feed that electricity into the grid in MN and get the two cents or so per kWh than MN is willing to pay for ordinary electricity  

But imagine that a “green” electricity customer in Maine is willing to buy that KWh for 18 cents, just over what Versant charges for Standard Offer.

The MN wind power company can sell the actual electricity to the MN grid for two cents and sell the green “attributes” of that power as a Renewable Energy Credit or REC to Ambit for say 5 cents. They get 7 cents instead of two so they’re happy. Accounting is used to make sure they don’t sell the attributes twice.

This is a bit like when you “sponsor” the education of a child in a developing country through a non-profit. You get pictures monthly of “your” kid. Except that the money you pay doesn’t go directly to your kid. It goes to the non-profit, who takes a cut to pay overhead, and then to an in-country umbrella corporation, possibly also a non-profit, who takes a cut, and then to the school. Sometimes bribes have to be paid. If you just found yourself some deserving kid somewhere and sent her a ten dollar USPS money order each month, you could cut out the middlemen and the whole business would be better for it. But that’s too much work for the average punter.

Back to the REC business. Ambit turns around and sells the seven cent kWh to Lilliana for 18 cents. Ambit pays Versant eight cents per kWH to "deliver” that power to Susie  Ambit is happy because they made three cents net revenue (18 minus 8 minus 7 cents equals three). And they did nothing very much too earn that money,. They just acted as a broker.

Susie is happy because she thinks she is buying green power instead of stinky old Versant power.

Only Versant is unhappy because they can’t sell Susie their standard offer of eight cents for the power and 8 cents for power delivery. They get eight instead of sixteen cents. But screw them. Filthy old power company.

But think again: If you look at Versants standard offer disclosure label, it actually isn’t so bad. A bit of coal and a bit of nukes, for sure, and some gas. But it’s over 20% renewable. (And would be more so if the grid hadn’t been deregulated in the first place, causing Versant to dismantle all those dams because they were no longer competitive with cheap fracked gas.)

Susie, in frustration, emails her grumpy old professor. He says it’s all very close to being a con. It’s sometimes better to spend the two cents differential between Versant Standard offer and Ambit on something that simply saves energy directly. So, if the power bill is $100/month, 2/18ths of $100 is $11.11. 

This is too much work for most punters. Just like the kid.

But eleven bucks isn’t nothing. That would be enough to switch out the five most heavily used light bulbs in the house for new LEDs in just the first month. Or pay via credit for a new fridge that uses 100w/hour instead of 500w/h. It might even buy a small share in a local solar cooperative, among the many getting set up locally. These have the advantage of being capital investments and so bring in more savings (AKA income. Savings is the same as income in the long run).

Moral of the tale? It’s perhaps better not to buy the REC if other better local options are available. But if you don’t have the brain-space to find out about these options, buy the REC. just research the company that sells it to you.

Best,

Grumpy old Mick